The Chicago Public Schools to pay 6.39 percent, an extraordinary interest rate by the short-term lending standards in order to borrow $275 million it needs to make the mandatory payment for retiree pensions before 30th June deadline.
That is four times more than the interest rate a typical government would pay on the same borrowing deal, said the financial experts.
CPS officials have secured $275 million on Monday from the J.P. Morgan. It is the final chunk of cash which is needed to make the $721 million payment for the teacher pensions that is due at the month end, the senior vice president of finance Ron DeNard said in a statement.
An additional $112 million that is needed to fund the district operations will be borrowed separately.
After fielding the three competing bids, CPS chose the J.P. Morgan to provide the so-called “grant anticipation notes,” which will be backed by the state block grant money CPS is entitled to, but still has to receive in the ongoing budget stalemate. The interest rate will be fluctuating monthly.
Mayor Rahm Emanuel has argued that the CPS has no other choice but to borrow its way out of the financial mess in the Springfield that is affecting school districts statewide.
The mayor is considering to tax the high net-worth individuals, downtown businesses or both to put the CPS on more solid financial ground. But mayor is still determined to wait until the end of a special Legislative session in the next week before coming up with a decision.
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Mrudula Duddempudi.
