Mayor Johnson’s Dilemma: Finding $175M for CPS Pension Payment

Introduction to the Crisis

A critical mass of Chicago school board members has come out against reimbursing City Hall for a disputed pension payment, dooming its chances of passing. That leaves Mayor Brandon Johnson with less than a week to either change their minds or figure out another way to come up with the money to close the city’s 2024 budget in the black.

The Postponed Vote and Its Implications

Board of Education President Sean Harden postponed a pivotal vote last week on the approval of a $175 million pension payment from Chicago Public Schools to the city, a clear sign it lacked enough support to pass. He said the delay was due to an imminent contract agreement with the Chicago Teachers Union — though that deal has not been reached. Over the weekend, seven of 20 voting board members signed a letter telling Harden that their votes will remain against the pension payment if he calls a special meeting this week to reintroduce the issue. A budget amendment needs two-thirds support, 14 votes, to pass.

The Board Members’ Stance

“We cannot in good conscience make payments toward things for which we have no sustainable means of raising revenue,” the board members wrote in a letter first reported by Chalkbeat Chicago. Still, the mayor’s office said Monday that it would keep working with the board to find a solution and it “continues to expect CPS” to make the pension payment. Johnson has not presented a plan B.

The Proposed Budget Amendment

The postponed vote last week would have amended the CPS budget to include three additional costs: the pension payment, which covers CPS staff who aren’t teachers; a CTU contract that’s nearing settlement; and a yet-to-be settled agreement with the new principals union. The mayor has pushed for CPS to pay all three expenses using a record tax increment financing surplus provided by his office and other methods, such as short-term borrowing or debt restructuring.

Rejection of Borrowing and Refinancing

CPS CEO Pedro Martinez has rejected borrowing or refinancing as fiscally irresponsible. As a result, he has said CPS doesn’t have the money to make the pension payment and has instructed the board to instead focus on covering the costs of the labor contracts. The issue has divided the board mostly along pro- or anti-CTU lines, with mayoral appointees and most CTU-supported elected members in favor of making the pension payment.

Lack of Support and Consequences

The group that is siding with Martinez and signed the letter to Harden is mostly made up of elected members who beat CTU-backed candidates, independents and one who received some CTU money but has not consistently voted with that caucus. Harden did not answer questions Monday about whether he has accepted that board members won’t approve the pension payment. Board member Che “Rhymefest” Smith said he cannot see himself approving any borrowing or refinancing and signed the letter to let the mayor’s office know that it needs to move on.

The Mayor’s Options

The mayor’s office and some City Council members have warned the school board that the city could curtail financial support for the school district if the pension payment doesn’t come through. But Smith balked at that idea. “He is the education mayor, and I resent the implication that he would not fight with CPS to make sure that it gets the dollars it deserves,” Smith said.

Debt Refinancing and Its Implications

Debt refinancing was a late-emerging option given CPS already restructured some debt this school year under Martinez’s direction. But Martinez and several board members rejected that idea. “Debt refinancing has become a tool: ‘Oh, I know how to do it, we can grab some cost savings,’ ” said board member Angel Gutierrez, who signed the letter to Harden. “Sure, you’re realizing those initial savings right now, but that debt continues to mount.”

The Mayor’s Plan B

Meanwhile, Johnson and his political allies and financial advisers have spent the last few weeks trying to persuade the partly elected, partly appointed school board to reimburse the city, which already made a $400 million payment to the Municipal Employees’ Annuity and Benefit Fund but budgeted $175 million from CPS to cover its employees. If the city doesn’t get the money by March 31, Johnson will have three bad choices: Close the books on 2024 in the red, find the $175 million for the pension payment elsewhere in the city budget or dip into the city’s reserves.

Potential Actions by the Mayor

Ald. Jason Ervin (28th), Johnson’s handpicked chair of the City Council’s Budget Committee, hinted strongly that the mayor would execute whatever his “plan B” is without going back to the City Council. “It’s primarily an accounting issue at this point,” Ervin said, downplaying the issue. Ald. Walter Burnett (27th), Johnson’s handpicked chair of the City Council’s Zoning Committee, said he expects Johnson to “do what’s necessary” to close the books on 2024 in the black.

Concerns Over the Mayor’s Authority

Ald. Bill Conway (34th), vice chair of the Council’s Finance Committee, said it’s not clear what Johnson “might pull to solve this problem.” But Conway said it would be a “very bad choice for a politically weakened mayor” to either raid the reserves or transfer $175 million around within the scope of his $17.1 billion budget to cover the school pension payment without City Council approval.

Conclusion

The situation presents a significant challenge for Mayor Johnson, who must navigate the complexities of the city’s budget and the school district’s finances to find a solution. The outcome will have significant implications for the city’s financial stability and the future of the Chicago Public Schools.

FAQs

• Q: What is the amount that the Chicago Public Schools need to pay for the pension payment?
  A: $175 million
• Q: What is the deadline for the payment?
  A: March 31
• Q: What are the options for Mayor Johnson if the payment is not made?
  A: Close the books on 2024 in the red, find the $175 million for the pension payment elsewhere in the city budget, or dip into the city’s reserves.
• Q: Why did the Board of Education President postpone the vote on the pension payment?
  A: Due to an imminent contract agreement with the Chicago Teachers Union that has not been reached.
• Q: What is the stance of the board members on borrowing and refinancing?
  A: Most board members reject borrowing and refinancing as fiscally irresponsible.