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Chicago schools planning 2 percent pay raises, big dip into reserves

Children hallway going gym Gompers Elementary school 12302 S. State Street October 25 2012. The school does yogbefore start school

Children in the hallway going to gym at Gompers Elementary school 12302 S. State Street, October 25, 2012. The school does yoga before the start of the school day as a way to educate the "whole child" and institute a "calm classroom" program. | Brian Jackson~Chicago Sun-Times

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Updated: August 8, 2012 6:07AM

Facing a $665 million deficit, Chicago school officials released a budget plan Friday for the coming year that relies on the school system’s most drastic raid on its reserve funds in 17 years and includes 2 percent raises for everyone from teachers to central office workers.

The $5.7 billion spending plan draws down a “rainy day” fund to zero, while raising property taxes for schools to the maximum $62 million allowed by law — costing the average homeowner $28.

It also drops a decades-old practice of layering on extra teacher pay hikes for experience and additional schooling.

On the education front, the budget maintains current class sizes, boosts charter funding by $76 million, expands magnet and other coveted seats, and protects current full-day kindergarten and early childhood programs despite state and federal funding cuts.

“We have to invest in students now,’’ said Tim Cawley, the school system’s chief administrative officer. “We can’t afford to sit on hundreds of millions in reserves and inflict pain on our schools.’’

The plan drew immediate fire from two quarters.

One, a financial watchdog group, labeled the across-the-board 2 percent raises unrealistic and said the reserve fund raid will “expose the system to catastrophe” a year from now, when the deficit is expected to balloon to $1 billion.

The other, the Chicago Teachers Union, called the planned raises to teachers too small.

CTU officials — who have been negotiating a new, multiyear contract since November — dumped on the budgeted 2 percent teacher pay raise, given what they say will be a 20 percent longer work day and school year and the extra demands that teachers will face with a tougher curriculum and new evaluation procedures, all of that coming after they lost a promised 4 percent raise this year.

“If they think 2 percent is sufficient, they are in fantasyland,’’ CTU vice president Jesse Sharkey said. “This budget is a very political document. It takes their initial bargaining position and budgets it…Two percent is a non-starter, given the longer, harder day next year.

A 2 percent raise, especially without the additional “step” and “lane’’ increases traditionally folded into teacher contracts, is “no more palatable to us’’ than the union’s opening bid for a 29 percent raise over two years was to CPS, Sharkey said.

Sharkey questioned the plans for increased spending on charter schools, turnaround vendors, Teach for America teacher recruits and student testing.

And, Sharkey noted, to pay for longer school day touted by Mayor Rahm Emanuel, the budget cancels programs or positions to free $130 million in discretionary school funding, in some cases allowing principals to buy back the very positions they lost.

Chicago school officials hailed that aspect of the budget, pointing to the new freedom the budget gives principals in tough financial times.

Laurence Msall, president of the Civic Federation, said he was “alarmed’’ by system’s plan to completely raid all $349 million from its “unrestricted” reserves – or “rainy day’’ fund -- and to even grab $25 million from a “restricted’’ fund to pay for “security,’’ a move school officials insisted was allowed.

The budget avoids tackling a “structural deficit’’ that will only deepen by the end of next school year, when a pension relief package approved by lawmakers expires. By then, CPS is anticipating a $1 billion deficit.

The plan will “effectively eliminate all the reserves in the CPS budget and expose the system to catastrophe next year,” said Msall. “This is an extreme action of avoiding the balancing of the budget.”

“We are frightened by the potential catastrophe facing CPS [at the end of next school year] and we are shocked that this budget proposal does not more effectively attack the known structural deficit,’’ Msall said.

“The Chicago Public Schools needs to face the fiscal reality that exists now. They cannot afford a 2 percent pay increase across the board.’’

Two years ago, then-schools chief executive Ron Huberman proposed a city schools budget that would have shrunk a $190 million reserve fund to zero. Officials planned to replenish the reserve within one year with an amount equivalent to 5 percent of the system’s operating budget — a safety net generally considered fiscally prudent by bond rating agencies.

But new school leaders appointed by Emanuel now want to ask the school board to give them two years to fill reserve coffers with a 5 percent reserve, or $250 million, Msall noted.

“This is beyond what Huberman did,’’ Msall said.

A windfall of federal funds, tax-increment financing funds and bond restructuring eventually avoided a total reserve drain.

Since 1995, when lawmakers gave then-Mayor Richard M. Daley control of the city school system, this is “the most short-sighted solution to a long-term structural problem that has ever been proposed,’’ Msall said. “It will create an even bigger problem next year.’’

CPS’ Cawley said the complete draw-down of unrestricted reserves came after two consecutive years of declining revenues and only after $144 million in spending cuts.

“This is a very simple decision,’’ Cawley said. “You can do what we’ve done and continue to invest in programs that we think have a good impact for students, or you can make significant cuts, inflicting a lot of pain on [schools] while sitting on hundreds of millions in reserves.’’

If bond rating agencies downgrade the rating of future CPS bonds because of the reserve fund raid, Cawley estimated the system’s borrowing costs on new bonds would increase only “a handful of basis points,’’ or about $1 million to $2 million a year.

And Cawley noted, the reserve draw-down comes amid lawmaker questions about the “stockpiling’’ of district reserve funds statewide.

Cawley said the budget reflects the system’s initial offer of a two percent pay raise for teachers, at a cost of $40 million; another $5 million for the two percent raise it already sealed with two other unions; and another $5 million in two percent raises for remaining union workers as well as non-union employees-- from principals to central office staff.

Non-union workers have not received raises in three years but no final decision on their new pay will be made until union negotiations conclude, Cawley cautioned.

Though the district is still negotiating with the CTU, Cawley said, “We had to build something into the budget.’’ Ultimately, if CTU raises end up costing more, “we’ll have to go back and think about how to restructure the budget,’’ Cawley said.

A fact-finder is due to release his recommendations for a new CTU contract July 16.

Some of the increased charter school spending is required under a proposal to join a charter school compact sponsored by the Bill and Melinda Gates Foundation, Cawley said. And, CPS “will see some changes in the future’’ to a current turnaround formula that gives schools overseen by the Academy for Urban School Leadership, where Cawley once worked, the same $420 per pupil after five years of turning around that it gets in year one, Cawley said.

Three public hearings on the budget proposal will be held across the city on July 11 from 6 to 8 pm at Malcolm X, Kennedy King and Daley Colleges. CPS also will schedule a city-wide tele-townhall the following week.

The final budget document will be presented to school board members for a vote on July 25.

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