Chicago Schools Draw $400 Million as Fiscal Pressures Rise
The Chicago Board of Education has borrowed $400 million from Bank of America and PNC Bank under its short-term revolving credit agreements. This exceeds the $100 million drawn down a year prior.
The withdrawal comes amid escalating financial challenges for the fourth-largest US public school district. With dwindling federal pandemic aid, underfunded pensions, and rising labor costs, the district faces resource constraints.
The funds will be used to cover operational expenses, according to a spokesperson. The district draws from these agreements annually to supplement revenue while awaiting property tax payments. Proceeds from tax-anticipation notes issued each year repay the advances.
While short-term debt issuance is typical for school districts, overreliance can pose risks, warns David Schleicher, a Yale Law School professor. Any market or issuer confidence volatility could create significant challenges.
S&P Global Ratings has expressed concerns about the district's stability and the impact of increasing borrowing on its credit rating. The junk-rated district's reserves have depleted to $66 million, representing only three days' worth of operating expenses against a $9.9 billion annual budget.
Political tensions between Mayor Brandon Johnson and CEO Pedro Martinez have contributed to the financial strain. Martinez has opposed excessive short-term borrowing and warned of the "very challenging financial reality."
Ongoing negotiations with the Chicago Teachers Union are also expected to impact the fiscal 2025 budget, potentially leading to a deficit. Resistance to cost-cutting measures from both the union and the mayor may have long-term implications for the district's creditworthiness, according to S&P.