On August 28, 2025, Chicago Public Colleges (CPS), the fourth-largest college district within the US, handed a $10.2 billion finances and is dealing with a $743 million deficit. Previous to the finances passage, the large three credit standing businesses every rated CPS Normal Obligation (GO) Bonds “non-investment grade speculative,” additionally recognized by the extra pejorative title “junk bonds.” CPS bonds obtained a Ba1 ranking from Moody’s and a BB+ ranking from each S&P International and Fitch Rankings.
The identify “junk” refers back to the danger that traders face that CPS won’t make curiosity funds or repay the principal when the bond totally matures. To offset this danger, junk bonds supply excessive rates of interest to draw traders. That is particularly vital as a result of GO bonds are backed by “the total religion and credit score” of CPS, which means the district guarantees to make use of all current income to pay again the debt and, if mandatory, elevate new taxes to pay the debt.
Sadly, these rankings are justified. Analysis from the Illinois Coverage Institute discovered that CPS suffers from persistent finances deficits in addition to billions of {dollars} in debt and unfunded pension liabilities regardless of record-high working income. The issue is persistent overspending. As my colleague Corey DeAngelis wrote, CPS officers and workers “put their very own wishes earlier than the wants of youngsters.”
The scenario at CPS, nevertheless, won’t be contained inside Chicago. The finances stress may put further stress on the state of Illinois, which is already teetering on the sting of the fiscal cliff.
If the proper storm of an financial and finances disaster happens, policymakers within the Land of Lincoln might flip to DC for monetary help, shifting the price of mismanagement onto the remainder of the nation.
What Does That Imply for College students?
A very powerful group affected by CPS’s monetary troubles are the scholars. An upcoming bond sale on the new junk ranking will additional enhance borrowing prices, diverting extra of the district’s finances towards debt service fairly than lecture rooms. Not together with the upcoming bond sale (which Bloomberg estimates might be greater than $600 million), CPS presently owes $9.1 billion in long-term debt and $13.9 billion in unfunded promised pension advantages.
Each greenback spent on debt service is a greenback not spent on textbooks, expertise, security programs, services, or instruction. This squeeze comes at a time when funds for college kids are already strained. The chart beneath from the Illinois Coverage Institute exhibits that spending on personnel accounts for 70 % of the expansion in working bills for CPS.
The prioritization of spending on personnel over college students is already displaying. Corey DeAngelis reported that in 2022 not a single scholar was proficient in math in 33 public faculties in Chicago. As debt service continues to devour an already unsustainable finances, don’t anticipate scholar studying outcomes to enhance.
What Does That Imply for Chicagoans and The State of Illinois?
The first supply of working income for CPS is native tax income, particularly property taxes that the varsity district levies itself. For FY 2025, these revenues make up $5.1 billion of the $8.6 billion in working income (59 %).
CPS is a legally separate entity from the Metropolis of Chicago, with the ability to levy its personal taxes, situation bonds, and handle and management all public faculties within the district. Whereas it has impartial standing, its governance is tied to the Mayor of Chicago, who appoints members of the Board of Training (till 2027 when all board members might be elected).
CPS depends on the identical tax base as town of Chicago, which suggests residents are accountable for supporting each entities. As CPS debt accumulates, Chicago taxpayers might be on the hook to pay it.
CPS additionally depends closely on state funding as nicely. For FY 2025, about $2.1 billion of the $8.6 billion working income (24 %) was funded by the state. Ought to CPS be unable to pay its money owed, historical past means that it could look to Springfield for assist and oversight. Such oversight might resemble Michigan’s personal interventions within the Detroit Public Colleges (DPS), with Lansing’s involvement within the district spanning almost twenty years.
State involvement in DPS started in 1999 underneath then-Governor Engler. The State Superintendent of Public Instruction and a six-member board of training ran the varsity district from 1999-2005 when Detroit residents voted to return the district to native management. That management, nevertheless, was short-lived as funds and enrollment deteriorated going into the Nice Recession. Then, in 2009, the state appointed emergency managers, 4 years earlier than town declared chapter.
These managers had full management over district funds, making main spending cuts to tame structural deficits. In 2016, the district was separated into two distinct authorized entities: the Detroit Public Colleges, which exists solely to pay down long-term money owed, and the Detroit Public Colleges Neighborhood District, a “new” debt-free entity that supplied public education for Detroit residents. The state of Michigan additionally supplied a $25 million switch to help with the transition prices from the “previous” to the “new” entity.
If Chicago Public Colleges can not correctly handle their funds, Illinois taxpayers exterior of Chicago should pay a bigger portion of taxes to cowl CPS finances deficits.
What Does That Imply for the Remainder of the Nation?
As I mentioned elsewhere, one stark distinction between Detroit and Chicago’s circumstances is the respective funds of Michigan and Illinois. The place Michigan was in comparatively good monetary situation when Detroit declared chapter, Illinois is in a lot worse form. Fiscal stress in Illinois is akin to Puerto Rico within the lead-up to the Commonwealth’s 2015 finances disaster. On the onset of the disaster, Puerto Rico was affected by huge debt and credit score rankings simply above junk standing, very like Illinois in the present day.
If policymakers in Springfield are unable to financially assist CPS, it’s doubtless each state and metropolis officers will flip to federal policymakers to bail them out. Illinois and Chicago closely relied on federal stimulus packages in 2020 to shut finances gaps. In FY 2025, federal taxpayers supplied $1.3 billion of the $8.6 billion of CPS working income (simply over the remaining 15 %). These officers have already got an urge for food for federal taxpayer {dollars}; there’s nothing stopping them from demanding extra.
This relationship permits state and native officers to fund spending at the price of federal taxpayers in different states, and offers federal officers affect over state and native budgets by attaching phrases and circumstances to federal funds. Moreover, if such a bailout is achieved via an emergency lending facility on the Federal Reserve, such because the 2020 Municipal Liquidity Facility, federal officers may even be capable of outsource politically unpopular bailouts to the Federal Reserve.
Whereas neither CPS nor the Metropolis of Chicago appears to be altering their methods, state and federal officers should arrange fiscal guardrails ought to Chicago officers come to them in search of monetary assist. These guardrails, whether or not an ex-ante assure towards bailouts or tying strict austerity measures to stimulus packages that make in search of monetary assist as unattractive as potential, will cease the Windy Metropolis from persevering with the irresponsible practices that put town on this place within the first place.
