Chicago Public Schools has a giant teacher pension bill to pay on June 30 -- but says it can’t make it without an infusion of state cash. Absent a favorable court ruling next week, CPS is threatening to end the school year three weeks early.
Is ending school early on June 1 the best option for the district? Is there anything under the district’s metaphorical couch cushions to help it make this payment and avoid lopping 13 school days off the CPS calendar? Experts say CPS probably could scrape the money together, but that takes the pressure off the state and only leaves the district worse off in the long run.
Here are the options available to CPS, though many of them could carry some hefty consequences for the district, the city and taxpayers regardless of whether they have children enrolled in CPS.
Suing the state for more money
CPS is hoping a ruling in a lawsuit against the state over state funding due next Friday will lead to more money for CPS. The district argues that the system for funding pensions discriminates against the city’s black and Latino student population.
To fill a mid-year budget hole, the already district has chopped school budgets and mandated four unpaid days for staff, but it’s still short $130 million. A check for $719 million is due to the Chicago Teachers’ Pension Fund by the end of June.
Mayor Rahm Emanuel fought a public battle to lengthen the school year, and has said he will do everything possible to keep school open until the scheduled end on June 20. An early closure would not only be a political blow for Emanuel, but CPS also could pay up to $60 million financial penalty for shorting students required instructional days.
“Closing school early is both bad for kids in the short term and will have financial implications for Chicago public schools in the long term if they don’t meet the minimum of days required by state statute,” argued Beth Purvis, who serves as Gov. Bruce Rauner’s education secretary.
But CPS spokeswoman Emily Bittner said the state has failed to do its part to ensure schools stay on schedule.
“Chicago’s children are being shortchanged by the state to the tune of $500 million this year –- that is where our fight is, and we will not let the state off the hook for systematic racial discrimination,” she said in a statement.
Borrow the money
CPS insists in its civil rights lawsuit against the state that its budget gap “cannot be filled through additional borrowing.” There’s some truth to that.
Because CPS is already so indebted, it can no longer easily go to Wall Street or the big banks to borrow, said Matt Fabian of the research firm Municipal Market Advisors. The district could find non-traditional borrowers, but “the question is who and at what price,” he said.
Two signs the district’s borrowing ability is limited: The district last year borrowed $725 million at the exorbitant rate of 8.5 percent and, in November, it withdrew plans to sell bonds for infrastructure and to refinance debt. The bond issuance has yet to move forward.
A partial pension payment
At the center of the district’s lawsuit is the question of how much the state contributes to Chicago teachers’ retirements compared to what it pays for teachers in all other districts. This year, the state is kicking in less than 1 percent of CPS’ ballooning payment. The state covers either all or nearly all the employer pension costs for teachers outside Chicago, to the tune of $4 billion this year.
Two years ago, the district approached the Chicago Teachers’ Pension Fund to float the possibility of making a partial or delayed payment, but the district ended up making a full payment on time.
Charles Burbridge, executive director of the Chicago Teachers’ Pension Fund, opposes anything but a full payment. He said the district has not approached him or the board about that this year.
“It’d be worse than not making the minimum payment on your credit card,” Burbridge said.
Burbridge said he expects the district to make its full payment by June 30 as required by law, noting that CPS and CTPF “cannot negotiate state statute."
CPS says a partial payment would frowned on by creditors.
But the district, with the state’s blessing, has skipped payments in the past. It’s that very practice that helped get CPS into this mess in the first place.
From 1995 to 2005, CPS did not contribute to its retirement fund because state law only requires payment when it dips below 90 percent funded. Payments were required beginning in 2006, and they grew larger and more unmanageable with each passing year. Faced with those ballooning payments in 2010, then-CPS chief Ron Huberman successfully lobbied for a three-year pension holiday.
Those payments -- which include the normal costs of pensions plus debt accumulated over years -- now take a big bite out of what CPS could be spending in the classroom. Roughly $2,000 per student goes toward paying off pension debt.
City Hall to the rescue
Ald. George Cardenas (12th Ward) and other aldermen don’t want to wait to see if the state rides to CPS’ rescue. At City Hall this week, Cardenas urged the city to scour its coffers looking for pots of cash for CPS.
Cardenas and others are pushing hard for the city to raid any extra cash from tax increment financing districts, which are set up to spur economic development. Chicago Teachers Union President Karen Lewis pointed out in an op-ed in the Chicago Sun-Times this week that receipts from these special taxing districts were up by about 20 percent last year and are expected to be up this year as well.
Here’s the rub: TIF surpluses are not available at this point in the fiscal year, mainly because the city can’t surplus money it doesn’t yet have. The next infusion of property tax revenue will be in August, said Tatia Gibbons of the Cook County Clerk’s office. Nearly $90 million in TIF dollars already went to CPS for this school year but CPS and the mayor oppose relying heavily on TIFs because they are not considered a reliable revenue source.
Cancelling TIF development projects
An ongoing CPS school construction spree is leaving some parents confused and frustrated.
What if CPS cancelled some big ticket construction projects and spent the money to keep the lights on?
Consider a school in the works for just south of downtown. The district recently outlined plans to spend $54 million on a school in the South Loop to relieve overcrowding, $11 million of which will come from local TIF coffers. The district has already acquired land at 16th and Dearborn to build the new facility. But the nearby National Teachers Academy has room, and parents there have been lobbying for the far cheaper option of routing some South Loop students to NTA.
“This is the most expensive option you could choose to alleviate overcrowding in South Loop and it just doesn’t feel like it’s the best use of funds right now, when we don’t have enough money to support day-to-day operations for our school system for the entire school year,” said Latasha Watkins, who has a kindergartner at NTA.
A WBEZ analysis last year found much of the district’s new school construction under Emanuel is keeping kids segregated and, in many cases, taking place even when there are schools with extra space nearby, as is the case with South Loop and NTA.
If that project were cancelled or delayed, much like the project formerly known as Obama College Prep was last year, millions could potentially be released to CPS in time for their June 30 pension payment.
Could CPS make ends meet without more cash?
The district could potentially juggle money around so it could make its June pension payment.
Its current deficit amounts to just about 2 percent of its $5.4 billion operating budget. It also has a $1.5 billion line of credit.
CPS says its line of credit is being fully used, though the district still may be able to borrow more money in the short term or shift funds around and hold tight until its next infusion of property tax money in August.
But that juggling would leave CPS with a bigger, even more unmanageable hole for next year.
“Our children should not be treated as second class citizens, and we cannot cobble together a budget that gives children the education they deserve if we are relying on bits and pieces from here and there,” CPS’ Bittner said.
Just how perilous are CPS finances, though, is an open question.
The district refuses to say how much money it has on hand, what bills for this year are outstanding and whether it has any wiggle room when it comes to using its line of credit to manage cash flow.
CPS officials said cash flow information is not revealed for “market reasons,” offering only that CPS’ cash flow situation is precarious.
Sarah Karp and Becky Vevea cover education for WBEZ. Follow them at @WBEZEducation.