CHICAGO – Illinois Gov. Bruce Rauner vetoed legislation that would give Chicago Public Schools $215 million toward pension contributions, a move that potentially slaps the cash-strapped district with a big budget hole to fill and underscores the state's deepening political divide.
The veto came on Thursday, the final day of the General Assembly's annual fall veto session during which political tensions over the state's prolonged budget impasse grew more amplified with no sign that the gridlock between the Democratic majorities and Rauner and his fellow Republicans has eased.
The Senate later succeeded in an override attempt, getting exactly the three-fifths majority of 36 votes needed. Another 16 members voted against the override. The legislation moves to the House where its fate is more uncertain.
The CPS funding was supposedly contingent on lawmakers reaching agreement on a state pension reform package.
"Today I return Senate Bill 2822…without having reached agreement on comprehensive pension reforms for the state and local governments," Rauner said.
The CPS funding was included in a series of bills that included a stopgap budget to get the state through the remainder of 2016. The expectation was that after the November election lawmakers would return to work out their differences and approve a new budget and pension reforms.
The CPS funds were contingent on pension reforms, according to Rauner and leaders in June. State Senate President John Cullerton, D-Chicago, emerged from a leaders meeting with Rauner earlier Thursday and suggested that wasn't the case.
"Things aren't tied together," Cullerton said of Rauner's linkage of the CPS funding and pension reform. "We passed the bill and put it on his desk, so I would urge him to sign it. If he's not going to sign it because he wants something else, he hasn't told us what that is yet."
The $215 million covers the normal costs of teachers' pensions, which the state government currently covers for school districts other than CPS.
Rauner's veto message attacked the Democrat's comments.
"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 election is over. Despite my repeated request for daily negotiations and hope to reach a comprehensive agreement by the end of next week, we are no closer to ending the impasse or enacting pension reform," Rauner added.
Rauner blamed Cullerton for forcing his hand. Leaders had been holding the bill back through a parliamentary maneuver to reconsider it but Cullerton recently sent it on to Rauner's desk.
Cullerton fired back.
"By acting in such haste, the governor has unfortunately set back [pension] negotiations that I believed were advancing. Even worse, he has potentially forced the layoff of thousands of Chicago teachers and district employees," he said.
On the Senate floor, Cullerton countered Republican questions over why the override vote couldn't wait saying that Rauner forced his hand to act Thursday or lawmakers would have to be called back by Dec. 16. He questioned Rauner's timing, saying he believed the legislature had until Jan. 6 to act on pension reforms before action was taken on the CPS bill.
As the veto session progressed over the last several weeks, lawmakers have only dug in on their opposing positions. Democrats want Rauner to tackle a budget on its own. Rauner continues to tie various policy and governance reforms to passage of a budget that would likely include an income tax hike and potentially other new revenues as well as cuts.
Rauner on Thursday posted a video on Facebook outlining his demands for another stopgap budget. He wants term limit legislation approved as well as a permanent property tax freeze. He recently said worker's compensation changes are a top priority for any budget agreement.
Cullerton and House Speaker Michael Madigan, D-Chicago, oppose many of Rauner's reform proposals which they argue are too friendly to business and would hurt the middle class. Rauner argues that they are needed to improve the state's economy.
CPS did not immediately respond to a request to comment, but a news conference was set for later Thursday.
"This action is both reckless and irresponsible, and make no mistake, it's our children who will pay the price," Chicago Mayor Rahm Emanuel said in a statement.
Ratings agencies and investors worried about the district's precarious liquidity position and heavy reliance on short-term borrowing have been watching to see whether the state comes through on the funding.
While the district has not outlined a backup plan should the state dollars fall through, it would have room to borrow under its credit lines if its cash flow otherwise remains on course.
The district projects it will have $950 million in short term tax anticipation notes outstanding at the close of fiscal 2017 on June 30. The Chicago Board of Education increased the total authorization this fiscal year to $1.55 billion from about $1 billion although all the lines are not yet in place.
CPS recently closed a tranche of $475 million of tax anticipation notes under a credit line with JPMorgan. It's the district's third use of a credit line in fiscal 2017. The district earlier issued $150 million of TANs and $325 million of TANs under credit line agreements provided by JPMorgan.
The board also expects to close on a $600 million line of credit in January 2017, which it expects to only be outstanding for approximately four to six months.
Amid rising rates after the November election, CPS pulled the plug until 2017 on a $426 million bond sale originally planned for this year. The junk-rated district, which would have headed into the market with another downgrade fresh on investor minds, struggled with lackluster interest in its last public market bond sale in February when it came close to hitting a state imposed 9% interest rate cap.
S&P on Nov. 9 downgraded CPS to B from B-plus, five notches below investment grade, and left the credit with a negative outlook. Fitch Ratings earlier this fall affirmed the board's $7 billion of debt at B-plus with a negative outlook. Kroll Bond Rating Agency rated the planned deal at the investment grade level of BBB with a negative outlook. Moody's Investors Service in September lowered the board's rating to B3 and assigned a negative outlook.