Chicago Public School District Owes $634 Million in Pension Funds. Can It Pay?
Will Chicago Public Schools make its $634 million pension payments due by the end of the month?
That's what everyone is watching to see after state legislators in Springfield on Tuesday failed to approve a measure that would have given the nation's third-largest school district a six-week extension to make the payments.
Chicago Public Schools and Mayor Rahm Emanuel have said that the school district does not have the money to make the full pension payment due by June 30 without severely impacting what happens in the classrooms.
Tuesday's failed proposal was brokered by Emanuel, a Democrat, and Gov. Bruce Rauner, a Republican, and it would have delayed the payment to Aug. 10, the Chicago Tribune reported. (Rauner's spokesman blamed the Democrats for scuttling the deal.)
Jesse Ruiz, the interim schools CEO and a school board member, urged action.
"With one week until this payment is due, we need our leaders to come together so that we have enough time to reach a solution," Ruiz said in a statement, according to Reuters.
Earlier this week, Emanuel told the Chicago Sun-Times that the district's finances had reached a "breaking point."
"If you make that pension payment in its completion, which has been done four years in a row for the first time in a long time ... we could no longer make that payment and not have it impact the school building and the classroom," the Sun-Times quoted the mayor as saying.
How dire is the situation? The Chicago Tribune spells it out:
"A series of internal CPS reports indicated that even if CPS drained its checking account, maxed out its credit card and burned cash set aside for other debts, it still would not be able to make the pension payment, cover payroll and pay other bills."
An Ernst & Young audit said that CPS could run out of cash this summer and have difficulty meeting pension obligations and debt payments, the Chicago Sun-Times reported on Sunday.
The district is facing a $1.1 billion deficit in its upcoming 2016 budget, and it is negotiating with the teachers' union on a new contract.
The school board is set to vote on Wednesday to authorize borrowing about $200 million to take the district through the end of the month and a separate item to borrow nearly $935 million for the next fiscal year, according to the Tribune.
The district has been on a roller coaster these past few months. Federal investigators are looking into a $20.5 million no-bid contract the district awarded to SUPES Academy, which once employed former schools' CEO Barbara Byrd-Bennett. The investigation led to Byrd-Bennett's resignation and put the district on the path to finding its third full-time CEO in four years.
In May, Moody's Investors Service downgraded the district's $6.2 billion general obligation debt to "junk status," making it likely that the district will face higher borrowing costs going forward.
Reuters reports that the House of Representatives will take another shot at approving an extension on the pension payments. But that vote may come on June 30—the day the payment is due in full.