published Dec. 7, 2013, 12:16 a.m.

More than a decade ago, demographic projections signaled an important reversal for Chicago Public Schools: Enrollment was about to shrink dramatically.

Yet CPS leaders appointed by former Mayor Richard M. Daley issued billions of dollars in bonds to repair, expand or replace the vast majority of the district’s schools regardless of future needs and without voter input, a Tribune investigation found.

In total, CPS officials have borrowed more than $10 billion in general obligation bonds since 1996 to fund school construction projects, debt that has contributed to the system’s current financial crisis. Officials poured $1.5 billion of that money into schools that today are less than 60 percent full.

Along the way, CPS invested $100 million in schools it closed this year, in part, because they were underused. About half of that spending came after demographic projections predicted districtwide enrollment drops.

“It’s not been carefully managed or you wouldn’t have this mess.” Henry Bienen , member of the Chicago Board of Education

For decades to come, taxpayers will be paying off bonds that funded tuck-pointing, better windows, new roofs and other repairs on buildings that are now shuttered.

If the district had asked voters to approve the borrowing, the loans would have come with new property taxes to cover debt payments.

Instead, officials avoided referendums by linking the bonds to other funding sources, a move that drained significant revenue from the district’s operating budget.

In 2011, for example, more than a quarter of all unrestricted general state aid, the per-pupil funding sent by the state of Illinois, went to paying off old debts rather than funding new opportunities for children.

CPS officials also contributed nothing toward teachers’ pensions for a decade, depriving the pension fund of $2 billion and using the money to run the district instead.

Much like the city of Chicago, CPS is now struggling to overcome the consequences of heavy borrowing, deeply underfunded pension plans and persistent budget deficits.

“It’s not been carefully managed, or you wouldn’t have this mess,” said Henry Bienen, current school board member and former Northwestern University president.

The financial difficulties contributed to the teachers strike last year and the contentious fights surrounding the closing of more than 40 of the district’s roughly 500 elementary schools this year. Officials say dozens more schools remain underused.

Annual debt payments on bonds, meanwhile, have grown from $80 million in 1998 to more than $322 million in 2012.

And although officials have saved money by refinancing $3 billion in debt, during the past three years they used $366 million in borrowed funds to push debt payments into the future, a maneuver called “scoop and toss” that will cost more in the long run.

Daley, who as mayor touted the money CPS put into school projects, did not respond to the Tribune’s requests for an interview.

Current CPS officials said the district had no choice but to fix up aging, deteriorating buildings to provide safe environments for children, regardless of demographic trends or whether the schools were full.

“Whether there is one child in those buildings or 100, if there’s a broken window or boiler that is not working or roof that is caving in, we have an obligation to address that issue because it falls under the buckets of life, health and safety,” said CPS spokeswoman Becky Carroll.

School construction experts say demographic trends should help determine spending priorities. Well-planned building programs, they said, should prevent the kind of sudden, mass school closings CPS went through this summer.

“It’s just not something I’ve seen before,” said David Waggoner, chairman of the Council of Educational Facility Planners International, an industry association made up of school officials and builders. “It’s disappointing to those of us who are advocates for school facilities.”

Even after spending billions, Chicago officials failed to solve one of the problems used to justify the borrowing — overcrowding. CPS still has 78 schools with too many students.

Seeds of a crisis

When CPS said it would close Trumbull Elementary in the Andersonville neighborhood, the school had about half of the students the district considers ideal.

James Morgan walks his sons Lukas, left, age 7, and Jonah, 10, to Peirce School of International Studies in Andersonville. Their old school, Trumbull Elementary, was closed this year. Michael Tercha - Chicago Tribune

But James Morgan, whose two children attended the school, didn’t really expect CPS to go through with its plan.

“This spring, they redid the lighting,” Morgan said. “Why would you spend that money on a school you’re going to close?”

CPS spent about $4.6 million on Trumbull since 2001 even though the district’s demographic projections accurately predicted in 2000 that it would lose students.

Trumbull shut its doors in the fall, and Morgan’s kids now attend another school.

To understand why officials felt they had to close so many schools at once — even after investing substantial funds — it helps to go back to 1995.

That year, a Republican-controlled state legislature gave Chicago’s Democratic mayor what he’d long sought: near-complete control of the nation’s third-largest public school system.

“I wanted this responsibility,” Daley told the National Press Club in Washington a few years later. “It was only with that authority over the schools that I could take action and demand results to improve performance and make our schools accountable.”

The legislature allowed the mayor to appoint the school board and a CEO while giving the district more flexibility to address its troubled finances.

For one thing, the new state law took tens of millions of dollars in property tax money that had been earmarked for teachers’ pensions and shifted it to the district’s operating budget.

For the next 10 years, the district made no contributions into the teachers’ pension fund, which was permitted because the plan had at least 90 percent of the money it needed to cover retirements. Today that fund teeters on the brink of insolvency.

The new law also restored the school district’s power to issue bonds, lifting a prohibition imposed as part of a state bailout in the late 1970s. But the system’s bond rating had fallen to junk status, leaving CPS unable to borrow at reasonable rates.

Daley’s team made sweeping changes that tightened the district’s finances enough to improve its credit rating and begin borrowing again. To back the new bonds, officials turned to a revenue stream known as the personal property replacement tax.

Previously that money had gone into the operating budget, but from 1996 to 2000 the district pledged it to pay off $2.3 billion in bonds. Since then, more than $800 million of that replacement tax money has gone to make debt payments.

The strategy had an advantage for officials: The district did not have to hold referendums, as would be required for bonds paid off with property taxes.

Education funds used to pay off bonds Historically, Chicago schools used general state aid money to fund operations. But last year, nearly a fifth of it went to pay off bond debt. Percentage of general state aid spent on annual debt payments Source: Chicago Public Schools Comprehensive Financial Reports

Instead, state law allows CPS to notify the public of such deals in local newspaper ads, usually in the back pages. Only if someone takes notice and collects about 100,000 signatures in 30 days is a referendum required.

CPS officials later turned to another revenue source to back the bonds: general state aid. This education funding was traditionally used to help operate the district, but starting in 2000 large chunks of it were shifted to back an additional $7.4 billion in bonds.

At first, the school board capped at $75 million the amount of general state aid that could be used for debt payments. But it repeatedly increased that amount, which reached as high as $300 million. In 2011, more than a quarter of CPS’ roughly $890 million in unrestricted state funding went toward debt.

Since then, CPS has decreased the amount of GSA money used to cover debt through refinancings as well as one-time injections of cash from the city and state.

But next year, debt payments related to district facilities are scheduled to jump by more than $100 million to a total of $481 million, according to bond documents.

If the district is ever unable to pay what it owes, the consequences could be ugly for Chicago taxpayers. Under state law, higher property tax rates would kick in automatically to make sure bondholders are paid.

Bad planning

It was easy to justify the initial wave of school construction spending.

Because CPS couldn’t borrow for its capital needs for nearly two decades, many school buildings had deteriorated. They had leaky roofs, crumbling walls, backed-up toilets and boilers that didn’t work. Some were so drafty that students wore winter coats in class.

But as early as 2000, there were clear signs that population trends should have started to shape decisions on whether a school was worth saving.

That year, a demographic study commissioned by the district predicted that overall enrollment would soon plateau and then fall. Subsequent studies forecasted rapid declines.

Though CPS’ enrollment had been growing at the time, the predictions turned out to be on target. From 2002 to 2013, the number of children enrolled in the district fell by about 9 percent.

Enrollment drop was predicted early Much of Chicago Public Schools’ spending on school construction occurred as enrollment in the district was shrinking. The number of children enrolled peaked in 2002 before steadily declining — just as predicted by demographic projections that took falling birth rates into account. Earlier projections that were based solely on the number of children moving through grade levels had predicted growth in enrollment, but that changed as demographers refined their methodology. From 2000 to 2010, Chicago’s school-age population fell nearly 19 percent, according to census data. Among African-Americans, roughly half as many children were born in 2009 as in 1990. Many schools closed this year were in predominantly black neighborhoods on the South and West Sides. Projected and actual CPS enrollment Sources: CPS, Chicago Area Geographic Information Study School-age children living in Chicago (5 to 18 years old) 2000 582,109 2010 473,029 Source: U.S. Census Bureau Live births in Chicago Select a race/ethnicity Black (non-Hispanic)

White (non-Hispanic)

Hispanic Source: Illinois Department of Public Health

The factors included fewer births in the city and the demolition of public housing, which started in 2000 and ended up scattering tens of thousands of families. Many wound up outside the city’s borders.

But back in 2000, officials were skeptical of the demographers’ numbers, according to Cliff Tiedemann, a retired geography professor who helped run the Chicago Area Geographic Information Study at the University of Illinois at Chicago .

“No one believed us,” he said.

The district went on to issue $7.5 billion in construction bonds beginning in 2002 — nearly three-quarters of the total since 1996.

And instead of focusing its resources where they would be most needed, the district spread those billions all around the city.

For example, CPS poured more than $100 million into 12 schools in the East Garfield Park, West Garfield Park and Humboldt Park communities, which together saw a nearly 50 percent decline in births between 1990 and 2009. The schools have capacity for about 14,000 students. Fewer than 6,000 currently attend.

About $8 million went to Humboldt Park’s Piccolo Elementary Specialty School. Today, 6 in 10 desks are empty, and enrollment projections show it is expected to lose students through 2017. By then, Piccolo is expected to have fewer than a third of the 1,320 students it can handle.

In nearby West Town, Clemente Community Academy High School received $9.6 million in bond funds through 2006, when the school held about 2,400 students. Since then, it’s received more than $24 million as enrollment nose-dived to 700, with no signs of recovery through at least the next decade, according to current CPS projections.

The district deems any school at less than 80 percent of its “ideal capacity” to be underused. School buildings with utilization rates of more than 120 percent are considered overcrowded.

CPS opened the $20 million Claremont Academy Elementary School in Chicago Lawn a decade ago. The school it replaced, Anderson Elementary, was not fully utilized, and the problem persists at Claremont. It is now just 57 percent utilized.

For a district struggling to put its financial house in order, the price tags on some schools are staggering. CPS spent more than $156 million to renovate and expand Jones College Prep in the Loop, $96 million to build South Shore International College Preparatory High School and $92 million on the recently opened Back of the Yards High School.

Over the past decade, the district also spent more than $20 million to renovate and maintain a Loop high-rise to serve as its headquarters. Now officials say the building should be sold because it’s underused after deep staff cuts.

TIF funds drained for schools By 2006, Chicago Public Schools was in the midst of steady enrollment declines and weighed down by more than $4 billion in construction debt. But Mayor Richard M. Daley doubled down on school construction that year, launching a $1 billion program ahead of an upcoming re-election bid. He found a questionable way to fund it. read the story

The big push for school construction and repairs began under Daley’s first leadership team, CEO Paul Vallas and board President Gery Chico . In an interview, Chico said the school infrastructure was “in ruins” when they took over and there was no choice but to find a way to make the fixes.

Most of the bricks-and-mortar spending, however, occurred under Arne Duncan , CEO of the district from 2001 to 2008. Currently the U.S. education secretary, Duncan declined through a spokesman to be interviewed.

His chief financial officer at CPS, Pedro Martinez, said the borrowing was necessary because many urgent safety and maintenance issues still needed attention.

A job never done

By the end of 2012, school officials said they were facing a budget deficit of $1 billion.

With pension costs set to increase dramatically in 2014 and the ink still drying on a new teachers contract that would further increase costs, some school officials said the district could no longer afford to maintain a system that was larger than needed.

More than 300 schools were underused, said Carroll, the CPS spokeswoman. “This is an issue that should have been addressed long ago as part of a larger strategic plan,” she said.

Mayor Rahm Emanuel ‘s education team announced it would mothball a record number of schools. At first, 129 schools were on the list. But after a contentious process, 47 school programs were closed.

“These decisions needed to be made, given that we have so many schools that were severely underutilized. At the end of the day, money had nothing to do with it.” Becky Carroll , CPS spokeswoman, on why the district closed schools

“Whether we had a budget crisis or not, these decisions needed to be made, given that we have so many schools that were severely underutilized,” Carroll said. “At the end of the day, money had nothing to do with it.”

“That’s, frankly, ridiculous,” said school board member Bienen. “The district is in an extremely precarious financial situation, and closing schools saves significant amounts of money, both in long-term capital costs and operating expenses.”

Along with massive debt payments and hundreds of underused schools, Emanuel’s schools team also faces an ongoing problem with overcrowding.

That’s because some neighborhoods, particularly on the Far Southwest and Northwest sides, have seen increases in enrollment even as the district lost students overall. Demographers had identified some of those growth areas more than a decade ago.

Yet after spending more than $10 billion, the district didn’t manage to keep pace with the growth. CPS still considers 78 schools to be overcrowded. At about half of those schools, trailers and other temporary arrangements have reduced crowding in the main building.

Pat Walenga, a member of the Local School Council at Bridge Elementary School in the Northwest Side Dunning neighborhood, stands by a mobile unit. About 1,050 are enrolled in a school that should hold 480. Chris Walker - Chicago Tribune

The district says Bridge Elementary, in the Dunning neighborhood, should hold about 480 students, but about 1,050 are enrolled. Many classes are held at a nearby Catholic school building and in a mobile unit.

“If we didn’t have St. Priscilla’s, we’d be up to our armpits,” said Pat Walenga, who stayed on as a member of the Local School Council after her two children graduated. “We’ve dealt with it the best we could.”

Since 1996, CPS has spent $19 million on Peck Elementary in the Southwest Side neighborhood of West Elsdon, expanding capacity and adding mobile classrooms. Yet today Peck remains overcrowded.

At a recent board meeting, CPS officials outlined their 10-year facilities master plan for the city, identifying $3.5 billion in unfunded maintenance costs.

Among the additional needs outlined at the meeting: as much as $3 billion more to relieve overcrowding.