By Dave McKinney and Julia Jacobs
CHICAGO (Reuters) - Illinois’ most financially distressed school districts appear capable of opening on schedule this month, but some may face shutdowns in September and possible bond-rating downgrades if $6.7 billion in state education funding remains frozen by a new round of political deadlock.
The nation’s fifth-largest state, which recently ended a record-setting two-year budget impasse when schools were fully funded, now faces a new financial crisis triggered by Republican Governor Bruce Rauner's veto of a Democratic-backed school-funding overhaul.
His move leaves Illinois without a budget for its schools for the current fiscal year and could disrupt state aid for 850-plus districts that educate 2 million students, including the nation’s third-largest school system in Chicago.
Rauner argued the legislation was too generous to Chicago, depriving suburban and rural school districts of funds. The legislature appears to lack sufficient votes to block the governor's veto and Democrats do not favor his changes, creating a high likelihood the entire package could die.
On Wednesday, Fitch Ratings warned Rauner’s amendatory veto threatened to deprive schools of state aid payments before their openings this month and could result in downgrades for some Illinois’ school districts, including junk-rated Chicago Public Schools (CPS).
“Should there be an extended impasse, ratings for the Chicago Board of Education and other Illinois school districts with limited financial flexibility could be at risk,” Fitch said in a statement.
CPS, which derives 30 percent of its revenue from the state and is one of 19 cash-strapped districts on a state financial watch list, has vowed to ride out any disruptions in funding and stay open.
Rauner justified his amendatory veto by criticizing the Democratic school-funding measure for “unfairly” diverting hundreds of millions of dollars to CPS at the expense of other school districts, setting the stage for an override fight in the legislature that could play out during the next two weeks.
If lawmakers do not block Rauner's veto, they will have to start from scratch in drafting new school appropriations legislation for the 2017-2018 school year, which will require bipartisan, supermajority support to pass.
Administrators in some financial watch districts have begun informing parents they may have to shut down if state funding is not reinstated.
Some also have weighed short-term borrowing, ceased buying office supplies and begun prioritizing bills to pay only the most essential obligations until state money or property-tax collections arrive.
“We’re seriously considering paying salaries and the light bill and water bill, and everybody else will have to wait,” said Mike Gauch, superintendent of Harrisburg Community Unit School District 3, which educates close to 1,900 students in this coal-mining town about 350 miles (563. km) south of Chicago.
Gauch, who has a pending line of credit with a local bank that the district can utilize if necessary, has notified parents a state funding cut-off could cause his district that derives about 55 percent of its revenue from the state to close in September or October.
In Streator, Illinois, a farming community 100 miles southwest of Chicago, schools have only enough resources to keep classrooms open until late September, and the district cannot open a line of credit until October or November, its top school administrator said.
“We’re preparing for the worst but hoping for the best,” said Matt Wilkinson, superintendent of Streator Elementary School District 44.
(Editing by Matthew Lewis)