With critical CPS budget vote looming, long-awaited memo drops on ways to fill CPS’ deficit

Mayor Brandon Johnson on Tuesday likened himself to a parent trying to evict an adult child from the basement — only in this scenario, the overgrown kid is Chicago Public Schools and the parent is the city of Chicago.

The parent-child comparison comes as Johnson continues to insist that the school district reimburse the city for a payment to a pension fund that includes thousands of CPS employees.

Johnson’s call for the school board to take care of its own finances comes at an urgent moment. On Tuesday, the board received a long-awaited memo from a financial firm it hired to lay out possibilities for finding money to make the pension payment. Though the memo doesn’t provide a recommendation, the only real possibility it outlines is generating money through refinancing or refunding outstanding debt.

On Thursday, the board will consider amending CPS’ budget to include three new expenditures: the pension payment and costs associated with contracts for teachers and principals unions, which are still being negotiated. The amendment needs two-thirds of the board members to approve it. With the board now partly elected and partly appointed, it will likely pass or fail on the thinnest of margins.

The stakes are high: If it is not approved, the city will have to close its 2024 books with a deficit and will have to reach into reserves to fill the hole. This could trigger another credit downgrade, which would make future borrowing difficult and expensive. Twenty-seven city council members signed a letter demanding that CPS make the payment.

But CPS CEO Pedro Martinez has argued the school district cannot afford to make the $175 million pension payment. He called a suggestion from City Hall that the district borrow fiscally irresponsible. His team has also argued that it is illegal to take a loan to cover operating expenses. This rebuke of the mayor cost Martinez his job; he has been given a six-month termination notice.

At the moment, CPS only has $139 million available but potentially needs about $200 million more to cover all the three new expenditures.

The memo, by the Baker Tilly Advisory Group, walks through all the ways CPS could find money to cover all the expenses. It pretty quickly dismisses the idea of cutting costs this year, noting that the school year will be over in a few months. Given the timing, the memo reads, “it would be difficult to generate sufficient savings to cover both the current budget shortfall and other Board obligations.”

The school board could also ask the city for more money from special taxing districts called TIFs, but that also is unlikely, given the timing and given that if money is released now, it would not be available in the future, according to the memo.

The memo talks about several ways to generate money through refinancing or refunding, but it stresses that the details need to be worked out by school district municipal advisers or staff. One of the ideas entails reissuing bonds for capital projects. Another suggestion is to examine pulling money out of reserves. It also notes that some of these ideas are contingent on interest rates and other market volatility.

CPS did not respond to questions about the memo, but last week, it pushed back on the idea of refinancing. School district officials said they refinance annually but need the money for next school year, suggesting it would be a bad idea to do it now.

Board President Sean Harden on Tuesday said the memo, commissioned by the board, offers up other options besides a short-term loan.

“This kills the whole narrative that borrowing is irresponsible or that it would amount to a payday loan,” he said. “It rights the ship.”

Harden, who was appointed by the mayor, said he is hoping that it shifts the board to a “solutions mindset.”

Finding money for the pension payment has been a source of high drama since last summer. The city is legally responsible for making the payment to the municipal pension fund, but it includes non-teacher CPS staff, such as paraprofessionals. The city covered the payment for 100 years, but in 2021, former Mayor Lori Lightfoot began demanding that the school district pitch in.

As an organizer for the CTU, Johnson criticized the move by Lightfoot. But as mayor, Johnson is insisting CPS take on the cost. His argument, like Lightfoot’s, is that CPS will have a fully elected Board of Education in two years and therefore needs to be independent of the city.

Johnson reiterated that message at a press conference Tuesday.

“This board is going to be an independent body … I don’t want to sound like my dad, but at some point, they’re gonna have to move out. That’s what this is. It’s a relationship that we have to disentangle,” Johnson said.

“We’re not just kicking `em out," the mayor added. "By the time I was 18, my father gave me a couple more years. We’re just saying we have a couple years before you’re gonna be fully on your own. And that’s really what this process is about moving forward — how to make sure this independent body can stand on its own.”

But Martinez has fought hard against CPS taking on the payment. In the past, he said that he made the pension payment because CPS got extra money from the city through TIFs and was flush with federal COVID relief funds.

Martinez upped the stakes last week, warning the board that if they approved the amendment, they could be accused of passing an unbalanced budget, which is against the law. School district officials and board members could be charged with a misdemeanor, he said.

He also sent out a note to “colleagues” warning that if there was no money left for the teachers contract, it could trigger a strike.

Harden said he is hoping his board colleagues see there may be a way to make the payment but added the amendment could be revisited if it turns out that none of these possibilities pan out.

He also said this whole situation has set the stage for further discussions about how the school district can stop being as dependent on the city.