The Chicago public school system has borrowed the hundreds of millions of dollars it needs to start the coming school year, at interest rates about four times what a typical government with better credit ratings would have to pay.
The Chicago Sun-Times reports that a week after the school district borrowed $375 million from J.P. Morgan at an interest rate of 6.39 percent, it secured another $112 million from the same lender at 6.41 percent. The short-term borrowing known as “grant anticipation notes,” eventually will be repaid by state block grant money owed to the Chicago district but not yet disbursed because of the ongoing budget stalemate in Illinois.
Experts say the high interest rates reflect the school system’s dire financial condition, but at least, says Matt Fabian, a partner at Municipal Market Analytics, having consistent access to borrowing markets is something of an improvement.
Meanwhile, the borrowed money will help Chicago Public Schools make a $721 million payment due to the teacher pension fund on Friday and get the 2017-18 school year started.
Chicago school officials and Illinois Gov. Bruce Rauner have been trading jabs about who’s to blame for the financial woes in the nation's third-largest school district. The state also owes money to other districts.
The district contends it is at a significant disadvantage compared with every other school district in Illinois because it receives 78 cents in state funding for every dollar other school districts receive on average. Chicago's financial woes have been exacerbated, district officials assert, because of Rauner's veto of $215 million in pension funding and the delay in allocating $467 million in block grant funding to the citys schools.