Heading into two hearings this week about a proposed late-year amendment to the current Chicago Public Schools budget, it remains unclear — in an extremely tight budget — where the money will come from to pay for a few big-ticket items.
City Hall and CPS still disagree over whether the school district should make a disputed pension payment in the first place, and each is upping the stakes by issuing warnings if the school board doesn’t side with them.
CPS CEO Pedro Martinez is advocating that the school board decide to not make the pension payment.
In his newest argument, Martinez wrote in a letter to families and staff last week that if the board agrees to pay into the pension fund serving non-teacher CPS staff, it would use up the rest of the district’s available money this year and possibly derail Chicago Teachers Union contract negotiations — ultimately leading to a strike. He recommended prioritizing the labor contract.
Mayor Brandon Johnson had harsh words Wednesday for Martinez, who he said promised city council members this fall that the school district would make the payment. If the city does not get the payment before March 30, it will be in danger of closing its 2024 budget with a deficit and Johnson will have to get City Council approval to reach into reserves to fill the hole.
“I want to believe that the CEO did not come before the City Council and lie to them,” he said, in response to being asked what he will do if the board decides not to make the payment. “He (Martinez) gave the City Council his word. You want me to answer that if the CEO lied to the City Council, what’s, what’s the contingency plan around someone being dishonest?”
In his newest argument, CPS CEO Pedro Martinez wrote in a letter to families and staff last week that if the board agrees to pay into the pension fund serving non-teacher CPS staff, it would use up the rest of the district’s available money this year and possibly derail Chicago Teachers Union contract negotiations — ultimately leading to a strike. He recommended prioritizing the labor contract.
The mayor’s office, meanwhile, has said CPS shouldn’t be choosing one or the other. The administration has insisted that CPS officials find a way to cover contracts for the CTU and the new principals union — both of which are still in negotiations — and also make the $175 million payment into the Municipal Employees’ Annuity and Benefit Fund.
CPS has $139 million left to allocate from special taxing districts called TIFs that City Hall handed over in the fall. But officials would need to find a way to make up the rest of the gap — estimated around $240 million — to get through this school year.
The school board is considering a proposed budget amendment that says the costs with the teachers and principal contracts, as well as the pension payment, will be covered. But exactly how will that happen? That’s the several-hundred-million-dollar question, and it’s still vague.
A few possible options are listed in the amendment, but each one has been knocked back by either city or district officials.
Additional money from TIFs? The city says that funding is determined every fall, not throughout the year, and CPS already received a record amount from Mayor Brandon Johnson’s administration for this school year.
Budget cuts? Both the mayor and CPS have opposed any cuts that disrupt classrooms, and district officials have told board members that, this late in the school year, it would be impossible to find enough cuts to make up the needed cash.
A loan? That idea has been publicly shot down by Martinez and has faced enough political and public backlash — including from many school board members — to likely make it untenable. That’s even if the actual loan terms don’t include high interest rates like Martinez has previously suggested. The mayor’s office said Martinez also added the possibility of the city taking on debt on CPS’ behalf, but City Hall called that a nonstarter.
Board president Sean Harden, who was appointed by the mayor, said he would like to see the board agree to the amendment with the understanding that the plan to pay for it still needs to be “fully baked.”
“It hasn’t been [determined] yet that there isn’t a pathway forward,” he said.
The mayor’s office floated a new idea Tuesday: The school district could potentially find enough money by refinancing debt. CPS did not answer when asked this week what Martinez and his team thought of this idea, but CPS refinanced some debt this summer under Martinez’s direction.
City Hall also again suggested the school district could take out a relatively low-interest loan. Martinez has continued to bash this idea, suggesting it would be akin to a payday loan and would saddle the school district with debt for years to come.
No matter the method, either CPS or City Hall are going to have to come up with a solution between now and the March 20 meeting where the school board is planning to vote.
The city’s budget year that ended Dec. 31 is relying on $175 million from CPS before the books close at the end of March. City Hall is legally obligated to pay the district’s non-teacher pension costs and already did so to the tune of $400 million. But the city is arguing the school district should help pay for the thousands of non-teaching CPS staff who are part of the pension fund. Former Mayor Lori Lightfoot started shifting some of that burden onto CPS on an escalating schedule.
The CTU and Johnson were opposed during Lightfoot’s tenure, but once elected, Johnson said City Hall’s budget constraints meant CPS needed to continue the payments. His office argues he stopped the school district’s share from increasing, though, and pulled it back down to $175 million annually. CPS made the payment last school year, but it didn’t sign an agreement to do so this year. Both sides have suggested an openness to shifting the legal burden for the pension cost to CPS in order to avoid this battle every year — as long as the state provides additional funding to pay for it.
The mayor’s office said if the school board decides not to make the pension payment, the city will have to find a way to plug its budget hole this month, and City Council members will be upset. Alds. Jason Ervin (28th) and Jeanette Taylor (20th), Johnson’s City Council chairs for the Budget Committee and Education Committee, respectively, wrote a letter to Martinez Wednesday demanding that he “follow through on his commitment” that he made in a Council hearing in October to reimburse the city for the pension payment.
Senior mayoral aides pointed out that the city spends hundreds of millions supporting the school district every year, from waiving water and sewer fees to using money from special taxing districts to build and renovate schools. The mayor’s office said it is already fielding questions from City Council members who want to know if they can pull back support from CPS should it not make the payment.
However, in a strongly worded message last week, Martinez once again urged board members this week to spurn the mayor’s office and refuse to make the pension payment. Johnson’s appointed school board agreed with Martinez last year and unanimously passed a budget that didn’t include the pension cost. A partially elected 21-member board has since taken office.
Martinez wrote that the school district is on the verge of landing a deal with the CTU but that the entire $139 million available in the budget should go to raises for staff and principals that will be promised in the contracts that are being negotiated.
“Shifting these funds to reimburse the city for a pension payment could be devastating to our district in several ways,” Martinez said. “It could erase all the progress we’ve made at the bargaining table for nearly a year, and could increase the likelihood of cuts, furloughs, layoffs and a possible strike with an unpredictable outcome. We would also be putting the district in a worse financial position at a time when we can least afford it.”
Martinez’s stance doesn’t mean he and the CTU are suddenly friends — they remain at odds. The union has pushed for CPS to come up with a way to pay for all three expenses. Martinez’s decision to choose one or the other puts the union and mayor in a corner if no other solution is found: Does the CTU prioritize its contract at the expense of the mayor’s budget? Or does Johnson insist on the payment and leave his allies and former employers at the CTU out to dry?
The school board hired an independent firm to conduct a financial analysis and come up with some options for paying the pension and the costs associated with the principals and teachers contracts. Harden said the full report is not yet available.
But he said the firm is fleshing out ideas that he thinks could be supported by CPS’ administration. Harden said the ideas are feasible and legal.
Harden, as board president appointed by the mayor, only votes to break a tie. Two-thirds of the other 20 members must vote in favor of an amendment for it to be approved. The city can likely count on at least 12 votes, including 10 members who were appointed by the mayor and two who won their seats with strong CTU backing. A third elected member, Jennifer Custer, was endorsed by the CTU but so far has appeared more independent than other CTU-backed members.
The school board is dealing with a particularly tight budget.
Going into this school year, CPS had to find $500 million of savings, even without including the pension payment and the labor costs. In part,district leaders said they were counting on spending about $24 million less on engineering and maintenance.
Just in the past month, it became clear those projected savings were not going to materialize. The board approved a transfer from its general education fund to its facilities management account because it needed to pay the company that manages school engineers more money.
Hundreds of transfers from one budget line to another happen every month in CPS’ mammoth budget, but this was one of the biggest transfers over the past five years, according to an analysis by WBEZ.
CPS said multiple factors contributed to this “budgetary shortfall,” including overtime expenses, increased costs of equipment and supplies and salary raises for building engineers so they could keep up with city engineers.
“Finally, given that a significant number of our buildings are more than 80 years old, maintenance costs are inherently high,” a CPS spokesperson said in a statement.
CPS said district officials are now looking for other savings in the $8.4 million operating budget.