CPS must present a plan to close its deficit within 9 days: What are the options?

Since taking over in June, interim Chicago Public Schools CEO and Supt. Macquline King has been laser-focused on coming up with a plan to close the school district’s $734 million budget deficit.

King and her team now have less than two weeks to present a budget in time for legally required hearings and a vote at the Aug. 28 Board of Education meeting.

School starts Aug. 18; this will be the first time in recent memory the year will start without a budget in place.

After hearing ideas and proposed solutions from nearly 700 parents, teachers and community members at meetings in July, King warned: “There are no easy answers here, and it’s clear that there are difficult decisions that will need to be made.”

The deficit is the result of several factors: the end of federal pandemic relief money after CPS used it for a hiring spree over several years, rising transportation and building maintenance costs, and expensive annual debt and pension payments that are the legacy of state underfunding.

CPS has long had a structural deficit, with new information released Friday showing that CPS is still significantly underfunded by the state.

It needs nearly $1.6 billion more in state funding each year to provide an “adequate education,” according to the state’s calculation.

The gap between what CPS has and what the district needs grew since last year. CPS now has only 73% of what it needs, compared to 79% last year.

King was hired from Mayor Brandon Johnson’s office to lead CPS through this budget period. Johnson and his allies at the Chicago Teachers Union accused her predecessor, Pedro Martinez, of failing to solve these woes.

The mayor, who still appoints a majority of the partially elected school board, has demanded no programming cuts or layoffs. But the options are slim.

Because schools are so integral to the lives and futures of families, even seemingly small changes can be controversial. King has already received blowback on a decision to save money by shifting the start time of a small number of schools to better align bus schedules.

That is one of the ways her team has whittled the deficit down by $165 million this summer. Other measures already announced include discontinuing hot afternoon meals and laying off 161 people, including crossing guards and central office workers.

That still leaves a $569 million budget hole, which means officials have to come up with either new revenue and/or savings.

There are benefits and risks to every option tossed around. Some, like closing underutilized schools, are not feasible, at least in the short term.

Others represent wishful thinking.

School Board President Sean Harden has argued borrowing cash is the only option that will not immediately impact the student experience.

Borrowing money

Harden stresses this would be part of a larger strategy that could include other cuts and a campaign to get more state funding.

But borrowing is perilous. CPS already owes a whopping $9.3 billion in long-term debt and made $817 million in debt payments last year — dollars that could otherwise be spent in the classroom. Loans are a one-time solution that won’t fix the structural problems underlying the deficit.

Officials have weighed using property tax revenue from expiring special taxing districts — tax increment financing districts — to back borrowing. But CPS officials are already planning to use the additional money from expiring TIFs to pay for the new CTU contract.

Massive staff cuts or furloughs

Reducing payroll costs would make the biggest difference in the budget gap, but it is the least popular option.

Since 2019, CPS has hired more than 7,000 new employees, including teachers, special education aides and social workers. The district’s payroll has grown by $800 million over that time.

The new hires include 760 central office personnel in accounting, instructional support and the office of student disabilities, according to the 2024-2025 budget. Central office staff has grown by about 60%.

Many of the new positions support students with disabilities, and CPS is legally required to make sure those students get support.

Officials insist other new staff were integral to helping students make impressive academic progress after the pandemic, and they don’t want to take a step back.

Another complication is principals received school-level budgets in May and used them to make hiring decisions. With school starting soon, those decisions would be hard to unwind.

CPS could also impose furloughs, especially for non-instructional days when staff receive training or hold meetings. Furloughs cut into pay and will likely anger the unions, including CTU and SEIU Local 73, which represents support staff like special education teacher assistants.

Don’t hand over money for city pension payment

The school district could once again forgo giving City Hall $175 million for a municipal pension payment that in part covers CPS staff who aren’t teachers. This payment is included in CPS $734 million deficit.

Legally, it is the city’s responsibility to pay into the municipal pension, even though 60% of the pensioners are CPS staff, including support staff and central office employees.

The school district didn’t contribute a dime until former Mayor Lori Lightfoot shifted some of the cost in 2021. That helped Lightfoot’s budget deficit at the time and began disentangling CPS-City Hall finances ahead of the first school board elections last September.

The city, whose fiscal year starts in January, is counting on the pension payment to end its year in the black. Without it, the mayor’s office will have to scramble for a quick fix. CPS didn’t pay last year, and the city had to pull from reserves to cover the cost.

Stiffing the city again might seem like a no-brainer for CPS. But it’s a complicated decision.

Ever since Lightfoot started shifting the cost, the city has given CPS more money through TIF surpluses. The mayor declares a surplus when TIF dollars aren’t committed to a specific development project in the city, and CPS gets 52% of the money. The city only receives 24%, which gives the mayor less incentive to surplus if CPS refuses the pension payment.

Johnson declared a record $600 million TIF surplus last year, giving CPS about $300 million. The school is counting on that again.

But if board members refuse to cover the pension payment, the city could easily decide not to surplus as much or reconsider other city funds spent on CPS programs, as City Council members have threatened in the past.

Hit the city coffers

City officials could save the day by coming through with extra TIF money for CPS or another revenue stream.

The city could increase a dedicated property tax levy or even create a new one for the teachers pension fund. It could borrow on behalf of CPS or approve a new tax or restore an old one, such as the corporate head tax, and give some of the revenue to the school district.

These would be hard sells for many reasons. The city is also facing a huge budget deficit; credit rating agencies might frown on the city taking on CPS burden, and the city is supposed to be disentangling itself from CPS as the district becomes more independent with an elected school board.

Get state lawmakers to help

Several board members and the CTU have called on Gov. JB Pritzker to convene a special session to find more money for schools.

Many districts across the state are struggling with the end of federal COVID relief money and the Trump administration’s curtailing of education funding.

Some have called for the state to once again pursue a progressive tax, especially as the wealthy get new tax breaks from Trump. The CTU has also suggested there are other ways Pritzker could get money from the wealthy without a citizen referendum.

Illinois also could help CPS by assuming more, if not all, of the teacher pensions costs for the school district. CPS is on the hook for a $600 million payment this year.

The state covers almost the entire employer contribution for all districts except CPS. It’s the only school system with its own fund. Some think state legislators would be more inclined to cover CPS costs if the Chicago pension system folded into the state’s teacher pension fund.

But like the city, the state has its own money problems. So far, neither the governor nor state legislative leaders are jumping in to help.

Bet on funding that’s not guaranteed

CPS needs an approved budget by the end of the month. It is highly unlikely the city or state will come up with extra money for CPS in the next two weeks.

School board member Debby Pope asked at a Board of Education meeting whether it was possible to count on some additional city or state funding now, in hopes that officials take action this fall or winter.

CPS Chief Budget Officer Mike Sitkowski said the school district must have a reasonable expectation the cash is coming to use it to balance the budget.

While “reasonable” is subjective, such a move would be extremely risky. CPS counted on state money that wasn’t guaranteed in the past and, when it didn’t come through, it was forced to make highly disruptive mid-year budget cuts.

Sarah Karp covers education for WBEZ. Follow her on X @WBEZeducation and @sskedreporter.