Preview: Tomorrow's Budget Showdown

Tomorrow’s the big day: the Chicago Board of Education will decide whether to reimburse the city a $175 million payment to the Municipal Employees Annuity and Benefit Fund (MEABF). 

The board will vote on a budget amendment adding $139 million in additional property tax revenue from tax-increment finance districts (TIFs), and allowing three new uses for funds: paying the teacher contract, the principal union contract and making the pension reimbursement. Paying for all three of those items costs more than $139 million. The city is about $240 million short of what it would need to pay all three expenses.

Board members I’ve spoken with say this budget amendment is not likely to pass. They say the vote is likely to go 13-7. That’s one shy of the 14, or two-thirds majority, required to pass a budget amendment. (Board President Sean Harden only votes to break ties.) The seven board members likely to vote no have expressed concerns about CPS taking on more debt to pay for the pension, either through a new loan or by restructuring existing debt.

This projected 13-7 split is reminiscent of earlier votes and highlights the board’s two factions: Mayor Brandon Johnson’s 10 recent appointees plus three electeds who won with Chicago Teachers Union backing, and a group of more fiscally-conservative board members, including one CTU-backed election winner, Jennifer Custer, plus six other elected members who were opposed by CTU. 

Before digging in on how CPS can pay for all three of these things, and the debate over whether it should pay the pension reimbursement, let’s clear up a misunderstanding I saw happening in real time during last week’s public comments on the budget amendment.

No matter how the vote turns out, MEABF retirees will continue to receive benefits as usual. The City of Chicago is legally obligated to make a pension payment to the MEABF fund every year. 

As the city has been doing since 2020, it is asking Chicago Public Schools to reimburse a share of what it paid to the MEABF, for three major reasons:

1. A large share of the employees covered by the fund worked for CPS, not for the City.
2. CPS paying toward this pension is part of disentangling the school district’s finances from the city budget. This is a necessary part of the transition to a fully independent, elected school board (which Chicago has never had before).
3. If CPS does not make the payment, the city will have to find $175 million, because the budget it passed in December assumed CPS would pay that amount. WBEZ reports that if the board fails to pass the amendment on Thursday, the city may need to draw on its reserves.

Opponents of the reimbursement argue that it is the city’s legal responsibility to pay the pension, and the city has much more power to tax than the school district does. The issue is shaking up the City Council's traditional political divisions. While 27 alders—including both mayoral allies like Jeanette Taylor (20) and mayoral foe Raymond Lopez (15)—signed a letter pressuring the school board to make the payment, progressive alder Andre Vasquez (40) announced he supports the city making the payment.

What Are the Board's Options?

Board President Sean Harden hired accounting and financial advisory firm Baker Tilly to review the options the board could choose from to pay for its new contracts and make the pension payment. In a five-page memo, Baker Tilly laid out three options, but none is a clear winner.

Mid-year cuts. Baker Tilly described this option as “highly challenging” and unlikely to raise enough revenue to meet all three needs. With only about a quarter of the school year left, cutting positions would not reap significant savings. Already, Chicago Public Schools must find ways to cut about $200 million between now and the end of the fiscal year to make up for unanticipated budget shortfalls–a combination of $93 million in revenue shortfall and $100 million in overages for transportation, special education, and other costs. Thursday’s board agenda includes approvals for 1410 transfers between funds within the CPS budget.

According to the Baker Tilley memo, it would take 10 to 11 teacher furlough days to cover the pension payment. A teacher strike looks more possible now, given the strong chance the budget amendment will fail and the recent news that CPS rejected a compromise offer from CTU on elementary preparation time. If CTU does strike, strike days could replace some or all of the furlough days.

Refinancing or refunding current outstanding debt. Baker Tilley was careful to note that they are not advising any particular action, but suggested “the Board may be able to generate funding and/or FY 2025 cost savings from refinancing/refunding outstanding debt.” 

During Friday’s public comment session and again yesterday at the weekly City Hall press conference, City of Chicago Chief Financial Officer Jill Jaworski presented the city’s recommendation: refinance current debt to free up $240 million, which could be repaid over three, five or 10 years. WTTW calculated the refinance would cost taxpayers an additional $18 million if repaid in three years, $30.3 million if repaid in five, and $64 million if repaid in 10 years.

“We’ve been highly focused on surplusing as much money as possible out of the TIFs,” Jaworski noted.  Over the next few years, the city plans to allow dozens of TIF districts to expire, which will give CPS additional property tax revenue that could be used to repay the refinanced debt.

More TIF money. Baker Tilley’s analysis of the possibility of additional TIF surplus in time to pay this year's outstanding expenses was not optimistic. The city has already determined it will release a $570 million TIF surplus for 2025, with $298 million going to CPS. If the board asks for more, that additional surplus “could impact future amounts of TIF surplus” which the board might need for other parts of the budget. 

In an analysis of the memo, Kids First Chicago put the problem more plainly. It's "politically challenging" to request more TIF funds this late in the fiscal year.

But the city’s grassroots experts on TIFs, longtime Chicago Reader columnist Ben Joravsky and CivicLab Chicago co-founder Thomas Tresser, both rejected the entire premise of a TIF surplus and called on the mayor and City Council to take more drastic action to end the city’s long standing overreliance on TIFs. 

“Somehow we’re led to believe that the city is being generous when they return money to the schools that they borrowed from them,” said Joravsky. “They stole the money from the schools in the first place.” 

In a TIF district, the amount of property tax available for schools and other taxing bodies is frozen for 23 years. As property values rise over that time, the additional property taxes are siphoned into the TIF fund, which can be used at the discretion of the mayor and the alderman whose ward contains the TIF. 

In Chicago, TIFs have covered as much as half the city and been renewed multiple times, diverting billions of dollars away from CPS, the Chicago Park District, and other governmental bodies that receive property tax monies. In addition to declaring TIF surplus—refunding money not earmarked for construction projects back to schools and other taxing bodies—the mayor and City Council often cooperate with CPS to fund school construction projects with TIF money. Currently the city is funding $319 million in school construction with TIF dollars.

Tresser argued that nothing is stopping Mayor Brandon Johnson from declaring additional TIF surplus to cover the pension payment. “As far as I can see, [Mayor Johnson] has complete control over these TIFs. And as I say, at the beginning of 2024 there were $3 billion.  ,,, Say $3 billion is now down to 2.5 billion,” due to last fall’s TIF surplus.  That leaves plenty to solve the current budget situation, Tresser observed. “Now, you could also say, but a lot of that money is spoken for, isn't it, by all these contracts? That is an unknown, but I would just cancel the contracts and let people come sue me.”

Other Noteworthy Agenda Items. Mayoral appointees Ed Bannon and Emma Lozano will go to a vote to become the school board’s representatives on the board of the Chicago Teachers Pension Fund. Che “Rhymefest” Smith’s proposal to ensure the next CPS Chief Executive Officer holds a superintendent’s license is also up for a vote.

Watch for a special edition of Board Rule on Friday morning!