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Governor Vetoes $215 Million in Chicago Public Schools Funding

Gov. Bruce Rauner blames the veto on Democratic leaders who backed out of a deal to pass comprehensive pension reform by the end of the current general assembly.

By Juan Perez Jr. and Monique Garcia

Republican Gov. Bruce Rauner's veto of a bill that would have eased Chicago Public Schools' massive pension burden threatened to blow a $215 million hole into a budget that has been criticized by bankers and civic groups for its reliance on uncertain state assistance.
Rauner said he vetoed the bill because it was not tied to broader pension reforms that he has demanded, and Democratic Senate President John Cullerton denied assurances on pension reform were part of the CPS deal.
CPS has assumed in this year's budget it would get the money and offered no immediate plan to cover the gap left by the governor's veto. The district's top education official said the action could put the city's schools in a "horrible position."
Cullerton warned the move could lead to layoffs for thousands of teachers and employees, while Mayor Rahm Emanuel called the veto "reckless and irresponsible."
The Democratic-controlled Senate voted to override Rauner's veto amid a flurry of finger-pointing between Rauner's Republicans and the Democrats. The override's prospects in the House, which adjourned for the holidays without taking up the issue, were far from certain.
House lawmakers have 15 days to take up the override, but the body is not scheduled to return to Springfield until Jan. 9 -- two days before new lawmakers are sworn into office. Lawmakers could return before then, though it's often difficult to round up people during the holiday season. Even then, it likely would take all 71 House Democrats to overturn Rauner unless a few Republicans buck the governor.
Rauner's veto announcement came less than an hour after a closed-door meeting between the governor and legislative leaders. After the meeting, Cullerton urged Rauner to sign the CPS bill, saying there was general consensus on how to move forward on a broader pension overhaul, even as he denied the CPS pension bill approval was tied to a larger pension fix.
Lawmakers approved the CPS bill at the end of June, but Cullerton did not send the measure to Rauner until last month. The delay was intended to provide time to reach a deal on a larger pension measure, but that was never achieved.
"If he wants to tie it to something else like pension reform, that's something I am supportive of. We haven't talked about putting the two things together at this point in time," Cullerton said.
Rauner said Democrats went back on a deal that tied the measure to broader changes to the state's highly indebted employee retirement system.
In his veto message to lawmakers Thursday, Rauner said the agreement reached last summer was clear and Republicans supported the bailout for CPS only "on condition that Democrats re-engage in serious, good-faith negotiations." Rauner also made reference to the Senate president's remarks.
"Then today, President Cullerton suddenly denied that the leaders had agreed that this bill would depend upon first enacting comprehensive pension reform. Breaking our agreement undermines our effort to end the budget impasse and enact reforms with bipartisan support," Rauner said.
"The taxpayers of Illinois do not want just another bailout."
Chicago Teachers Union President Karen Lewis, a frequent critic of the governor, said she wasn't surprised by the veto.
"He was never going to give us any money," Lewis said. "He just lied about it. He's a liar, he always has been. ... He's trying to starve CPS, that's his goal."
CPS CEO Forrest Claypool, who regularly has voiced confidence that Springfield would come through with the money, said the district would try to fight Rauner's decision and accused the governor of backing away from prior commitments.
"In this instance, in just a fit of pique and anger and recklessness, the governor has decided to hold 400,000 schoolchildren hostage to his political agenda, one that has nothing to do with the education of schoolchildren," Claypool said at an afternoon news conference.
Claypool would not say how Chicago's cash-strapped schools might fill a $215 million hole in its budget.
CPS faced a similar situation last year. Officials banked on $480 million in state assistance that never arrived and resorted to cutting millions from school budgets in the midst of the school year to help close the gap.
"We always work on contingency plans and potential emergencies throughout the year," Claypool said. "But I'm telling you our strategies now are to fight, and we'll fight on multiple fronts. We're first going to fight through the political process, and if necessary we'll be in the courts."
Rauner's veto landed days before the city's school board is expected to reconsider an annual budget that now exceeds $5.5 billion. The district had to redraw its budget to make room for tens of millions of dollars in new expenses linked to the contract deal reached in October with the CTU.
That budget already relies on property tax increases that include a measure to raise $250 million for teacher pensions. That measure was approved by the General Assembly in June as part of the package that also held the promise of $215 million more for pensions.
The district has counted on state help as its credit rating has sunk well into junk status, a designation that makes borrowing more expensive. Having already exhausted its reserves to cover past deficits, CPS has cash-flow problems and has had to borrow future property tax money it expects to collect to cover the year's operating expenses.
The $215 million was crucial to balancing the budget and helping the district make another massive pension payment this summer. If there's "no opportunity or no way to secure the $215 million, we have to come up with another plan," CPS Chief Education Officer Janice Jackson said.
"It really puts the district in a horrible position. But I have to have faith that we've made a public commitment, a public promise. And to renege on that is something that really puts the district in a horrible place," Jackson said.
Uncertain prospects for the money's arrival amid a long-running state budget stalemate had prompted skepticism from bond analysts who watch the district's junk-level credit ratings and a widely known city budget watchdog.
The Civic Federation earlier this year said it could not support the CPS budget because of its reliance on state money that might not arrive and a large amount of borrowing.
"Because the district provides no plan of recourse should the funding fail to materialize other than noting that there would need to be midyear cuts, the (fiscal year) 2017 budget is in effect unbalanced," the group said in August.
Last month, Fitch Ratings analysts said the $215 million bet "represents a fairly large budgetary vulnerability" because Rauner had said his support for the money was contingent on a comprehensive pension reform plan.
According to the Chicago Teachers' Pension Fund, CPS must pay a remaining balance of $730 million by June 30.
The sheer size of that debt is partly the result of a long-term practice of not putting in enough money or skipping payments, including an entire decade when CPS made no pension contributions under then-Mayor Richard M. Daley.
Because of that underfunding, combined with recessions that battered the pension fund's investments, the district now must pay hundreds of millions of dollars more each year, as required under a plan to reach a state-mandated funding level of 90 percent by 2059.
"Obviously we're concerned about anything that affects CPS finances, not only for the fund but also for the potential impact it has on children," pension fund director Charles Burbridge said Thursday.
"Should this fail, it really goes back to CPS and what decisions they make because the funding requirement is unchanged."
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