Ken Gotsch, Chief Financial Officer of LUDA

LUDA Summary

LUDA Education & Finance Plan

Today I am here to testify in support of the LUDA Education and Finance Plan and to reinforce three parts of the plan that I think are particularly important in light of my experience in Chicago. 

However, before I do this I want to make four points regarding the finances of the Chicago Public Schools:

1. While Chicago is much bigger than any other district in the state the fundamentals of its financial structure are similar to other school districts. Like many school  districts in the state most of our operating and capital revenue comes from local  sources. In FY 2001 45% of our operating revenue and over 80% of our capital  revenue was from local sources. In FY 2001 the state provided only 37% of our operating revenue. 
2. The so called financial "bail outs" of the Chicago Schools in 1980 and 1994 did not involve any additional state funding. In both cases the Chicago financial problems were "solved" by local deficit financing bonds backed by local property taxes. 
3. The 1995 Chicago School Reform has produced excellent financial results. Financial stability has been restored. The CPS has balanced its budget every year since then.   We have entered into two consecutive four-year labor agreements. Our bond ratings have increased from below investment grade to an A+ rating - the highest level in forty years. 
4. Since 1995 the CPS has strongly supported major legislative initiatives that were good for all of the school districts in the state - initiatives such as the 1997 School Finance Reform, the Illinois First school capital program, and the fix of the double whammy problem in the state aid formula. 

Need For Continuing Appropriations and Long Range Financial Planning 

The first point from the LUDA plan that I want to emphasize is the importance of the GSA continuing appropriation and long range financial planning by the state. In 1995 the first thing I did when I took my position in Chicago was to establish a permanent multi-year financial planning process. This has been the cornerstone of our financial success. It has allowed us to restore financial stability to our district by balancing our budgets, entering into long-term contracts with our employees, and dramatically improving our bond ratings. 

In FY 99 our long-term planning was made much easier with the establishment of the GSA continuing appropriation and modest annual increases in the foundation level. Unfortunately the continuing appropriation was only temporary. It expires at the end of this fiscal year. It should be made permanent with automatic inflationary increases (at least at the CPI rate of inflation). School districts need the long-term stability that this will provide. 

Some have claimed that education does not need or deserve a continuing appropriation. LUDA disagrees strongly. The only other state programs that are supported by a continuing appropriation are debt service payments on state bonds and contributions to the state pension funds. A continuing appropriation is appropriate in both these cases - to ensure that the state will fulfill its obligations to its bondholders and its retirees. However, the state's obligation to ensure that all of its children have an adequate education is just as important and deserves just as much protection. 

Others have argued that a continuing appropriation limits the state's financial flexibility. This is true. However, the proper response to this is not to abandon our commitment to education. The proper response is to improve the state's long-term financial planning process so it can meet its commitment to education with a continuing appropriation. Financial planning at the state level must support financial planning at the local level. 

Expand Educational Adequacy to Include Capital and Technology Needs

 The current state school funding system addresses adequacy only in terms of day-to-day operations. It does not recognize the investments in school facilities and technology that are needed to properly support day-to-day operations. This is something I have become painfully aware of during the last five years in Chicago. In 1995 our capital and technology needs had been neglected for many years. Since then we have made an excellent start towards addressing these needs with the issuance of over $2 billion of local debt, participation in the new $2 billion state school construction program, and aggressive participation in the federal E-rate program. However, we still have a long way to go and we are coming close to exhausting our local resources. Chicago and all school districts in the state need a comprehensive permanent state solution for education's long-term capital and technology needs. 

As part of this solution the state must: 

1. recognize that an adequate education requires adequate school facilities and adequate technology 
2. determine the level of school facility and technology services that are needed to meet the state's education goals 
3. establish a permanent state and local funding structure that will fund this level of services on a long-term basis.

This will not be easy to do. In many ways it is more difficult than determining an adequate level of funding for day-to-day operations, However, in the long run it is absolutely necessary and we must start working on it now. 

Increase Financial Flexibility for School Districts 

The final point I want to emphasize is the need for increased financial flexibility for school districts. Chicago was fortunate when it was given much greater financial flexibility in the 1995 Reform Act through the creation of two large block grants and the consolidation of many rate limited tax levies into one rate limited levy. We were given the flexibility to use most of our resources as we thought best. This flexibility has played an important role in our financial success. Other school districts need and deserve this same flexibility. 

One question that is often raised in response to the request for flexibility is how the state can ensure financial and educational accountability if it gives school districts more flexibility? The answer is that the state can ensure accountability through the district wide financial oversight process that is already in place and through an improved education accountability process. The state's interest in accountability is very important, but it is best served through an accountability process that focuses on the district as a whole and on the educational performance of the students and not through separate restrictions and oversight mechanisms for many different categorical programs. 

In conclusion, the LUDA plan is good for the whole state - downstate, the suburbs, and Chicago. It asks the state to address the needs of all the students in the state in all parts of the state. The members of LUDA ask you to consider it carefully.