Chicago school board approves budget, major borrowing plan

August 24, 2016 4:47 PM EDT

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By Karen Pierog

CHICAGO (Reuters) - The Chicago Board of Education on Wednesday signed off on a $5.46 billion fiscal 2017 operating budget, property tax hike, and a borrowing plan that calls for up to $945 million of long-term bonds and $1.55 billion of short-term debt.

The unanimous approval by Chicago Mayor Rahm Emanuel's hand-picked board came despite criticism that the spending plan relies on optimistic revenue assumptions.

The nation's third-largest public school system has been struggling with escalating pension payments, drained reserves and debt dependency.

The Chicago-based Civic Federation, a government finance watchdog group, declined to support the Chicago Public Schools (CPS) budget due partly to its reliance on $31 million in uncertain labor concessions and $215 million in state funding to help close a $1.1 billion operating deficit.

"CPS once again counts on unsustainable funding sources to close a billion-dollar deficit without detailing a practical long-term plan for ending its ongoing financial crisis,” said Civic Federation President Laurence Msall in a statement.

As part of a six-month Illinois budget deal finalized in June, Republican Governor Bruce Rauner and the Democratic-led legislature agreed to steer $215 million to CPS on a one-time basis for pension costs on the condition that lawmakers finalize a statewide pension reform package by January.

Rauner told reporters on Wednesday that some progress had been made on pensions but that it was "not enough." He declined to guarantee that a deal will be in place for CPS to obtain the money.

"Well, I’m going to try my darnedest because I ran to try to change our pensions," he said. "But who knows?"

CPS is also banking on teachers agreeing to relinquish 7 percent of their earnings to devote to pensions, a proposal that was soundly rejected by a Chicago Teachers Union bargaining team in February. CPS CEO Forrest Claypool said negotiations with the union were ongoing.

School officials contended the spending plan for the fiscal year that started July 1 is balanced.

"It's not a perfect solution, but it's a much stronger budget," said school board President Frank Clark.

The board also approved a $250 million state-sanctioned property tax hike exclusively for pensions.

Despite having to pay hefty borrowing costs as a result of its junk credit ratings, the school board agreed to issue up to $945 million of general obligation bonds for capital projects.

The board also approved increasing the district's line of credit by $485 million to $1.55 billion for cash flow purposes.

(Additional reporting by Dave McKinney in Chicago; Editing by Matthew Lewis)

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