New law lets board shift money to balance budget

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After only a month on the job, Chicago’s new school leaders have earned a reputation as miracle workers for ferreting out financial waste and balancing the school system’s budget in record time.

In an Aug. 14 news story, the Chicago Tribune said it was “amazing” that the new executives plugged “a hole projected to reach $1.4 billion by 1999 and balance the habitually red-inked budget for four years without new state money.”

But, in fact, the budget hole was plugged only with the help of sweeping new reform legislation adopted in May by the Republican-dominated General Assembly. Without the new law, balancing the budget would have been virtually impossible.

The new law let the new School Reform Board of Trustees essentially redo the school system’s budget, using money that had previously been earmarked for specific purposes to help eliminate the deficit and pay for new initiatives.

In addition, the law paved the way for the board to fire some 1,700 employees by removing many of the civil service and union job protections workers enjoyed. (For details on the new law, see story.)

Even so, coming up with the specifics entailed more than a week of meetings lasting until 3 a.m., Board President Gery Chico told reporters. “We’re not miracle workers, despite what’s been written in the press somewhat,” he said.

In all, the board redirected an average of $300 million for each of the next four years; in the process, it managed to give teachers raises and allocate money for a package of new programs. But new Chief Executive Officer Paul Vallas has warned, “We are in no way acknowledging that we have enough money to run this operation. While we’ve laid out a four-year financial plan, at some point we are going to need more money from the state.”

Still, some school activists wonder if the Legislature will use the new board’s speedy budget-balancing act as a rationale to ignore Chicago’s pleas for more education funding.

“There’s two views on that,” says Todd Rosenkranz, budget and policy analyst for the Chicago Panel on School Policy. “You can look at it as, well, the schools were just wasting money, so it’s obvious they don’t need any more. But if [the board] can set its house in order and still show the need, it wipes away the excuse that the state has for not looking at education funding.”

Following are the board’s major budget actions.

Revenue changes

PROPERTY TAXES The biggest revenue shift involves teacher pension funds. By combining several separate property taxes—including that for pensions—into one fund, the board was able to redirect some $90 million to the regular operating budget. Teacher pension funds make up the biggest chunk, with $62.2 million now going to regular operations.

However, the board will continue to contribute $24 million in property taxes to the pension fund, which officials say is sufficient to keep the funding level above 80 percent. Under the new state law, however, the board must beef up its contributions to the teacher pension fund beginning in 1999.

Using pension money for the regular budget is not a new practice. With the agreement of the Chicago Teachers Union, the Legislature transferred pension funds to its regular operating budget from 1990 to 1993; the move helped pay for teacher raises and bonuses. For the last two years, however, the board has been permitted only to borrow from the pension fund.

In another property-tax shift, the board redirected $20 million from the textbook fund to general operations. Another $10 million in property taxes was moved from the playground fund; to accomplish this, the board fired the system’s playground aides, whose salaries had been funded by the playground tax levy.

STATE AID The new legislation collapsed Chicago’s categorical state aid—usually parceled out for special programs such as reading improvement and urban education—into block grants that have fewer spending restrictions. The move allowed the board to shift $8.3 million in categorical aid to its general budget. “We don’t anticipate any reductions in services [at schools],” said Budget Director David Agazzi. “All of the cuts were made in administration.”

STATE CHAPTER 1 The board can now keep the annual increase in state Chapter 1 money for its own use, rather than giving it to schools. This year, $26 million in new state Chapter 1 funds will be transferred to the general operating budget.

Schools will continue to get a flat $261 million each of the next four years, the same amount they got in 1994-95.

The board’s use of state Chapter 1 funds is a sore point with many reform activists, who argue that schools had been counting on the new money and will now have to forego plans to launch new programs or hire new staff. They also note that teacher raises will chip away at Chapter 1 budgets, perhaps forcing schools to cut back on Chapter 1 hires in order to pay for the raises.

However, the board will not take the schools’ unspent Chapter 1 money, as some activists had feared; schools will be allowed to carry over their unspent funds into the coming year’s budget. “A lot of [spending] abuses that occur are because schools have to spend their money or lose it,” said Vallas.

VACANCY ALLOWANCE In an accounting maneuver, the board will add $14 million to the budget through a so-called vacancy allowance. A vacancy allowance is an estimate of the money that will be saved during the year because some jobs, at any given time, are not filled. School reformers have long sought a vacancy allowance, but the Chicago School Finance Authority wouldn’t permit it. (The state legislation also put the Finance Authority’s budget oversight powers on hold for four years.)

MORE MEDICAID The board is increasing its estimate of federal Medicaid reimbursements by $5.3 million. It believes it can increase its take by tightening the procedures its consultants use to apply for reimbursement.

Spending cuts

LAYOFFS All of the system’s maintenance assistants (previously called firemen and oilers), trades workers, and custodial assistants were fired, eliminating some 1,050 positions.

The board will now use private contractors for trades work but will require that they hire former board employees. In addition, some maintenance workers are expected to be rehired as custodians, Vallas said; the board expects to fill some 300 custodial positions in the coming year.

Also eliminated were more than 200 central office employees, close to 200 playground aides, and about 250 teacher facilitators. The board saved some $78 million in salaries and benefits with the layoffs.

Vallas said the playground aides “were people who worked a couple of hours a day at [the 50] schools with fieldhouses, but received full-time pay.” Earlier, the school system’s Inspector General had issued a report saying that these aides were a waste of money since their work could be done by people without teaching certificates.

Board members said they fired the teacher facilitators because they “couldn’t figure out” what their jobs entailed. (In some schools, teacher facilitators serve essentially as business managers, tending to supplies, budgets and the like.) Board officials noted that the facilitators could find jobs as classroom teachers; the system regularly sees some 1,000 teaching positions open up each year.

The school system’s well-paid engineers were not fired, but their prospects for earning lucrative overtime pay have dried up. Under the revised reform law, principals can assign engineers and other school staff to staggered shifts, thus eliminating the need to pay engineers overtime to remain in the building after regular school hours. (In 1994, one engineer with a base salary of $53,822 earned enough overtime pay to bring his total compensation to $79,077, according to the board.)

SHIFTS TO BONDS The board will sell so-called equipment notes, similar to bonds, to make bulk purchases of equipment and then pay off the notes over time. The practice is common among public agencies, analyst Rosen-kranz says; it allows for some savings through equipment depreciation.

COMPUTER NETWORK The board is scrapping the planned CPSNet 2000 computer network and replacing it with another initiative that will focus on the educational use of technology. This move will save the board $17 million.

STUDENT TRANSPORTATION By renegotiating busing company contracts, the board has reduced costs by about 10 percent, Rosenkranz says, for a savings of $9.8 million.

SAFETY SPENDING The board has transferred $15 million in school safety spending from its general operating budget to the tort fund. The tort fund, which has an unlimited tax rate, is used primarily to pay lawsuit settlements, lawyers’ salaries and other legal costs. However, some safety-related expenses have been included in the past.

SPECIAL EDUCATION Increases in special education spending will be scaled back to save $10 million.

One-time actions

NO CRITICAL NEEDS The board discontinued former Supt. Argie Johnson’s “Critical Needs” program, saving $18 million. The program gave each school a pot of money to spend on improvements of their choice.

SURPLUS FUNDS A year-end surplus of $12 million will be carried over from 1994-95.

PROPERTY SALES The sale of surplus property is expected to net $10 million. A recent study by U.S. Equities Realty estimated that the board could, at best, earn $35 million to $40 million by selling property. For this year, the new board is banking on only $10 million; no property sales are in the works as yet.

MORE MEDICAID The board is counting on netting an additional $11.6 million in retroactive Medicaid reimbursement for the past school year.

New spending

SCHOOL CONSTRUCTION AND REHAB The board’s most ambitious project is its plan to sell $600 million in bonds to build new schools and rehab existing buildings.

First-year spending includes $50 million for smaller-scale repairs, with individual schools selecting private contractors to do the work, and another $20 million for larger repair projects throughout the system.

The board also plans to spend $75 million for new school construction, $10 million for safety improvements, such as surveillance cameras and motion-sensitive outdoor lighting.

The budget also calls for $10 million for new athletic fields and other improvements around schools; and $10 million to train students in construction trades.

The prospects for bond sales dimmed when the Legislature imposed property tax caps on Cook County, but Vallas says the new bond sale is feasible because the board will use “non-property tax sources” to pay off the bonds. The board will rely on state aid to pay off bonds or sell them through one of the state’s bonding authorities, such as the Illinois Educational Assistance Facilities Fund.

“The key to bonding is the bond houses and the ability to pay the money back,” he said. “We don’t anticipate this will be a problem for us.”

SCHOOL IMPROVEMENT A wide-ranging package of school-improvement initiatives, to be put in place over the next four year, will cost the board an estimated $35 million.

The package includes $10 million to open alternative schools for violent youths and for dropouts, which could be launched by either the school system or outside organizations; and $10 million for after-school and extended-day programs, for which schools will have to submit applications outlining their proposed programs.

Also included is $5 million for a “SWAT team” of educators who will visit underachieving schools to promote a “back to basics” approach to improving achievement, and $4.5 million for the new Academic Accountability Council. The council will recommend schools for intervention and remediation.

The remaining money will be spent on sports and recreation programs, teacher resource centers at public libraries, vocational and apprenticeship programs and a computer network called the Chicago Learning Mosaic. Part of the Mosaic project entails hooking up 30 pilot schools to the Internet and setting up a student-written “home page” on the World Wide Web for each of the 30 pilots.

MORE INSPECTORS Almost $1 million will be used to hire additional inspectors for the Inspector General’s office.

BIGGER BUDGET OFFICE At least $2.5 million will be used to hire more budget analysts to provide better service to schools. The staff is expected to double in size to 37 people.