CHICAGO -- Gov. Jim Edgar of Illinois last week proposed a revised bond-financed bailout plan for Chicago public schools that calls for increasing bonding by the school's oversight panel to $386 million from $300 million.

The Republican governor proposed the new plan after legislative leaders last week failed to agree on a previous plan that included $300 million of general obligation 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.

Edgar also called for various reforms to be put in place when the teachers' contract expires in 1995. The reforms include work-rule changes at schools and a referendum in 1995 to allow Chicago voters to increase property taxes to provide funds for the school system.

However, Edgar's plan faces some resistance from Democrats opposed to the reforms.

The Chicago Board of Education needs money to eliminate a $298 million deficit in its budget for fiscal year 1994, which began Sept. 1. The governor and legislative leaders are scheduled to meet on Wednesday to discuss Edgar's plan, according to state officials.

The school system is being kept open by a federal court order that suspends until Nov. 15 a state law that forbids holding classes while the system runs a deficit. The Chicago School Finance Authority, the board's financial oversight panel, last week appealed that order.

Today, Judge Charles Kocoras of U.S. district court will hold a hearing to determine if the court should consider ordering funding relief for the school system.

Mark Gordon, spokesman for Senate president James Philip, R-Wood Dale, who supports Edgar's proposal, said the governor's plan would enable the board to substitute bond proceeds for part of the $110 million of teachers' pension funds or $36 million of Chapter 1 poverty funds that are slated to be used over the two years to help the board.

The proposed increase in bonding would not require a property tax increase, Gordon said.

Gordon said that the substitution of bond proceeds for pension funds would save the school system $4 million a year because the board would have to pay back the teachers' pension fund with interest. The variable interest rate would be pegged to the prime rate.

Steve Brown, spokesman for House Speaker Michael Madigan, D-Chicago, said that Madigan questions whether sufficient property tax revenues are available to pay off the increased amount of bonding.

He added that if some lawmakers agree to remove pension funds from the mix, others may request that the restricted state Chapter 1 funding also be taken out of the bailout package.

Brown said that labor unions may work against work-rule changes proposed by Edgar that may ultimately kill the bill.

Meanwhile, rating agency officials raised concerns about the proposed increase in bonding.

Todd Whitestone, a managing director at Standard & Poor's Corp., said that the increase in borrowing "does raise more questions," adding that the rating agency has not received documents showing how much debt service the finance authority levy can support.

Paul Devine, a vice president and assistant director of the Great Lakes region at Moody's Investors Service, pointed out that selling bonds for operating purposes has its place if done in connection with other measures to ensure the long-term strength of the board finances.

"But I don't see that here," Devine said. "From a perspective of credit quality there is not a balanced budget."

Standard & Poor's 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, which has said the rating outlook is poor for the outstanding debt of the board and the finance authority.

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