A report commissioned by Mayor Brandon Johnson’s handpicked Board of Education president confirmed what Chicago Public Schools officials have known for months about the district’s financial woes: There are no easy solutions.
The school board released a report from outside financial advisory firm Baker Tilly on Tuesday afternoon, two days before a meeting where board members will vote on a measure that will have huge financial implications for the district and the city moving forward. It doesn’t provide much additional information or insight other than what has been provided at meetings and hearings in recent weeks, school board members said.
According to the report, massive midyear cuts would require significant staff reductions or as many as 10 to 11 furlough days across the district. Asking the city for more money from tax increment financing, or TIF, districts “presents challenges,” the report says. And debt restructuring, an option recently floated by the city, could also pose risks.
On Thursday, a divided board — part elected and part appointed by Mayor Brandon Johnson — will face a decision: whether to approve a proposed budget amendment that opens the door for CPS to make a $175 million pension payment for non-teacher staff to the city or restart the amendment process next month. The amendment process takes 15 days in total.
Despite a record $311 million in extra money from the city’s TIF districts for CPS, there isn’t enough money to cover a new teachers contract, a collective bargaining agreement with the Chicago Principals and Administrators Association or the Municipal Employees’ Annuity and Benefit Fund payment. The district settled its budget in July without accounting for those costs, and the proposed amendment indicates there is just $139 million to cover the gap.
The amendment language offers three options: filling the gap with TIF money, “other appropriate local revenue, which may include other entities incurring debt on CPS’ behalf” or cuts.
According to Baker Tilly, the furlough days required to balance the books would “impact students, and have broader implications with the Board stakeholders” that wouldn’t be advisable this late in the school year. The report also points out that CPS is already scrambling to cover a $200 million gap from lower-than-expected personal property replacement tax revenues and cost overruns in special education and transportation, even before addressing other obligations.
Ultimately, the “complex” refinancing options on the table as a last resort “may result in additional interest costs and increased future debt service payments, and thus potential future budget shortfalls,” according to Baker Tilly.
It clarified its analysis should be taken as “an option,” and that under federal law, “municipal advisory is a specific service, which was not part of this project scope.”
School board members had been waiting on the report as a potential solution to an extreme and controversial budget dilemma since board President Sean Harden brought in the outside advisory firm Baker Tilly in early February. The report cost the board $35,000. Ultimately, however, it doesn’t provide much additional information beyond what has already been shared by CPS financial advisers and the city, who estimate the total gap to be about $240 million.
Last Friday, at the request of board members, Jill Jaworski, the city’s chief financial officer, proposed the city could get $240 million released out of an existing debt service fund, which school districts use to pay off debt similar to a mortgage or a construction loan on a house. CPS could then pay it back with expiring TIF money in three, five or 10 years, Jaworski said.
CPS chief Pedro Martinez has repeatedly opposed making the payment, saying it is not the district’s legal obligation in the first place. Joe Ferguson, president of the Civic Federation, said the report reinforces previous positions that have already been put forward about the pension payment, including in a report by his organization in January.
“There is no professionally advanced and vetted pathway to the board to take on (pension) reimbursement,” he said.
The pension payment that covers non-teaching CPS staff fell under the city until 2020, when then-Mayor Lori Lightfoot shifted it to the district in an effort to disentangle district finances from the city. Johnson opposed the move when running for mayor, and changed his tune once in office and facing budget constraints of his own.
Johnson’s team mounted a full-court press Tuesday morning in support of the CPS budget amendment.
Addressing reporters from City Hall, the mayor and his deputies sought once again to make the case for why the school district should assume the pension payment and borrow about $240 million to cover that and future labor costs.
Johnson, throughout the 90-minute session, deflected on how his administration ended up in this situation — and where it will go from here, instead saying he is “going to remain optimistic and positive.”
Asked about aldermen implying the city could withhold funds to the district if it won’t pay for the MEABF, Johnson distanced himself from that threat even though his handpicked budget chair, Ald. Jason Ervin, said just that at last week’s CPS budget hearings.
“I know that’s how politics have been carried out before in Chicago, right, where we make these threats to individuals,” Johnson said. “I don’t necessarily have to walk in that type of hyperbolic state, making threats. We expect people to do what they said they would do: Honor their commitment that they made to City Council to make sure that they are paying into the retirement for their workers.”
The mayor was referring to Martinez agreeing in a council hearing last October to pay the pension payment — but only if the district received $484 million in additional TIF surplus. CPS received about $300 million in TIF surplus revenue when the district settled its budget in December, and has about $139 million in unbudgeted TIF funds to spend for the rest of 2025.
Confronted about that distinction Tuesday, Johnson denied there was a “disconnect” and said the city “showed up in a very dramatic way” with that amount of additional TIF funding. It was Martinez, the mayor charged, who misfired by making the “reprehensible” move to not include the pension or upcoming CTU contract costs in his 2025 budget.
But Johnson’s own appointed school board sided with Martinez on that spending plan at the time, before all seven members resigned en masse instead of ousting the CEO. Asked on Tuesday why he could not accomplish his budget plan back when he had full control over the board, the mayor maintained “where we are today did not occur simply because of what was or was not done in August.”
The seven-member, mayoral-appointed Board of Education transitioned into the hybrid 21-member board in January, but CPS budget amendments require two-thirds of the vote to pass.
The mayor also brushed off the latest escalation from the teachers union, which sent a letter to CPS leadership on Monday that saber-rattled a strike should a contract not be inked soon: “Their frustration is not directed at the fifth floor. Their frustration is directed at the individuals who believe that they are the only arbiter for what the people of Chicago deserve.”
That Chicago’s first mayor who came from CTU ranks was forced to explain why his former union was inching closer to a strike eight months after its contract expired was a remarkable sight, one that highlighted how unmanageable the final months of mayoral control over CPS became under him.
Still, his CFO Jaworski stressed to reporters that the three repayment timelines for the $240 million borrowing plan — three, five or 10 years — are “sufficient” to cover the upcoming pension and labor costs. Her estimates assume the teachers and principals’ pending contracts will net $200 million, and that the district will collect more property tax revenue and TIF surpluses.
“What this illustrates is, one, we’re recommending a short-term borrowing to serve as a bridge to working out a fulsome budget solution for CPS,” Jaworski said. “It is sufficient, whether you do three years, which is sort of accelerating it as quickly as possible using those repayments, or do something longer, like the five- or 10-year scenario.”
Johnson did not say what would happen if the Board of Education sides against him this Thursday. Last month, his administration warned the city would have to dip into reserves if the district doesn’t pick up the MEABF payment, or else close the 2024 fiscal year with a $175 million hole.
But the mayor refused to address that scenario when pressed by reporters last week, and continued to dodge those questions on Tuesday.
“There’s no secret here that there could be significant consequence if the board doesn’t adhere to what the CEO essentially promised,” Johnson said.
Asked again about the city reserves option, the mayor said, “Look, we’re not making any major pronouncements of what we’ll do. What we’re doing, though, is working with the Board of Education, as we promised, to make sure that they understand that they have options.”
