Chicago Public Schools closed an expensive deal on Monday to borrow some of the cash officials said the district needs to scrape through June and pay the bulk of a massive contribution to teacher pensions.
Schools officials turned to JPMorgan to purchase $275 million in “grant anticipation notes,” a short-term loan meant to be repaid with hundreds of millions of dollars worth of state education aid that’s been jammed up by the state’s continued lack of a budget.
Officials planned to borrow closer to roughly $400 million. Additionally, the district said it would pursue another $112 million loan to make up the difference.
The district said the $275 million “creates sufficient cash” for CPS to meet its obligations to the Chicago Teachers’ Pension Fund, but did not explain how that was possible. Instead, CPS’ top financial officer blamed Republican Gov. Bruce Rauner for an enormous state budget backlog that’s held up more than $1 billion in promised aid for school districts.
“School districts throughout Illinois have suffered under the Rauner Administration’s failure to provide education funding in a timely manner, and the agreement CPS was forced to reach today is a direct result of this failure,” CPS finance chief Ron DeNard said in a statement on Monday.
The initial interest rate on the debt will be 6.39 percent, according to market disclosures and a CPS spokesman. CPS said the rate would also be adjusted on a monthly basis. The debt matures on March 30, 2018.
“We are saddened that the Chicago Public School district is trading its future financial health for another short term easy fix,” Rauner’s spokeswoman wrote in a statement issued Monday night. “It has no one to blame high interest rates on other than the decades of mismanagement that created this crisis.”
Rauner has called a special session of the General Assembly during the final 10 days of June to try and hammer out a deal to break an historic two-year budget impasse.
CPS said the state’s inability to pay its bills on time was “a major factor” in the steep interest rates.
In a letter sent to CPS last month, Illinois Comptroller Susana Mendoza’s office said it was “committed” to sending state aid payments “as soon as cash flow circumstances permit.” But Mendoza’s office said the magnitude of the state budget backlog meant it “could not predict with any certainty the timing of these future non-general state aid payments.”
The district said it selected JPMorgan after evaluating an unspecified number of bids. But the size of the deal was the latest signal that CPS is struggling to qualify for loans that depend on state government to repay.
“CPS should be happy having access (to the market) at all,” said Matt Fabian, a partner at Concord, Mass.-based Municipal Market Analytics, in an email. “It’s not about expensive or cheap.”
It’s been about a month since Mayor Rahm Emanuel detailed plans for the latest round of borrowing to keep CPS afloat, using an 11th-hour strategy to take out a short-term loan backed by future state grant fund payments to CPS. The district has a cash flow problem it attributes to the state being late with hundreds of millions of dollars.
Governments typically use grant anticipation notes — and similarly structured debt known as tax anticipation notes — to make sure there’s enough money on hand to pay bills regularly scheduled tax revenues refill coffers.
What’s unusual about CPS’ latest loan is that the district is relying on a government that’s delinquent on paying its own bills — and the district needs the money to avert insolvency. That presents a lucrative opportunity for the district’s lenders.
JPMorgan, one of Chicago’s largest private employers, has already helped purchase or underwrite billions of dollars worth of short-and long term debt that CPS has used to survive its most recent budget cycles.
“JPMorgan gets to be the lender that’s helpful to CPS, and they’re getting paid,” said Brian Battle, a director at the Performance Trust financial firm who has studied CPS finances. “In sunnier days, in the future, I think JPMorgan’s making a long-term bet that this friendship will be beneficial to JPMorgan.”
![A current administrator at the high school in Oak Park will be the principal of East Leyden High School starting next school year, Leyden High School District 212 officials announced. Julie Lam will start as head of the school, located in Franklin Park, as of July 1. But a SD212 spokeswoman told Pioneer Press that Lam is expected to work with outgoing Principal Dominic Manola “on a transition plan” and will likely be at the school ahead of that official start date. “We are incredibly excited to welcome Dr. Lam to the Leyden Family. Her vast experiences in the classroom […]](https://www.chicagotribune.com/wp-content/uploads/2024/04/JHL-headshot-2023.jpg?w=263 "A current administrator at the high school in Oak Park will be the principal of East Leyden High School starting next school year, Leyden High School District 212 officials announced. Julie Lam will start as head of the school, located in Franklin Park, as of July 1. But a SD212 spokeswoman told Pioneer Press that Lam is expected to work with outgoing Principal Dominic Manola “on a transition plan” and will likely be at the school ahead of that official start date. “We are incredibly excited to welcome Dr. Lam to the Leyden Family. Her vast experiences in the classroom […]")
