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.
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.
“We cannot in good conscience make payments towards 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 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.
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.
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.
“I felt it critical to make our position clear, just so that if there are any other opportunities that the mayor has, he would at least know where CPS stands,” he said.
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 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.”
Gutierrez acknowledged, however, that CPS already used that tool this year. And despite his opposition, he said he doesn’t want to take away the district’s flexibility to use refinancing to solve next school year’s budget shortfall.
Meanwhile, Johnson and his political allies and financial advisers have spent the last few weeks trying to convince 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.
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.
“If CPS doesn’t give the money, then our fund balance takes a $175 million hit. … It won’t be a liability on the books. It’ll be a hit to the fund balance, pure and simple. It’ll be a reduction in your fund balance,” he said. The fund balance includes dollars that can be used for any purpose.
Pressed on whether the City Council would have to approve a reduction in the fund balance, Ervin said, “No. This is an accounting 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.
“In order to get it done, he probably won’t come back to the Council,” Burnett said Monday. “If he can do it without coming back to the Council, I would imagine he would probably do that because it needs to get done.”
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.
“He may be able to find some legal authorization for it in some previous debt thing that I’m not familiar with,” Conway said. “But he clearly shouldn’t do that. We are a co-equal branch of government. City Council and the mayor’s office really need to be working together.
“Hopefully he’s seen the backlash of not doing so in previous instances, like getting rid of ShotSpotter, firing [CPS CEO] Pedro [Martinez] and his barely passed budget for that matter. If Mayor Johnson likes to call himself the `collaborator-in-chief,’ I hope that he will live up to that self-styled nickname in how he chooses to solve this problem.”
Another veteran source intimately familiar with the mechanics of the city budget said Johnson could easily “take money out of medical payments” without risking what would be a humiliating political defeat in the City Council.
“He can’t afford to … lose another vote. He’d be better off maneuvering within the context of the budget he’s already passed than sticking his chin out there with everybody,” the source said.
In fact, Johnson has already established a precedent for moving money around without City Council authorization.
Shortly before closing the books on 2023, Johnson shifted $95 million in federal pandemic relief funds to cover the mounting cost of Chicago’s migrant crisis. He informed City Council members, but did not seek their approval.
Conway and former Finance Chair Scott Waguespack (32nd) subsequently joined forces on a proposed ordinance that would have required the Council’s prior approval for any spending exceeding $1 million from funds the city received from the package of federal COVID-19 relief known as the American Rescue Plan. But the ordinance was buried in the Rules Committee.