Schools are already out for the summer, but this Friday marks the final business day in Chicago Public Schools’ fiscal year, and with that comes a looming $700 million payment the district owes to its teacher pension fund.
CPS has three days remaining before it is scheduled to pay more than $713 million to the Chicago Teachers’ Pension Fund. But because the district is relying for the first time on property taxes to help cover that cost, CTPF Executive Director Charles Burbridge says he expects only a portion of that payment to be made on time.
“CPS has not been delinquent before,” Burbridge said. “What they were able to do is statutorily change the payment amount in earlier time periods, so they were never delinquent. So this would be a different situation for us.”
The district is obligated by state law to make its full pension payment by the end of each fiscal year.
Rather than hand over all the money on time, CPS will pay approximately $460 million to the CTPF by Friday’s deadline. The remaining $250 million will be sent to the CTPF piece by piece as property taxes come in to the city treasurer’s office between July and August.
The district’s full fiscal year 2017 contribution equaled just over $733 million, but it already paid off about $20 million of that total. The district did not provide comment prior to press time.
CPS remains the only school district in the state of Illinois required to cover its teacher pension cost. That total is expected to exceed $800 million by 2021 and $1.5 billion by 2059, according to district projections.
The CTPF had been fully funded – meaning it received the full amount needed to pay out member benefits – as recently as the turn of the century. But that funding ratio has since dropped off to just 52 percent.
Established in 1895, the CTPF currently has 63,000 members split between active and retired Chicago teachers, and about $10 billion in assets on hand. Burbridge said the fund currently pays out approximately $100 million in member benefits each month, a process he doesn’t expect to be hampered by a delinquent CPS payment.
“The property taxes will come in over a series of payments from the treasurer,” he said. “It’s not like they’ll just wait until August 31 to provide the full amount, which we’re expecting to be at least $250 million. It’ll come in, perhaps, on a weekly basis, so there won’t be any delays in payments at all.”
Over the past week, the cash-strapped school district has taken out a pair of high-interest loans from J.P. Morgan totaling $387 million, borrowing against hundreds of millions of dollars in outstanding grants it’s owed by the state. CPS said this would give it “sufficient cash for the District to meet its June 30 pension obligation.”
State statutes don’t offer much clarity on what to do in the event CPS is late in its full payment, but Burbridge said the CTPF is working with the school district on drafting a memorandum of understanding to specify “what needs to happen” to better meet state laws.
Rather than placing blame solely on the district, Burbridge pointed to the ongoing two-year state budget impasse and a broken education funding formula that’s exacerbating CPS’ ability to hand over $700 million-plus for pensions.
“When a stream of revenue like state grants is in arrears – they’re short about $460 million in grant proceeds, they have uncertain funding going forward – this is a very difficult situation that CPS is in,” he said, “and that’s why we’re trying to work in partnership with them to get more equitable student funding.”
CPS did, however, fail to make adequate pension contributions for years. That includes a decade-long pension “holiday” that lasted from the mid-1990s until 2005, when the General Assembly allowed the district to take $2 billion earmarked for pension payments and instead use those dollars in its operating budget.
But without a state budget, and without changes to the nation’s least equitable education funding formula, Burbridge realizes making a full, on-time pension payment is only going to become more difficult for CPS in the future.
“Education funding reform is critical, making pension payments are just as critical because we know from the mistakes that they made in the past that when you delay pension payments, it’s a snowball that just keeps growing that makes it even more difficult to stop as time goes on,” he said.
“We appreciate the efforts that CPS is making to make this payment in as timely of a fashion as they are capable given the state statutes that are in place. And we just look forward to continuing working with them to address the needs of the students of Chicago.”
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June 7: The Democrat-backed bill would increase state funding to every public school district in the state. But it still faces an uncertain future as critics chide what they see as preferential treatment for Chicago Public Schools.
June 30, 2015: Today was deadline day for a $634 million payment due to the Chicago Teachers' Pension Fund, and this afternoon the payment was made. But school finances remain in a perilous state. We talk with the head of the pension fund, Charles Burbridge, on what happens next.