CHICAGO - The Chicago Board of Education last week approved a fiscal 1994 budget that was balanced partly with anticipated proceeds from a bond issue designed to bail out the financially troubled school system.

In a press release, the board proclaimed that its current financial crisis ended with the passage of the $2.7 billion budget for the fiscal year that began Sept. 1.

"Approval of this budget is a bittersweet action," said board president D. Sharon Grant. "It is bitter because it depends so heavily on borrowed funds and that is akin to mortgaging the future of our school children. However, it is sweet be, cause it marks the end of instability that has rocked the Chicago public schools for many months."

The board's budget now moves to the Chicago School Finance Authority, which oversees the school system's finances and must approve or reject the spending plan next week.

The financial crisis, which was precipitated by a $298 million budget deficit, caused the school system to shut down three times since September. State law requires the system to have a balanced budget before it can hold classes.

Thanks to restraining orders that the board obtained from a federal court judge in Chicago, schools managed to remain open for most of the period until state lawmakers passed a financial bailout plan earlier this month. The plan calls for the issuance of $427 million of general obligation bonds over a two-year period by the Chicago School Finance Authority, the board's financial oversight agency.

Lawmakers also permitted the use of $32 million of state funds for poor students and allowed the authority to give $17 million of restricted funds to help balance the school system's budget.

Barbara Holt, the executive director of the Finance Authority, said yesterday that a meeting to take action on the budget has been tentatively scheduled for Dec. 8.

Holt said the bonds may be issued early next year. She said that no decision has been made on whether to sell all $427 million of bonds or just the approximately $175 million that are needed for the current budget. Issuing all the bonds at once may be preferred because interest rates are low now, she said.

The authority is working with Merrill Lynch & Co., its financial adviser, to put together the issue, which will be sold competitively.

Rating agency officials have called the borrowing a stopgap measure that does not address the system's long-term financial problems. Officials from Moody's Investors Service and Standard & Poor's Corp. said yesterday that they expect to complete their review of the board soon.

Standard & Poor's has placed $30.5 million of board-secured debt that is rated BBB on CreditWatch with negative implications. Moody's, which rates the board's debt Baa, has said the rating outlook is poor for debt issued by both the board and the Finance Authority. The authority has $480 million of outstanding debt.

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