July 2024
Revenue Options to Address Chicago Public Schools’ Deficit
CPS grapples with a $738 million operating budget deficit for fiscal year 2025. We offer six potential revenue options to address it.
Introduction
Chicago Public Schools (CPS) is facing a deficit of at least a half of a billion dollars for fiscal year 2025. CPS is proposing a number of solutions to address this deficit, including budget cuts. Without new long-term sources of revenue, the projected deficit will likely lead to more drastic budget cuts in future years. Public discourse on viable new revenue options, however, has been limited.
Prior to the pandemic, CPS made significant progress toward achieving a structurally balanced budget, due to new sources of revenue from the state and CPS. The current deficit is driven by the loss of federal COVID relief aid which was used to address CPS’s $1.1 billion adequacy funding gap. These funds allowed CPS to address immediate needs and expand its workforce significantly, hiring approximately 9,000 new staff members over the past seven years, the majority of whom were school-based positions. However, there is no long-term revenue plan to sustain these positions. Without new revenue solutions, CPS risks austerity measures that could reverse pre-pandemic trends toward financial stability and student progress.
Our paper is meant to encourage dialogue about how to secure and leverage new sources of revenue. We aim to do this in a way that promotes transparency and reliability in our estimates. Our paper offers six potential revenue options to address the deficit.
Revenue Options
For each revenue option, we assess their financial impact and offer a brief analysis of motivations and barriers to implementation.
Financial Impact: Generates $129 million in revenue for FY2025. Assuming the deficit grows with inflation (a conservative assumption) CPS would begin running a surplus by FY2034.
Motivations and Barriers: This scenario requires no legislative action and has been the practice of CPS since FY2012. Relying on raising the levy places a disproportionate burden on low-income homeowners, who feel the impact of higher property taxes more acutely than those with higher incomes.
Financial Impact: In FY2025, CPS would run a surplus of $80 million. FY2034, CPS would run an operating surplus of $893 million.
Motivations and Barriers: A fiscal health property levy adjustment would resolve the structural deficit and is one of two options that CPS could pursue without state authorization. A successful referendum would require community support and commitment on behalf of the civic and political community as it would likely be unpopular with homeowners and the real-estate industry.
Financial Impact: Generates $220 million in revenue for FY2025. CPS would begin running a surplus by FY2033. In FY2034, CPS would run a $127 million operating surplus.
Motivations and Barriers: This is largely under the control of the City of Chicago. It would bring in more revenue for CPS than TIF surplus. There may be political challenges to sunsetting all TIFs in the City of Chicago.
Financial Impact: In FY2025, CPS would save $64.5 million. The savings from scenario 4 alone would diminish but not eliminate the deficit. By FY2034, CPS would have an $11 million deficit.
Motivations and Barriers: This option would bring fairness to Chicago’s teacher pension system by aligning it with those of other Illinois school districts, as well as potentially reducing administrative costs. This would make pensions more secure as states are sovereign and cannot declare bankruptcy. Adjusting state law to transfer the responsibility of pension payments from CPS to the State of Illinois would require significant legislative changes and challenges.
Financial Impact: $4.2 million to $66.1 million estimated Revenue for FY2025
Motivations and Barriers: By increasing annual EBF appropriations, Illinois would move closer to achieving its target of fully funding all school districts by 2027—a goal that remains out of reach with the current annual funding of $350 million. However, this scenario is only possible if state leaders build political coalitions to pursue new long-term revenue sources at the state level.
Financial Impact: $4.5 million in estimated revenue for FY2025
Motivations and Barriers: This adjustment directly addresses funding equity by allocating more resources to districts where students face greater socio-economic challenges. This option would benefit students in all districts in Illinois. However, there are technical and political barriers to altering the EBF formula; implementing changes to the funding formula requires a high threshold of empirical evidence, and altering the formula changes the distribution of funds to districts across the state, which may shift funds away from other vulnerable districts that do not benefit from the adjustment.
At Kids First Chicago, we believe that transparent, collaborative discussions are critical to resolving CPS’s financial crisis. We call on our city, state, and civic leaders to adopt a comprehensive, long-term plan to ensure CPS is not forced into untenable choices that harm our children and city’s future. We stand ready to support bold, collaborative action.