CHICAGO -- The Chicago Board of Education late Wednesday approved a $2.9 billion fiscal 1995 budget that includes about half of a $50 million surplus from the current fiscal year.

The budget, which still needs approval from the school system's oversight authority, uses $26 million of the surplus for what it terms "critical needs," while putting the remaining $24 million into a budget reserve.

"I understand the financial constraints on the system and recognize the need to show fiscal responsibility by putting aside some of the surplus," said board president D. Sharon Grant in a press release. "However, at the same time, we must never lose sight of the primary mission of the school system -- the students," Grant said. "This budget plan accomplishes both."

The surplus money, along with an expected increase in aid from Illinois, would fund $40 million in critical needs, according to Charley Gillispie, the board's chief financial officer. The needs include computer equipment, teacher training for special education certification, classroom supplies, science equipment, and an attendance improvement program, according to Dawne Y. Simmons, the board's spokeswoman.

With the exception of the teacher training, none of the critical needs that are funded will add people to the school system's payroll, Simmons said, and the additional special education teachers will eventually earn the schools a reimbursement from the state.

The $50 million surplus resulted from the early retirement of teachers, teacher vacancies, and delays in adopting a fiscal 1994 budget last fall. Another $70 million of surplus funds, which come from the state, will be rolled over into the fiscal 1995 budget, Gillispie said. He said the use of that money is restricted and could not be used for general school improvements. The state money can only be used by local schools to improve schooling for children in poverty.

The budget for fiscal year 1995, which begins Sept. 1, is balanced with $203 million of proceeds from a February bond issue designed to bail out the school system through fiscal 1995. The Chicago School Finance Authority, the school system's oversight agency, sold $410 million of general obligation bonds to allow the school system to operate in fiscal 1994 and 1995. The bond issue provided $175 million to balance the school board's current budget.

While the school board has projected a $325 million shortfall in fiscal 1996, when the bond proceeds run out, Gillispie said that number will change. He said his staff is preparing a new estimate that "could be down some" from the original projection.

The fiscal 1995 budget also contains some reforms aimed at improving control of school-system spending. Gillispie said the major reform requires quarterly reports to the school board on spending in the budget.

He said the budget will be sent to the School Finance Authority by Monday. The authority then has until Aug. 15 to approve or reject the budget. Last year, the lack of a balanced budget led to federal court orders allowing schools to remain open even though Illinois law requires the system to have a balanced budget before classes can be held. The court fight ended after the Illinois General Assembly approved the bond issue that balanced the system's fiscal 1994 budget.

Paul Devine, vice president and assistant director of the Great Lakes regional ratings group at Moody's Investors Service, said the new budget is still not addressing the school system's problems.

"The need to spend found money for items deemed critical highlights how little scope they have to achieve budgetary balance in the near term without some fundamental changes in the revenue structure," he said.

Todd Whitestone, a managing director at Standard & Poor's Corp. said saving all the surplus money could lessen budgetary pressures in fiscal 1996.

"I would argue that holding onto [the surplus] would make their life easier," he said.

The board's outstanding debt is rated Ba by Moody's and BBB-minus by Standard & Poor's.

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