COMPREHENSIVE ANNUAL FINANCIAL REPORT for the Year Ended June 30, 2007
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CHICAGO PUBLIC SCHOOLS Chicago Board of Education Chicago, Illinois COMPREHENSIVE ANNUAL FINANCIAL REPORT For the year ended June 30, 2007 Prepared by the Office of School Financial Services Richard M. Daley, Mayor, City of Chicago Rufus Williams, Board President Arne Duncan, Chief Executive Officer Board of Education CITY OF CHICAGO 125 SOUTH CLARK STREET — 6TH FLOOR Rufus Williams CHICAGO, ILLINOIS 60603 Clare Muñana President TELEPHONE (773) 553-1600 Vice President FAX (773) 553-1601 OFFICE OF THE BOARD MEMBERS NORMAN R. BOBINS DR. TARIQ BUTT ALBERTO A. CARRERO, JR. PEGGY A. DAVIS ROXANNE WARD December 14, 2007 Dear Colleagues and Friends, Every school year is a challenging new chapter in the history of the Chicago Public Schools (CPS). We continue to take bold steps in our quest to improve every child’s academic performance. As their current leaders and mentors, we have the opportunity and the responsibility to help them fulfill their goals and become productive citizens. Consistently, our focus consists of three core strategies: instructional excellence, talent attraction and development of and expanded learning options with the two supporting strategies of managing perfor- mance and aligning resources. We continue to advance our approaches towards providing an outstanding education. Our goals include enhancing efforts towards successful recruitment and retention of teachers while strengthening teaching methods and principal leadership. We encourage teacher and student excellence with constructive performance management tools and through the development of numerous expansion projects for educational and support opportunities. Although many programs help support instructional excellence, four initiatives are at the core of the district’s instructional excellence strategy. The Chicago Reading Initiative framework, established six years ago, offers increased support in several areas: a balanced literacy framework and high-quality core reading materials, extensive school- and classroom-level coaching, extended time, and additional student support. The Chicago Math and Science Initiative (CMSI), now in its fifth year, offers supported curricula and materials, aligned teacher professional development, and school-based coaches. Our 8th — 9th Grade Transition and High School Transformation programs are comprehensive approaches for raising expecta- tions for students and keeping them on target toward measurable goals using specialized curriculum. We strive to provide effective educational approaches, giving our students a solid foundation for their lives inside and outside of the classroom. The Renaissance 2010 program is an example of how, with the assistance of outside partnerships, we researched and adopted a variety of educational programs that are already succeeding here. We are at 80% of our goal of 100 new schools by 2010. CPS is also partnering with other public agencies and nonprofit organizations in establishing 110 Community Schools with a goal of making all of our schools Community Schools within five years. Already we are seeing the fruits of our labor paying off. Student test scores demonstrate that Chicago has significantly increased the percentage of students meeting state standards. In October 2007, CPS was awarded two federal grants to convert ten of the district’s historically lowest performing elementary schools into magnet schools. Five of these schools will become new technology magnet schools and the other five will be dedicated to a language academy, a Montessori school, two new baccalaureate programs, and the district’s first-ever children’s engineering program. CPS ended last fiscal year in strong financial condition, with revenues moderately higher and expenditures less than budgeted. The FY07 comprehensive annual financial report reflects continued strong manage- ment practices and strong tax base growth. As a result, Moody’s Investor Service and Standard and Poor’s upgraded the debt ratings for CPS in the fall of 2007. At the start of this school year, CPS worked closely with the Chicago Teachers Union (CTU) to secure a historic new five-year teacher contract that will support teacher quality, development and recognition. The agreement outlines newly established salary ranges, health care benefits with cost containment incen- tives, job protection standards and an early retirement program. In addition, a joint CPS-CTU committee is creating a new teacher evaluation process to be piloted in 2008 — 2009. CPS has made many improvements to our financial, purchasing, and budgeting systems allowing access to more information and reducing the paperwork burden. Our investment in these key areas of infra- structure continued in 2007 with the implementation of the CPS@Work Human Resources system and the IMPACT student information system. We completed Phase I of CPS@Work in 2007 with respect to the core business functions of Human Resources, Payroll and Benefits. Phase II began in November 2007, allowing employees to update their benefits information on-line during annual open enrollment via the CPS@Work website. It will be completed in 2008 giving full access self-service functions for employees and managers. Chicago Public Schools’ Instructional Management Program and Academic Communi- cation Tool (IMPACT) is a comprehensive initiative to build and implement a centralized student infor- mation solution. IMPACT makes student information more accessible, reduces paperwork, and gives teachers measurable performance data at their fingertips like a dashboard control panel. While the start-up of these two major enterprise systems in 2007 has presented significant challenges, we are starting to reap rewards. We are very proud of our accomplishments, but we also recognize that there is still much work to be done. The help we have received from the Mayor and the City of Chicago, the philanthropic community, local businesses, and all our supporters make CPS confident that next year will be another year of progress and dynamic change on our path to being the premier urban school district in the country. In spite of all our efforts, there are financial challenges ahead as CPS addresses increasing pension liabilities, educational funding reform, and state funding issues. We cannot accomplish all our goals with our existing funding resources. Our children are entitled to excellent academic programs and the highest quality instruction. Yet, as the third largest school district, we are one of the least funded school districts in the nation. As a parent, teacher, student, community, city and state, we need to focus our time and monetary investments on the most important assets in life: our children, our future. With your continued help, we can bring those dreams into reality so we may be witness to a brighter, more deserving future for our children and for generations to come. Respectfully Submitted, Rufus Williams Arne Duncan President Chief Executive Officer Chicago Board of Education Chicago Public Schools Chicago Public Schools Every Child, Every School CHICAGO PUBLIC SCHOOLS Chicago Board of Education 2007 COMPREHENSIVE ANNUAL FINANCIAL REPORT CONTENTS Page I. INTRODUCTORY SECTION Principal Officials . 1 Organizational Chart . 2 GFOAAward............................................................... 3 ASBOAward............................................................... 5 Board Member Profiles . 6 Central Administration Profiles . 8 Letter of Transmittal . 9 II. FINANCIAL SECTION Independent Auditor’s Report ................................................. 16 Management’s Discussion and Analysis ........................................ 19 Basic Financial Statements Statement of Net Assets . 34 Statement of Activities . 35 Balance Sheet — Governmental Funds. 36 Reconciliation of the Governmental Funds Balance Sheet to the Statement of Net Assets . 37 Statement of Revenues, Expenditures and Net Changes in Fund Balances — Governmental Funds................................................................. 38 Reconciliation of the Governmental Funds Statement of Revenues, Expenditures, and Change in Fund Balance to the Statement of Activities . 39 Statement of Revenues, Expenditures by Object, Other Financing Sources and Net Changes in Fund Balances — Final Appropriations vs. Actual — General Operating Fund . 40 Notes to Basic Financial Statements. 41 Individual Schedules General Operating Fund Schedule of Revenues, Expenditures and Net Change in Fund Balance — Final Appropriations and Actual . 77 Capital Projects Fund Schedule of Revenues, Expenditures, Other Financing Sources (Uses) and Net Change in Fund Balances . 79 Debt Service Fund Schedule of Revenues, Expenditures, Other Financing Sources (Uses) and Net Change in Fund Balances . 81 Bond Redemption and Interest Program Schedule of Revenues, Expenditures by Object, Other Financing Sources (Uses) and Net Change in Fund Balance — Final Appropriations vs. Actual . 82 Public Building Commission Leases Program Schedule of Revenues, Expenditures by Object, Other Financing Sources (Uses) and Net Change in Fund Balance — Final Appropriations vs. Actual . 83 Comprehensive Annual Financial Report i Page III. STATISTICAL SECTION (Unaudited) Financial Trends Components of Net Assets — Last Seven Fiscal Years . 86 Changes in Net Assets — Last Seven Fiscal Years . 87 Components of Fund Balance — Last Ten Fiscal Years. 88 Changes in Fund Balances — Governmental Funds — Last Ten Fiscal Years . 90 Revenues by Source, All Programs — Last Ten Fiscal Years. 92 Expenditures by Function,