CHICAGO - The financial oversight panel for the Chicago Board of Education yesterday rejected the board's fiscal 1994 budget because of a $299 million deficit.
To help eliminate the budget gap, the chairman of the Chicago School Finance Authority said that additional revenues could come from tax anticipation debt backed by future proceeds from a proposed riverboat gambling complex in Chicago.
Under state law, the School Finance Authority must approve a board budget that is "balanced. complete and reasonably capable of being achieved" before Sept. 1 - the start of the schools' fiscal year - for schools to open on Sept. 7.
"For the authority to pass the budget, the board has to pass a balanced budget. The authority cannot approve this budget," said Cameron Clark, a partner at KPMG Peat Marwick, which assists the authority in reviewing the board's financial matters.
Board officials said they are optimistic they can eliminate $145 million of the budget shortfall with concessions from its unions. However, they added that the $154 million needed to fill the remaining budget gap must come from additional revenue sources that could be approved in a special session of the Illinois General Assembly.
Board officials and Mayor Richard M. Daley of Chicago have called for a special session by mid-month to address funding for Chicago schools. Gov. Jim Edgar has said he has no plans to call a special session though he is open to the idea.
The governor wants to assist Chicago schools, but there is no pot of gold in the state treasury," Mike Lawrence, Edgar's press secretary, said in a press release.
Martin Koldyke, chairman of the School Finance Authority, said issuing tax anticipation debt backed by future proceeds of the proposed riverboat gambling complex appears to be the only option available to the schools for increased revenues. That plan would require the General Assembly and Edgar to approve riverboat gambling for the city in a special session by the end of August, Koldyke said.
In June, Daley said he was considering a school borrowing plan for fiscal 1994 that would leverage about $71 million in annual gambling admissions fees if riverboat gambling is brought to the city.
"It's the only game in town at the moment," Koldyke said, adding that chances for a general state tax increase to assist the school system are "slim to none." Edgar has opposed the idea of a tax increase.
However, rating agency officials have said that the borrowing proposal raises numerous questions regarding the reliability of the revenue source and attendance forecasts, among other things.
Paul Devine, vice president and manager of the Great Lakes region at Moody's Investors Service, said yesterday a plan to issue bonds backed by future gambling proceeds raises "questions about whether that [revenue] stream will exist and at what level and what the timing would be."
"It might be early to pin hopes on that revenue stream," Devine said.
Todd Whitestone, a managing director at Standard & Poor's Corp., said that there would be no ongoing revenues to pay off the debt under the borrowing plan. "To fill the 1994 budget gap with this approach wouldn't be successful," he said.
D. Sharon Grant, the school board's president, said that lawmakers must approve more funding in a special session for Chicago schools because the board has made all the cuts it can, short of slashing essential educational programs.
"We have made a moral decision that we cannot operate in this district by stripping the integrity of our educational programs," Grant said. "We do intend to balance this budget. But we will not balance this budget on the backs of the children of this city."
The 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.