CHICAGO - One day after scrambling to cover a $634 million teachers' pension payment, Chicago and its public school system warned of the dire impact that looms if the state doesn't either take over the district's pension fund or cover a big share of the cash-strapped district's contributions.

Chicago Public Schools officials tapped a new $200 million tax anticipated note-backed credit line with JPMorgan and announced $200 million in cuts late Tuesday to make the full payment due that was due June 30.

A partial or delayed payment could have triggered further credit ratings deterioration and litigation. The district had sought state legislative approval to delay the payment until August 10, providing more time to work out a long-term state supported fix, but it failed.

From city hall to the state capitol, CPS' struggles were the subject of warnings Wednesday that help is needed to shore up the district's precarious fiscal condition underscored by a $1.1 billion budget deficit and the growing cost to service $9.5 billion of unfunded pension obligations. The city teachers' fund is 52% funded and the fiscal 2016 contribution rises to nearly $700 million.

The school system's struggles could drive much deeper cuts and Chicago property taxes could rise by $175 million to $200 million, officials warned.

During a news conference Wednesday to discuss the impact of cuts and press the state to support either of two options aimed at easing the district's pension burden, Chicago Mayor Rahm Emanuel called the cuts "intolerable, unacceptable, unconscionable." But, Emanuel said CPS has few choices other choices due to state inaction.

The reductions include 1,400 job cuts, including 350 vacant positions. The plan trims $17.4 million from network office spending, $15.8 million for new charters, and $11.1 million from facility repair and maintenance which is a 25% reduction. High school hours will change as will magnet school busing to save funds. Schools will open on time, Emanuel and CPS interim chief executive officer Jesse Ruiz said.

Emanuel and Ruiz laid out two options they are pressing the state to consider as a long-term solution. One calls for the state to absorb the teachers’ fund into the state fund, which is even more poorly funded than the CPS fund. The second option requires greater support from teachers, the state, and property taxpayers. It calls for the state to cover what’s known as the normal cost of the pension contribution similar to what the state does for districts outside Chicago. That would trim up to $200 million off CPS’ contribution. Under that second option, teachers would also be asked to cover a bigger share of the pension payment and Emanuel would ask the city council to restore a teachers pension property tax levy imposed prior to 1995, raising $175 million. The mayor could seek council approval for another $50 million activating a levy for capital.

"Because of the way the system is set up Chicago is the only city forced to make the perverse choice between making pension payments and making cuts to our schools. So I am asking Springfield to fix it," Emanuel said.

Earlier on Wednesday, CPS and Chicago pitched the Chicago Teachers' Pension Fund to consider a $500 million loan allowing it to defer some of its fiscal 2016 payments into 2017. The district would shift to making payments monthly instead of its current lump sum at the fiscal year's end and would pay an interest rate similar to the assumed rate on investments. Without the relief, the district warned of the need to make even deeper cuts.

Legislation introduced late Tuesday by sponsor state Senate President John Cullerton, D-Chicago and advanced out of committee Wednesday would provide relief for CPS on two fronts. It would shift the normal cost funding burden to the state and restructure the current amortization schedule. The schedule to reach a 90% ratio would be extended to 2063 from 2059. The bill also would ease the ramp up in payments over the next several years. It would reduce the CPS' total contribution in fiscal 2016 to $400 million from $700 million.

"This is meant to be an attempt at a compromise to move the ball down here a bit and it also recognizes the fact that Chicago has some serious funding problems for the upcoming year," Cullerton said.

"We feel this bill lays the groundwork for the path forward," Cameron Mock, a budget official with CPS testified. "We did make the full [pension] payment and in order to do that we had to borrow…so it puts us in significant fiscal stress in the near term and in going forward."

The Chicago Teachers' Union testified against the proposal, calling it a pension holiday.

The legislation cleared a Senate committee but Cullerton said he would hold it from a floor vote for further amendments to be discussed. Cullerton included a two-year local government property tax freeze in the legislation as a nod to demands from Gov. Bruce Rauner. The freeze is part of the governor's so-called "turnaround agenda." Democratic opposition to the turnaround measures has stalled passage of a fiscal 2016 state budget.

Republicans opposed the legislation because it lacks Rauner's proposal to free local governments of some collective bargaining and prevailing wage requirements the GOP believe are needed to offset the impact of a property tax freeze.

The bill also calls for a commission, as supported by Rauner, to recommend an overhaul of school funding formulas and sunsets Chicago schools' block grants.

The district was dropped to a junk rating by Moody's Investors Service in May over its fiscal ills and faces further deterioration from multiple rating agencies if it can't shore up its fiscal house.

 

 

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