Introduction to the Crisis
Mayor Brandon Johnson on Tuesday likened himself to a parent trying to evict an adult child from the basement — only in this scenario, the overgrown kid is Chicago Public Schools and the parent is the city of Chicago. The parent-child comparison comes as Johnson continues to insist that the school district reimburse the city for a payment to a pension fund that includes thousands of CPS employees.
Background of the Dispute
Johnson’s call for the school board to take care of its own finances comes at an urgent moment. On Tuesday, the board received a long-awaited memo from a financial firm it hired to lay out possibilities for finding money to make the pension payment. Though the memo doesn’t provide a recommendation, the only real possibility it outlines is generating money through refinancing or refunding outstanding debt.
The Upcoming Vote
On Thursday, the board will consider amending CPS’ budget to include three new expenditures: the pension payment and costs associated with contracts for teachers and principals unions, which are still being negotiated. The amendment needs two-thirds of the board members to approve it. With the board now partly elected and partly appointed, it will likely pass or fail on the thinnest of margins.
Consequences of Failure
The stakes are high: If it is not approved, the city will have to close its 2024 books with a deficit and will have to reach into reserves to fill the hole. This could trigger another credit downgrade, which would make future borrowing difficult and expensive. Twenty-seven city council members signed a letter demanding that CPS make the payment.
Financial Constraints
But CPS CEO Pedro Martinez has argued the school district cannot afford to make the $175 million pension payment. He called a suggestion from City Hall that the district borrow fiscally irresponsible. His team has also argued that it is illegal to take a loan to cover operating expenses. This rebuke of the mayor cost Martinez his job; he has been given a six-month termination notice. At the moment, CPS only has $139 million available but potentially needs about $200 million more to cover all the three new expenditures.
Exploring Financial Options
The memo, by the Baker Tilly Advisory Group, walks through all the ways CPS could find money to cover all the expenses. It pretty quickly dismisses the idea of cutting costs this year, noting that the school year will be over in a few months. Given the timing, the memo reads, “it would be difficult to generate sufficient savings to cover both the current budget shortfall and other Board obligations.” The school board could also ask the city for more money from special taxing districts called TIFs, but that also is unlikely, given the timing and given that if money is released now, it would not be available in the future, according to the memo.
Refinancing and Refunding
The memo talks about several ways to generate money through refinancing or refunding, but it stresses that the details need to be worked out by school district municipal advisers or staff. One of the ideas entails reissuing bonds for capital projects. Another suggestion is to examine pulling money out of reserves. It also notes that some of these ideas are contingent on interest rates and other market volatility. CPS did not respond to questions about the memo, but last week, it pushed back on the idea of refinancing. School district officials said they refinance annually but need the money for next school year, suggesting it would be a bad idea to do it now.
Shift in Perspective
Board President Sean Harden on Tuesday said the memo, commissioned by the board, offers up other options besides a short-term loan. “This kills the whole narrative that borrowing is irresponsible or that it would amount to a payday loan,” he said. “It rights the ship.” Harden, who was appointed by the mayor, said he is hoping that it shifts the board to a “solutions mindset.”
Historical Context
Finding money for the pension payment has been a source of high drama since last summer. The city is legally responsible for making the payment to the municipal pension fund, but it includes non-teacher CPS staff, such as paraprofessionals. The city covered the payment for 100 years, but in 2021, former Mayor Lori Lightfoot began demanding that the school district pitch in. As an organizer for the CTU, Johnson criticized the move by Lightfoot. But as mayor, Johnson is insisting CPS take on the cost. His argument, like Lightfoot’s, is that CPS will have a fully elected Board of Education in two years and therefore needs to be independent of the city.
Conclusion
The situation between the city of Chicago and Chicago Public Schools has come to a head, with a critical vote looming on whether to amend the CPS budget to include a pension payment and other expenditures. The financial implications are significant, and the path forward is uncertain. As the city and CPS navigate this challenging situation, one thing is clear: the decisions made now will have lasting impacts on the future of education in Chicago.
FAQs
- Q: What is the current financial situation of CPS?
A: CPS has $139 million available but needs about $200 million more to cover new expenditures. - Q: What are the possible ways for CPS to generate money?
A: According to the memo, options include refinancing or refunding outstanding debt, reissuing bonds for capital projects, and examining pulling money out of reserves. - Q: What are the consequences if the budget amendment is not approved?
A: The city will have to close its 2024 books with a deficit, potentially leading to a credit downgrade and making future borrowing difficult and expensive. - Q: Why is the city insisting that CPS make the pension payment?
A: The city believes CPS needs to become financially independent, especially as it moves towards having a fully elected Board of Education in two years.
