Chicago's Daley offers school plan with GO issuance of $300 million.

CHICAGO -- Mayor Richard M. Daley of Chicago yesterday unveiled a two-year plan to bail out the financially strapped Chicago Board of Education with proceeds from $300 million of general obligation bonds.

The bonds would be issued by the Chicago School Finance Authority, the board's financial oversight panel, in two installments in fiscal 1994 and fiscal 1995, according to Diane Agoitti, a special assistant to the mayor. About $120 million would be dedicated to the fiscal 1994 budget and the remainder to the 1995 budget.

The beleaguered school system currently faces a $299 million deficit in its projected $2.6 billion budget for fiscal 1994, which begins Sept. 1. Under state law, if the board does not approve a balanced budget by Sept. 1, it must shut down all operations and discontinue all financial activities, excluding debt service payments until a balanced budget is approved by the board and the oversight authority.

The Sept. 1 deadline means state lawmakers must decide by next week whether to approve the debt plan, the mayor said.

Under the plan, the bonds would be backed by a portion of the oversight authority's property tax levy, which provides debt service on bonds issued in the early 1980s to bail out the school system, Agoitti said. The authority has issued $687 million of GO bonds since 1980 and has retired $208 million of debt, according to an authority official.

As the bonds were retired, the remaining property tax levy was transferred directly to the board's operating budget, estimated at about $31 million annually. The mayor said those funds can be used to pay off the 14-year bonds until another source of revenues is found.

Daley said that revenues from riverboat gambling admission fees could replace the authority's property tax levy if Illinois Gov. Jim Edgar and state lawmakers allow a riverboat gambling complex in the city. Daley said that Edgar has taken that issue off the table for the time being.

"However, gaming revenues are one way to retire the bonds and fill the hole after 1995. We'll take that up in the fall session" of the legislature, Daley said.

Daley said he drafted the plan after the governor rejected one that Daley proposed earlier this month. That plan called for the issuance of bonds backed by a state guarantee and paid off with future gambling proceeds if a riverboat gambling complex were allowed in the city.

Of his new plan, Daley said, "I've made this as easy as possible for the state so that we can get the schools open on time."

Mike Lawrence, spokesman for Edgar, said that the governor was briefed on the concept of the plan in a meeting with Daley on Monday, and that the two leaders "are in general agreement on the approach."

The plan "is realistic both governmentally and politically," Lawrence said.

In addition to the bond proceeds, the mayor's plan to fill the schools' budget gap relies on budget cuts, transfers, and $82 million of wage concessions that the unions have not yet agreed to. The plan also calls for $15 million in Medicaid reimbursement funds for poor students, which would require legislative approval.

Daley said that for schools to open on time Sept. 7. the legislature will have to meet in special session next week to let the oversight authority issue more bonds and to approve a few other related funding matters.

Lawrence said that Edgar is willing to discuss convening a special session. However, he said that first the governor "would like to see movement between the board and its unions" so that more solid numbers will be available.

Chicago Board of Education and teachers union officials did not return phone calls.

Steve Brown, spokesman for House Speaker Michael Madigan, D-Chicago, said Madigan "has concerns about financing operations with debt." However, he added that the speaker "wants to try to help the schools open on time" and would participate in a special legislative session to come up with a plan to allow schools to open.

Senate President James Philip, R-Wood Dale, did not return phone calls.

Paul Devine, a vice president and manager of the Great Lakes region at Moody's Investors Service, said that the plan "doesn't do anything to resolve structural budget issues. It's essentially borrowing tomorrow's revenues to spend today."

Standard & Poor's Corp. officials could not be reached for comment.

The Chicago Board of Education has $17.9 million of outstanding general obligation debt that is rated Baa by Moody's and BBB with a negative outlook by Standard & Poor's. The board is also obligated to make lease payments on $1.7 billion of insured bonds issued on its behalf by the Chicago Public Building Commission.

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