CHICAGO — Chicago Mayor Rahm Emanuel and Chicago Public Schools plan Wednesday to lay out a "comprehensive, long-term plan to address the pension and funding inequities for Illinois' schools," according to the mayor's schedule.
The plan being offered by Emanuel and CPS interim chief executive officer Jesse Ruiz comes one day after the cash-strapped district said it would borrow and cut to make its $634 million fiscal 2015 teacher's pension payment that was due June 30.
"Springfield has failed to address Chicago Public Schools' financial crisis, so today CPS made its 2015 pension payment by borrowing money," Ruiz announced in a statement late Tuesday night.
"As an immediate consequence of driving the district further into debt and our need to address the existing structural deficit — which is also driven by decades of pension neglect — CPS will make $200 million in cuts," the statement continued. "As we have said, CPS could not make the payment and keep cuts away from the classroom, so while school will start on time, our classrooms will be impacted."
Emanuel had said earlier in the day that schools would open on time after Labor Day.
The cuts will impact 1,400 positions beginning Wednesday. No additional details on the cuts were provided. The district also did not elaborate on how it fully covered its pension payment, including how much might have been drawn from credit lines.
The district has long warned it could not afford to make the full pension payment and cover payroll and other obligations and get schools open on time in September. A plan to push off the payment to August, when more tax revenue and state aid payments are expected, failed to muster sufficient support in the General Assembly.
The district was expected to draw on a fresh $200 million fiscal 2015 tax anticipation note-backed credit line with JPMorgan. It was authorized by the Chicago Board of Education last week, closed in recent days, and expires in October. The board also authorized a $935 million line backed by 2016 tax collections for use in the new fiscal year, but it has not closed. The district has lined up participation from two banks, but still needs support for another on roughly $200 million of the line, market sources said Tuesday.
The district has just limited liquidity. It was on pace to close out the fiscal year Tuesday with an ending balance of $300 million and $174 million in a debt service stabilization fund that is "available to the board for any legal purpose," according to its most recent offering statement. Any drawdown of its fund balances could drive further credit rating deterioration, rating agencies have warned.
City and school officials portrayed the wished-for pension payment postponement maneuver as one that would have bought more time for them to press their case for additional pension help over the long-term. Gov. Bruce Rauner offered to advance more than $400 million in grants but that offer was rejected as just another short-term fix.
CPS and Emanuel want the state to pick up a greater share of teacher pension payments, to bring it in line with support provided to other districts in the state, which participate in the state teachers' pension fund. They point to figures that show state subsidies of $2,000 per student for districts outside the city compared to $160 per student in CPS. Lawmakers outside Chicago counter that Chicago receives the bulk of poverty grant funds.
Legislation proposed late Tuesday by Senate President John Cullerton, D-Chicago, would do just that. Illinois would contribute nearly $200 million toward fiscal 2015 payments and $207 million for fiscal 2016. CPS would be required to pay just $207 million next year and $211 million in fiscal 2017 with future payments tied to an actuarial level designed to bring the system to a 90 % funded ratio.
The legislation would imposes a two-year property tax freeze, as Rauner has pushed for, on most local governments, although Chicago and its schools would be exempt. Rauner's support is unlikely, however, as the property tax freeze portion of the bill lacks curbs on collective bargaining and prevailing wage requirements on some contracts which Rauner wants to help local governments offset the impact of the freeze.
CPS' growing pension obligations are a primary driver of its looming $1.1 billion deficit in fiscal 2016. The district has delayed release of a budget. The 2015 pension payment totaled nearly $700 million with CPS responsible for $634 million and the state covering the remainder. CPS' payment rises to $688 million in fiscal 2016.
Moody's Investors Service dropped the Chicago Board of Education's $6 billion of debt to the junk rating of Ba3 in May over its mounting pension pressures and structural budget woes. The district lacks much revenue flexibility as growth in its property tax levy which provides 44% of its funding is capped by state law. About 33% of its budget comes from state aid.
The school board carries ratings of BBB-minus with a negative outlook from Fitch Ratings, A-minus with a negative outlook from Standard & Poor's, and BBB-plus with a stable outlook from Kroll Bond Rating Agency. Moody's assigns a negative outlook.
