Join Chalkbeat Chicago’s free day by day publication to maintain up with the newest information on Chicago Public Colleges.
Chicago’s new college board is contemplating an modification to the varsity district’s $9.9 billion finances that goals to handle a short-term finances quagmire.
The choice made by the 21-member, partially elected governing physique might have long-term implications as Chicago Public Colleges strikes away from 30 years below mayoral management.
The finances modification on the varsity board’s agenda for its March 20 assembly accepts a further $139 million in surprising income, however doesn’t spell out what the board will spend the cash on. It lays out three prospects: paying the yet-to-be decided prices of a brand new contract with the Chicago Academics Union, funding an inaugural collective bargaining settlement with the union representing principals, and giving the cash to town as a contribution to the retirement fund that helps non-teaching college workers.
Mayor Brandon Johnson’s administration is pushing for the latter, which might proceed a observe began below former Mayor Lori Lightfoot of getting the Board of Training pitch in on these pensions. Town should stability its books by the top of this month, and Johnson’s allies on the board have expressed settlement with the mayor.
However Johnson continues to face resistance from CPS CEO Pedro Martinez and district management, who’re staring down monetary challenges of their very own, together with a deficit of a minimum of $500 million {dollars} subsequent college 12 months. They and a minimum of a couple of new college board members have argued it’s extra prudent to place the cash towards labor contract prices and funding lecture rooms at this time, not serving to town make a pension cost.
The difficulty has grow to be so politically controversial that it contributed to the resignation of the earlier Board of Training and the firing of Martinez, who will depart in June. Certainly, the combat over the municipal pension cost is the “single, largest and, within the second, most critically necessary” monetary entanglement between CPS and town, says Joe Ferguson, president of the Civic Federation, an impartial, non-partisan authorities analysis group.
Ferguson mentioned it’s “critically crucial” that the varsity board and Metropolis Corridor get to work on a long-term answer earlier than the varsity board turns into absolutely elected in 2027. A brand new state legislation addressing the difficulty may finish the drama, however legislators haven’t taken it up thus far.
Two-thirds of the varsity board — or 14 members — would wish to vote sure to approve the finances modification.
Right here’s what to learn about this disagreement and the choices officers have.
What’s the municipal pension cost?
The Municipal Staff’ Annuity and Profit Fund, or MEABF, helps metropolis employees, workers of the Chicago Housing Authority, and non-teaching workers at Chicago Public Colleges after they retire.
Greater than half of the fund’s members are present or former CPS workers — a proportion that has grown over time. CPS finances officers have famous that whereas 60% of the pension fund’s beneficiaries are present or former CPS workers, they account for less than about one-third of the fund’s liabilities.
Even so, below state legislation, the Chicago metropolis authorities is solely accountable to make annual funds to the fund, not CPS.
This 12 months, town is legally on the hook to pay that municipal pension fund $955.7 million, in line with finances metropolis paperwork. That’s way over the roughly $165 million annual cost it was making only a decade in the past.
Like most pension funds in Illinois and Chicago, the municipal fund has huge unfunded liabilities. Put merely, for each greenback it owes to current and future retirees, solely about 25 cents is obtainable. To repair this, town is now required to pay extra yearly in order that there’s sufficient cash to pay retirees sooner or later.
In 2015, then-Mayor Rahm Emanuel launched a document property tax improve that was permitted by Metropolis Council to fulfill these rising pension obligations. The next 12 months, town imposed annual will increase to a water-sewer tax that might be devoted to the municipal retirement fund.
Going through a ballooning cost, Emanuel’s successor, Lori Lightfoot, carried out an intergovernmental settlement along with her appointed college board in 2020 to have CPS reimburse town for an growing portion of the required annual cost given that faculty district workers make up greater than half of the fund’s members. Since then, the Board of Training has made 4 pension funds; the latest one in early 2024 was $175 million.
For the previous 12 months, the mayor’s workplace has pushed CPS to as soon as once more contribute $175 million towards the municipal pension cost — and the Metropolis Council handed a finances with that assumption.
However thus far the varsity board has not budgeted that cost this 12 months. Nor has it permitted an intergovernmental settlement to take action.
What choices does the Metropolis of Chicago have?
Town’s 2025 finances proposed by Johnson and permitted by Metropolis Council in mid-December assumed CPS would, as soon as once more, kick in $175 million.
The $17.1 billion spending plan features a $1.13 billion cost to the MEABF, greater than the required quantity of $955.7 million, which is calculated based mostly on what’s wanted to cowl future advantages. That’s as a result of it additionally features a $168.7 million voluntary advance cost to the MEABF, which is roughly $6 million wanting what town needs from CPS.
These extra funds are much like paying off extra principal on a mortgage. They additionally began below Lightfoot. Nonetheless, they don’t seem to be required by state legislation.
Senior mayoral aides mentioned this week the advance cost is a precedence for town as a result of it saves on long-term prices. Additionally they mentioned they don’t think about CPS’s $175 million contribution as going towards the advance cost.
But when CPS doesn’t come by way of with the $175 million contribution, town might drop the advance cost. That could possibly be met with blended reactions from credit standing businesses, mentioned Justin Marlowe, director of the Heart for Municipal Finance on the College of Chicago. Some businesses may downgrade town, whereas others could possibly be extra sanguine about it.
They may additionally dip into reserves, which Ferguson famous would have unfavourable penalties.
“Town’s ready the place it’s including to the storm cloud of one other [credit] downgrade,” he mentioned.
Not making the advance cost or dipping into reserves or some other adjustments to town’s finances would require 26 Metropolis Council votes.
The mayor already had a tough time getting his finances permitted final fall. His administration’s preliminary proposal, which included a property tax hike, didn’t go over effectively with the Metropolis Council. A revised finances with out that tax hike narrowly handed 27-23.
What choices does CPS have?
It’s been clear because the CPS board permitted a $9.9 billion finances handed final summer time that the district would wish to amend its spending plan as soon as officers completed negotiations with the Chicago Academics Union and the district’s new principals union.
For months, the mayor’s workplace has recommended CPS take out a mortgage to cowl new contract prices and nonetheless kick in a portion of the municipal pension cost. Extra lately, Johnson’s workplace has recommended the district might subject municipal bonds at comparatively low rates of interest.
However the district has asserted that it can not legally borrow cash and present these mortgage proceeds as income as a way to stability its finances. If the district is pressed to pay for each elevated labor contract prices and a contribution to the municipal pension fund, CPS leaders have mentioned they could must make mid-year cuts or resort to layoffs or furloughs.
Senior mayoral aides proceed to argue in opposition to cuts that might impression lecture rooms.
In its preliminary finances, CPS anticipated to get $159 million in surplus tax income from particular improvement districts. An extra surplus declared by the mayor provides $139 million extra to that quantity. The latter is the supply of the brand new income within the finances modification the Board of Training will vote on later this month.
However the extra infusion of money isn’t sufficient to cowl all the district’s looming bills. Final fall, Martinez testified earlier than the Metropolis Council the district would wish $484 million from these taxing districts to make ends meet.
Martinez mentioned final Thursday in an e mail to workers and households his group will suggest to the board to prioritize spending the extra $139 million on labor contracts solely — not the municipal pension cost.
CPS has restricted taxing authority. It may solely elevate property taxes yearly as much as a state-imposed cap, which is 5% or the buyer value index, whichever is much less. It has executed that yearly in current historical past.
The varsity district has a worse credit standing than town though town’s ranking shouldn’t be significantly better and was additionally lately downgraded. However Marlowe, the municipal finance professional, mentioned on the finish of the day, it’s all the identical property tax base.
“It’s in all probability more economical from a taxpayer perspective, for town to play a bigger function,” Marlowe mentioned. However he added that its necessary for each CPS and Metropolis Corridor to do their due diligence to find out the least pricey choice.
“They must make these pension funds. That’s not negotiable. So anyone’s going to must blink and resolve that the cash goes to move from from one facet to the opposite,” he mentioned.
What’s a long-term answer for this pension subject?
Town and the Chicago Board of Training might cut up accountability for funding the MEABF long term through two choices: a stronger intergovernmental settlement, or a change to state legislation.
The present dispute and the truth that there isn’t a intergovernmental settlement this 12 months exhibits the bounds of the primary choice, mentioned Ferguson.
“If it had been legally enforceable, this already would have been resolved,” Ferguson mentioned.
Signing a brand new intergovernmental settlement yearly can be topic to politics. Chicago may have college board elections each two years and mayoral elections happen each 4.
“There’s going to be this sort of advert hoc, piecemeal factor, I believe, till there’s a true philosophical reckoning with: What’s the relationship between town and CPS going to be financially in a brand new world with a really totally different form of CPS board?” Marlowe mentioned.
A change to the state’s pension code is “the cleanest, most everlasting, most enforceable” choice, Ferguson mentioned.
However that concept has its personal political baggage. Illinois lawmakers have traditionally been reluctant to assist Chicago with its pensions or monetary challenges. They’re additionally centered on revising adjustments made to the pension code a decade in the past.
“I don’t assume that there’s a lot urge for food in Springfield for the state to play referee,” Marlowe mentioned.
Senior mayoral aides mentioned they’re having a number of conversations in Springfield about CPS funds, however declined to talk particularly about adjustments to the pension obligations.
A CPS spokesperson mentioned they don’t seem to be conscious of any proposed laws to vary who’s chargeable for the municipal pension fund. District officers mentioned if lawmakers had been to shift any accountability to the varsity district, they would wish to contemplate learn how to fund these funds.
This story was been up to date to incorporate extra feedback from a municipal finance professional.
Reema Amin contributed.
Becky Vevea is the bureau chief for Chalkbeat Chicago. Contact Becky at bvevea@chalkbeat.org.