Huberman’s first budget includes major cuts and a battered reserve fund

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A tax increase, federal stimulus money, $161 million in cuts and some creative accounting will get Chicago Public Schools over the financial hump this year. But next year’s fiscal picture looks bleak, with ballooning pension costs and a depleted reserve fund threatening a financial downpour.

 

Today, the district released its draft budget for the 2010 fiscal year, the first crafted by Schools CEO Ron Huberman and one that leverages a mix of cuts and one-time only revenues to fill a $475 million deficit. The budget follows the slashing of some education programs by state lawmakers, who turned down several plans to raise taxes in the face of a staggering deficit of their own. Instead, Gov. Pat Quinn was forced to make deep cuts in human services and educational programs, including nearly $50 million in cuts to early childhood and bilingual programs.

 

Chicago’s early childhood and bilingual programs faced a $37 million hole, part of its largest deficit since Mayor Richard Daley took over the school system. But in one of the major budgetary moves made by Huberman, the district plans to fill the gap with some of the nearly $190 million in stimulus dollars that it will receive directly from the federal government this year. (Overall, the district expects to use nearly $94 million in stimulus money to help pare down the deficit.)

A tax increase, federal stimulus money, $161 million in cuts and some creative accounting will get Chicago Public Schools over the financial hump this year. But next year’s fiscal picture looks bleak, with ballooning pension costs and a depleted reserve fund threatening a financial downpour.

 

Today, the district released its draft budget for the 2010 fiscal year, the first crafted by Schools CEO Ron Huberman and one that leverages a mix of cuts and one-time only revenues to fill a $475 million deficit. The budget follows the slashing of some education programs by state lawmakers, who turned down several plans to raise taxes in the face of a staggering deficit of their own. Instead, Gov. Pat Quinn was forced to make deep cuts in human services and educational programs, including nearly $50 million in cuts to early childhood and bilingual programs.

 

Chicago’s early childhood and bilingual programs faced a $37 million hole, part of the district’s largest deficit since Mayor Richard Daley took over the school system. But in one of the major budgetary moves made by Huberman, the district plans to fill the gap with some of the nearly $190 million in stimulus dollars that it will receive directly from the federal government this year. (Overall, the district expects to use nearly $94 million in stimulus money to help pare down the deficit.)

 

Deceptively, the district’s operating budget has actually swollen in size this year, from $4.9 billion in 2009 to $5.3 billion. But the increase is largely illusionary. Contractual wage hikes and other normal inflationary increases will add nearly $125 million in spending, plus state law requires the district to pay an additional $130 million into its teacher pensions this year. Moreover, the federal recovery act requires districts to budget all of their stimulus spending—approximately $190 million for Chicago in both the 2010 and 2011 school year—in the 2010 fiscal year. That’s nearly half a billion dollars added to the new budget that will not result in any new services.

 

The budget also includes $174 million that the state owes Chicago Public Schools but is already more than four months late in paying. The unpaid bill could wreak havoc on the district’s reserve fund, which must by law amount to at least five percent of the total operational budget, or $292 million in 2010. If that bill is not paid, last year’s $432 million reserve shrinks to $258 million.

 

In fact, the district is planning to tap the reserve fund for another $61 million to help balance the budget. But Huberman expects to recoup those costs during the fiscal year by canceling or renegotiation contracts with various consultants and service providers; plus another round of job cuts are in the works, expected to total about 450 positions.

Huberman says the cuts will keep the reserve fund high enough to protect the district’s bond rating.

 

Officials did not offer details on the second wave of job cuts, nor have they yet released a detailed list of the 557 cuts made earlier this summer, which will save the district nearly $100 million. A district spokesman says the details will become available soon.

Part of those cuts included a shake-up to the district’s area instructional offices, which have been pared down from 24 to 20 and will be streamlined to focus more on data-driven instructional practices. The cuts also include the combining of some offices—for example, the elementary and high school curriculum offices were combined—to squash some job “redundancies.”

 

A 1.5 percent property tax increase that would add $43 million to the district’s coffers is also in the works, although officials were quick to note that, at the mayor’s direction, taxes will not be raised to the cap (4.1 percent). Property tax revenue growth, some of which stems from the retirement of tax-increment financing districts, will also add about $40 million to the budget.

 

Finally, two quirky, one-time only cash infusions will help out this year. State law allowed the district to recoup nearly $25 million in cash that had been set aside for the now defunct School Finance Authority. Also, the city will change the way property taxes are collected this year, shifting nearly $96 million from next year’s budget into this year’s budget.

 

In short, it’s a budget held together by tape and glue. Federal stimulus funding will soon disappear and several of this year’s cash infusions will not be available to the district next year. Also looming large, the district will have to pay another $229 million in extra contributions to the teacher pension fund next year, and district officials are already estimating the operating deficit for 2011 at $913 million.

“Next year’s deficit is going to be significantly more problematic than this year’s deficit,” Huberman notes.

 

For its part, the teachers union contends that the district went on a pension holiday from 1995 to 2005 after state lawmakers gave Daley school control and powers to redirect tax collections for their pensions toward budget shortfalls. Rosemaria Genova, a Chicago Teachers Union spokesman, says the district is only telling the public part of the story when it comes to pensions and wants more scrutiny applied to the district’s spending on consultants, long-term lease agreements and facilities spending for charter schools.

During Huberman’s budget press conference, he noted that previous administrations faced many difficult financial decisions that would have impacted their ability to make pension contributions.

Pensions aside, what may truly come to define this budget as Huberman’s are the various programmatic cuts he has planned. At a meeting with principals in June, he identified well over a hundred programs that are budgeted at the district-level that he wants to pare down to just a handful of the most effective, as measured by impact on student performance measures. For example, Huberman says the district has already killed the After School Counts program—a math tutoring program that showed little effect on math gains.

 

Whereas former Schools CEO and now US Sec. of Education Arne Duncan cracked down on schools with low test scores—closing dozens and pioneering the “turnaround” approach—Huberman appears to be on his way to instituting a similar accountability crackdown at a more granular level, specific school programs.