Internet Explorer 11 is not supported

For optimal browsing, we recommend Chrome, Firefox or Safari browsers.

Chicago Public Schools May Fall Short on Upcoming Pension Payment

School and city officials blame the lack of funds on Illinois' ongoing budget impasse.

By Juan Perez Jr. and Hal Dardick

Chicago Public Schools has enough cash to complete the school year but the system is still short hundreds of millions of dollars needed to make a pension payment due at the end of June, Mayor Rahm Emanuel's top finance official said Tuesday.

CPS and city officials say that's because the state still owes CPS about $467 million in aid that has been held up by Illinois' budget impasse.

While still trying to come up with a plan to keep the district from running out of cash, CPS and Chicago Chief Financial Officer Carole Brown used the state aid shortfall as the latest salvo in an ongoing battle with Republican Gov. Bruce Rauner's administration over funding.

"We're in this horrible, horrible position because the state's not doing its job," Brown said. "And the thing we hope people will do is encourage and push the state to pass a budget and pass a budget that has adequate funding for schools."

The state disputes the amount owed the district and blames the issue on a failure by Democratic state Comptroller Susana Mendoza, an Emanuel ally and Rauner critic, to make payments.

Officials say that without short-term borrowing or some other rapid infusion of money, the district will fall far short of making a $700 million-plus contribution to the Chicago Teachers' Pension Fund. Making a late or incomplete pension payment could violate state law and prompt a negative response from bankers the district needs to stay afloat.

"This is clearly a bad option," pension fund Executive Director Chuck Burbridge said Tuesday.

"I don't think the rating agencies would respond well to them missing the pension payment," Burbridge said. "Everybody knows where that gets you."

Brown on Tuesday acknowledged officials have discussed withholding the pension payment as they test ideas with bond rating agencies to see which would do the least additional harm to the district and the city's already low bond ratings.

"It's an option that we've talked about, but it's not an option that anybody's concluded is something that's viable, or an option that anyone's concluded is the preferred course of action," she told the Tribune.

Brown's comments reflect an ongoing debate within city government over how Emanuel can craft a CPS financial rescue that would likely also have to address another looming budget mess next school year.

Brown said CPS funding options include short-term borrowing, a loan from the city's tax increment finance districts and delaying payments to vendors that provide services to the district.

She declined to rule out reinstating a so-called head tax on jobs at large firms that Emanuel eliminated with much fanfare in his first term but which some aldermen and the Chicago Teachers Union have proposed resurrecting.

"I don't have the luxury of telling you we definitely aren't doing anything," Brown said.

The district began this budget year counting on $215 million from the state to help pay for teacher pensions. But Rauner vetoed the funding measure because he said legislators didn't tie it to broader pension reform.

CPS proceeded to cut school budgets and filed a lawsuit challenging state education funding. District CEO Forrest Claypool warned that Rauner's veto would force schools to close almost three weeks early. But after a Cook County judge rejected the district's lawsuit in April, Emanuel quickly staged a news conference to say the school year would go on as scheduled.

The district said it reduced its budget gap after Rauner's veto to $129 million, but it has regularly declined to acknowledge whether it had enough cash to pay the bills.

The $467 million in state funds that CPS says it is owed are separate from the $215 million in pension assistance from the state that the district had counted on. The money represents education grants that are part of regularly scheduled aid payments distributed to school districts across the state.

State government distributes general aid to school districts as well as grants that finance specific programs but are ultimately swallowed up and used for expenses in the district's multibillion-dollar operating budget. The budget impasse has delayed the distribution of more than $1 billion of that grant aid to schools across the state, a Wall Street ratings agency concluded last month.

Illinois State Board of Education records indicate CPS is owed roughly $324 million in grants that have yet to be processed by Mendoza's office. The district maintains that doesn't cover the full total owed by the state.

Rauner's office said Mendoza's office can send the money awaiting processing to Chicago at any time. Mendoza's office says there's no money to cut those checks without a state budget.

As of Tuesday, the teachers pension fund said CPS owed it about $716 million. The fund said it expects CPS to pay about $470 million of that tab by June 30, with the rest payable after a quarter-billion dollars in revenue arrives later in the summer from a new property tax devoted to teacher pensions.

Burbridge said the pension fund's outlook changes if the city falls short on its payments for less predictable reasons, such as a lack of state aid.

"The critical thing for us is being able to plan so we can structure our investments appropriately to both make the pension payments that are certain and take advantage of markets and the compounding impact of interest and dividends," he said.

Emanuel's administration told aldermen this week the issue is "extremely complex" while delaying an update on district finances. The solution will hold consequences not only for students, parents and teachers, but for the district's reputation with financial markets.

"The district doesn't have any good choices," said Matt Fabian, a partner at Concord, Mass.-based Municipal Market Analytics.

"Arguably, their biggest problem this year was relying on the state to help them in any way," Fabian said. "Their fundamental problem is they spend too much money they don't have, but really in fiscal year 2017, it's been relying on the state to fill that gap."

___

(c)2017 the Chicago Tribune

Zach Patton -- Executive Editor. Zach joined GOVERNING as a staff writer in 2004. He received the 2011 Jesse H. Neal Award for Outstanding Journalism
Special Projects