• Schools are rated junk by three major credit-rating companies
  • Budget relies on $500 million of state aid from Illinois

Chicago’s schools have set up legal and financial controls to improve the nation’s third-largest system, whose former top official was indicted on corruption charges Thursday, as 
the district pleads for state aid to help plug a $1.1 billion deficit.

Without help from the state of Illinois, the district faces drastic cuts and more unsustainable borrowing, Forrest Claypool, chief executive officer of the schools, said during a speech in Chicago. The comments came just hours after his predecessor Barbara Byrd-Bennett was indicted for accepting bribes and kick-backs to steer no-bid contracts to her former employer, according to a release from the U.S. attorney’s office.

The schools’ budget relies on about $500 million of state aid that hasn’t been approved. When asked whether the scandal stemming from fraudulent contracts would complicate the Chicago district’s ability to win state funds, Claypool cited his administration’s work to fix the cash-strapped district.

“I’ve put in controls, legal and financial controls, in the 10 weeks that I’ve been on the job,” Claypool told reporters after his speech. “There’s no silver bullet for integrity. We are showing week after week after week that CPS is managed as a professional organization with integrity. This is in the past. It’s not reflective of our administration. It’s not reflective of the current leadership.”

The outlook for state help is already grim. Illinois can’t even pass its own budget as Democratic lawmakers and Republican Governor Bruce Rauner bicker over a spending plan for the year that started July 1. Claypool said Thursday that he had no update on the aid from the state.

The price of bonds sold by the Chicago Board of Education has sunk as its finances deteriorate. The three major rating companies have all lowered the school system to speculative grade as mounting bills to its underfunded pension fund squeeze the finances. Plus relying on state relief that may not materialize is "risky," according to Moody’s Investors Service.

A portion of taxable general-obligation bonds sold by the board traded Thursday at an average of 83 cents on the dollar to yield 8.4 percent. That’s down from 77 cents a month earlier, when the yield was 9.2 percent. The debt, the board’s most-frequently traded bond on Thursday, matures in November 2029.

The district owes another $676 million to the teachers pension fund this year. The public schools already cut about 1,400 positions to help cover last year’s payment. The district may send layoff notices to thousands of teachers if it doesn’t receive state aid, Claypool has said.

In April, Rauner said the school system may need bankruptcy protection, an option that’s not available for localities in the state. As part of his 2016 budget,Mayor Rahm Emanuel proposed a $45 million special real-estate levy that state lawmakers approved in 2003 to ease overcrowding at the public schools.

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