CHICAGO -- A federal appeals court late Wednesday overturned a lower court's ruling that allowed Chicago's public schools to stay open without a balanced budget.
The Chicago Board of Education will shut down at midnight today as a result of a decision by the U.S. Court of Appeals for the Seventh Circuit unless the board can balance its $2.8 billion fiscal 1994 budget, which has a $298 million deficit. The fiscal year began Sept. 1.
The appeals court ruled that a U.S. District Court judge did not have the authority to suspend an Illinois law that requires the board to balance its budget before it can open schools.
The court decision puts the fate of the board's budget back into the hands of Gov. Jim Edgar and state lawmakers who have been unable to reach an agreement on how to bail out the school system.
The court issued its decision after the Chicago School Finance Authority, the board's financial oversight panel, appealed an Oct. 15 extension of a temporary restraining order issued by U.S. District Court Judge Charles Kocoras. Kocoras' order suspended a state law requiring the Chicago Board of Education to balance its budget before schools can open.
Kocoras ordered the extension. which was the third since his September temporary restraining order, based on the board's claim that shutting down the schools would violate a federal consent decree requiring the school system to provide desegregation programs. Kocoras agreed with the board that if the school system closed. it could not operate the programs.
But the appeals court in a 2-to-1 decision disagreed with Kocoras.
"The dispute between the school board and the finance authority is entirely a matter of state and local law and politics. There is no federal issue," the appeals court said.
The financially strapped school system on Wednesday averted an immediate shutdown when the appeals court granted a board request for a two-day stay of the effective date of the decision. The stay allows the school system to operate through midnight today. Schools were closed yesterday because of Veterans Day.
In a press release, D. Sharon Grant. the board's president, said that legislative action on a funding package is required immediately for the board to balance its budget.
Shortly after the appeals court decision was issued on Wednesday, Edgar called for an emergency meeting of legislative leaders. The governor and lawmakers met for more than two hours yesterday without reaching an agreement. Another meeting is scheduled for today.
"We have tried to resolve this situation for months. The time for action is now," Edgar said in a press release. "The appellate court has ruled this matter should be resolved in the state capital. I wholeheartedly agree."
Edgar and Senate Republicans last last month proposed a plan for a $386 million general obligation bond issue by the School Finance Authority that was formulated after state lawmakers failed to vote on a previous plan. The earlier proposal included $300 million of GO bond authorization, a $110 million loan from the Chicago teachers' pension fund, and the use of $36 million of restricted state funds over two years.
In addition, the Republicans called for reforms to be implemented when the Chicago Teachers' Union contract expires in 1995. The reforms include the elimination of reserve teachers and additional authority for principals on personnel matters, and a property tax referendum in 1995.
House Democrats have expressed doubt that the Republican plan could be approved, partly due to labor union opposition to some of the reforms.
At a press conference Wednesday night, Mayor Richard M. Daley, who proposed the $300 million bonding plan, urged Edgar and state lawmakers to pass his plan, which has the backing of the board of education. He said that the political wrangling over a funding package is unfair to the parents and children in Chicago.
"You can't have them on a roller-coaster ride, Governor. You can't have them going up and down," Daley said.
Standard & Poor's Corp. has placed about $30.5 million of board-secured debt on CreditWatch with negative implications. The debt is rated BBB by Standard & Poor's and Baa by Moody's Investors Service, which has said the rating outlook is poor for the outstanding debt of the board and the School Finance Authority.