It turns out, Mayor Rahm Emanuel had a Plan B.
Unfortunately, it involves borrowing and up to 1,400 layoffs.
With not a moment to spare — and with no help from Springfield — Chicago Public Schools made good on a mammoth $634 million payment to its teachers’ pension fund on Tuesday, the same day it was due.
The cash-strapped CPS used a combination of borrowed money and a promise of cuts to cover the payment after a deal to delay the contribution failed to materialize in Springfield. Last week, Emanuel’s hand-picked school board authorized $1 billion in borrowing just in case state lawmakers didn’t come through on the delay bill.
“Springfield has failed to address Chicago Public Schools’ financial crisis, so today CPS made its 2015 pension payment by borrowing money,” interim CEO Jesse Ruiz said.
“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,” he said. “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.”
As many as 1,400 employees will be laid off beginning Wednesday, according to CPS.
The Chicago Teachers Union said it was both “blindsided” and “outraged” by news of the massive job cuts.
“We are blindsided by reports that the district intends to lay off 1,400 public school educators, given that we just met with them yesterday and there was no mention of this action,” Chicago Teachers Union President Karen Lewis said in a statement released late Tuesday.
“These layoffs prove that the Board never intended to make the pension payment in good faith and that they are using this to justify more attacks on our classrooms,” she said. “Putting 1,400 people out of work is no way to balance a budget and resource our schools.”
Pension fund officials said the payment solves the immediate crisis, but not the long-term problems.
“This by no means ends the discussion of how pensions are funded for teachers at Chicago Public Schools. It’s just the start of it,” Chicago Teachers’ Pension Fund executive director Charles Burbridge said in an appearance on WTTW-Channel 11. “We are interested longer term about education funding because there’s really no pension funding solution without education funding solutions.
“Your teachers shouldn’t have to choose between teacher security today and retirement security tomorrow,” he said. “So we are interested in the discussion and ensuring that it goes in a direction that supports the interests of our members.”
For the near term, however, Emanuel said Tuesday that Chicago Public Schools would open on time this fall, but he refused to discuss what classrooms would look like.
City Hall sources on Tuesday would say only that the money for the pension payment is coming from a mix of borrowing and budget cuts. Emanuel was expected to unveil a “comprehensive plan that lays out a framework for moving forward” at CPS on Wednesday.
CPS spokesman Bill McCaffrey did not return repeated calls for comment on how the district will manage the payment, or on what cuts to school services would include.
Word that Chicago schools would make the full pension payment first came in a surprise announcement from Illinois House Speaker Michael Madigan, D-Chicago, who talked to reporters in Springfield on Tuesday.
“I’ve been advised by reliable sources they have cash on hand and they’ll be in the position to make the payment before the end of the business day today. The full payment,” Madigan said, adding his source “wasn’t Rahm.”
Emanuel’s plan to put off the pension payment — and the financial day of reckoning at CPS — until Aug. 10 failed to advance in Springfield last week. Despite Democrats holding a supermajority in the Illinois House, it lacked the necessary votes to pass.
Madigan had said he would put support on the bill this week, but ultimately, it was never called on Tuesday. Aside from Madigan’s hedging, Gov. Bruce Rauner on Tuesday raised doubts over whether he would sign the measure.
“Our administration stands ready to help the city of Chicago get through its financial crisis — and they have a very serious financial crisis,” Rauner said. “The one thing we did proactively do to try to help the city was to go ahead and advance as much as $450 million to help Chicago Public Schools this week, if that were helpful to the cash flow situation.”
Emanuel, however, rejected that offer, saying it used next year’s money to pay this year’s bills, calling that the same path that got Chicago schools into the trouble they’re in now.
On Tuesday, Rauner said a delay bill only “kicks the can” and doesn’t directly address CPS’ long-term issues.
“It frankly doesn’t move the needle that much,” he said. “What we need is long-term structural reform and we actually developed a plan in partnership the [with] mayor and the [Senate] president, and I hope we can get some traction on that in the coming days.”
At a City Hall news conference early in the day, an hour before Madigan spoke, Emanuel had been cagey about his pension plans.
Pressed to spell out the classroom cuts that would be necessary to make a full or even a partial pension payment, the mayor refused. He said those details would come later.
But Emanuel made it clear that it would not be pretty. He described a “set of decisions and choices” that are not only untenable. They’re “upside-down.”
“School will start, but our ability to hold the impact of finances away from the classroom — that’s gonna change. . . . Our ability to kind of hold or put a wall down where those finances did not impact [the classroom] is coming to a breaking point,” the mayor said.
Emanuel refused to specify what kinds of cuts were in the mix.
“I want to be clear: We’re in active conversations with numerous parties to figure out a way to have — I want to also achieve the goal to have the least impact on the schools and the classrooms of the city of Chicago,” Emanuel said.
If the school district missed its payment or made a partial payment, it could have triggered a pension fund lawsuit and a further drop in a CPS bond rating that’s already been reduced to junk status.
Emanuel put the onus on Springfield for a “structural inequity” that subsidizes teacher pension payments to the tune of $2,000 per student for school districts outside Chicago and just $160 per student in the city.
“You’re not asking me about the graduation rate. You’re not asking me about the test scores. You’re not asking me about attendance. You’re asking me about a pension payment,” the mayor said. “No other school district in the state of Illinois is asked about a pension payment.”
In her statement, Lewis said the job cuts will “hurt our students and the most vulnerable children in our district.”
“These cuts are a result of a history of poor fiscal management by the Board of Education,” she said. “Mayor Rahm Emanuel’s handpicked board has led this district over a financial cliff.
“We are outraged at this deceptive action that only furthers the distrust teachers, parents and students have with the Board. We thought it suspect at the time that the Board was pressuring us to sign off on an agreement on yesterday, before we had a complete agreement. This is retaliatory and unnecessary because [the mayor] refuses to seek revenue options to stabilize CPS.”
On Tuesday, Burbridge said he didn’t know where the money from the pension payment came from but joked he was cashing them right away: “We want to make sure [the] checks don’t bounce.”
Contributing: Becky Schlikerman, Tina Sfondeles