The pathway to Chicago and CPS overcoming unprecedented budget deficits requires the political will to confront a CTU determined to bankrupt the city and schools
Chicago is facing a twin financial crisis with the city and schools looking at massive budget deficits next year. Both are facing budget deficits approaching $1 billion. There is a pathway out of the current financial quagmire that can address these financial challenges while simultaneously expanding quality of school choices for all families, regardless of family income. This involves radically decentralizing Chicago Public Schools (CPS), removing the Chicago Teachers Union’s (CTU) stranglehold over the district, and phasing out the city’s massive school subsidies.
Chalkbeat Chicago projects the CPS deficit at a staggering $933 million if teachers and principals are awarded a modest four percent annual salary increase and the district picks up the $175 million payment to cover the pensions of school district non-teaching staff. The CTU, however, is demanding for an outlandish nine percent in annual increases and city employees’ annual received increases of five percent. Therefore, the deficit is likely to balloon to over $1 billion.
While Johnson, the CTU, and the Chicago Board of Education claim the state is underfunding the district by $1.1 billion annually, CPS ranks second among large urban school districts in funding per pupil. Despite objective evidence contradicting the CTU’s contention schools are without sufficient financial support, CTU President Stacy Davis Gates has lashed out at Governor J.B. Pritzker personally for his refusal to bail out CPS. Davis Gates chiding Pritzker comes at a time when Illinois already spends 19 to 64 percent more per pupil than neighboring states. Providing Chicago another $1.1 billion would require the state to add another $4.4 billion in school funding statewide, which is unlikely to occur.
Governor Pritzker is not sympathetic to the district’s request for the additional funding, pointing out the district squandered $2.8 billion in federal COVID-19 money. This is the equivalent to almost $8,000 per student enrolled in 2020. Analysis from the non-profit Kids First Chicago asserts Chicago used these funds recklessly to create 9,000 positions since 2019 and increase central office staff by 60 percent. Too much of the pandemic money was frittered away on general operations rather than one-time costs.
With no state bailout forthcoming, it will be left to the Chicago and the CTU’s former lobbyist-turned-mayor, Brandon Johnson, to solve the worsening financial situation. The city is already the school district's “cash cow,” annually subsidizing the district to the tune of over $700 million. The subsidizations are expected to grow. This doesn't even include the massive annual TIF surplus windfall CPS annually receives which last year totaled $200 million. This is in addition to schools consuming well over half of all city property tax revenues.
With Chicago facing a budget shortfall approaching $1 billion, the city can ill afford to come to the rescue of CPS nor continue its massive subsidies. The city’s own decades of irresponsible spending, cunning budgeting practices, and the increasing burden of subsidizing schools makes it even more difficult for the city to address its financial problems. Look for public safety, which makes up the largest share of city employees and property taxpayers, to bear the brunt of the costs.
There is a pathway out of the city's current financial quagmire that can address both city and school district financial challenges without further punishing hard-pressed local property owners. It can also simultaneously expand the quality of school choices for all families, regardless of family income. This requires radically decentralizing CPS and removing the CTU's stranglehold over the district. To achieve the goal of protecting Chicago residents from punishing taxes and closing the budget gap, several steps should be taken.
Tying the CTU contract to existing revenues and embrace zero based budgeting
The CTU’s current contract increased salaries between 24 and 50 percent and made Chicago teachers the highest paid among large districts in the nation. The recent contract also saw an increase of 14.5 percent in staff despite an eight percent drop in enrolment. The school district has one employee for every 7.3 students and one teacher for every 15 pupils.
The CTU is now demanding staff continue to be boosted. A new CTU contract must limit salary increases, staffing levels and other costs to available local, state, and federal revenues, and fully embrace zero-based budgeting in assessing all expenditures.
Break up and radically decentralize the district so that the money truly follows the students
Astoundingly, only 54 percent of school district funding reaches local schools. A fact of which the public is unlikely to be aware, legacy costs have little to do with it as the special pension levy and the state picks up most of the district’s employee contributions, while the city finances most of the district’s capital debt.
In 2024, the district had 7,556 central and citywide employees, one for every 44 students. The CPS’ sprawling bureaucracy and expensive district managed programs are where Chicago must concentrate its effort to balance the budget while simultaneously taking every step imaginable to decentralize the district.
Giving the local school community full autonomy over their school budget and staffing models
Elected “Local School Councils” (LSC) and their school leaders should be empowered to select their preferred school model, whether traditional or public charter, and have autonomy to determine the most effective use of school financial resources and staffing to improve the quality of schools. They should not be impeded by expensive district or collective bargaining mandates that have little to do with their students' education.
Public charter and private schools that have such independence have consistently proven themselves more effective with students from all demographics.
Closing or consolidating near empty schools or leasing CPS buildings to public charters
Seriously under-enrolled schools should be consolidated, and public charter schools allowed to lease or share near-empty schools.
In an unprecedented move, the CTU forced the district to bar any of the 124 district public charter schools from leasing closed or near empty public school buildings. This includes 50 schools closed under former Mayor Rahm Emanuel, which now sit empty and unused.
The union has blocked consolidation of severely under enrolled schools. The CTU’s obstruction has exacted a toll: By obstructing the closure of underenrolled schools, the CPS loses leasing revenue and doles out millions in operating costs to keep low-enrollment schools open.
Expanding parental school choices increases enrollment
Superior Illinois charters spend an impressive $8,600 less per pupil than traditional public schools. High performing magnet schools on average receive less per pupil. As well, private school transfers save the CPS $12,000 per student. Alternative schools to reclaim students are much less expensive.
Expanding these school choices and empowering elected LSCs to select superior if less expensive school models will increase enrollment and generate additional state and federal funding.
Reforming pension investment practices to realize greater returns
To address Chicago’s woefully underfunded city pensions and to enhance the financial security of pensioners, Chicago should consolidate the city and schools district pension funds and investments under an Independent Chief Investment Board. The board would be free of politics and have the independence and expertise to provide the best management and oversight over pension investments.
Pension systems need independent leadership and combined risk management, which requires consolidating pension investments, for cost efficiencies and ensuring the highest rate of return.
Compensating for the pension funding shortfall
Chicago is using the revenue from its share of expiring TIFs to fund the issuance of bonds to finance Mayor Johnson’s $1.25 billion infrastructure investments initiative.
The school district could use its 56 percent share of the revenues from those expiring TIFs to finance over $2.7 billion in Pension Obligation Bonds. The investment would immediately reduce the CTRS unfunded liability and accelerate improvements in the long-term financial health of the system, reducing the size of needed future increases in pension funding.
Providing pension funding equity for Chicago teachers
The state should bring its funding to the CTRS in-balance with what it provides to TRS. This would allow the shift in the CTRS special city property levy, which totaled $557 million last year, to fund city employee retirement and free up over $170 million in school district revenues that it appropriates annually for teacher pensions. Unlike the $1.1 billion CTU President Stacy Davis Gates and Mayor Johnson are demanding of the state, providing equitable funding to TRS doesn’t require Governor Pritzker find more money for Illinois other school districts.
Equity in teacher pension funding for Chicago teachers is long overdue. The state is projected to pay $322.7 million in FY 2024 for CTPF teacher pension costs. The represents 32 percent of total employer contributions. By contrast, the State of Illinois is projecting to contribute $6.04 billion toward employee contributions to TRS in FY 2024, covering 98 percent of the total employer contributions.
These actions are no substitute for addressing the benefits side of the pension crisis nor the city instituting the type of budget reforms that can not only ensure that real zero-based budgeting becomes the norm for both city and schools, but that the budget process have full transparency, independent analysis, and oversight.
Taking these actions will enable the school district to balance its budget and enable the city to end its over $700 million in annual school subsidies, making it much easier to balance its own budget. Of equal importance is the decentralizing of the school district combined with consolidation of near empty schools will protect local school budgets while the expansion of school choice and removal of obstacles to the community selecting better school models will dramatically improve school choices.
Of course, neither the CTU nor the CPS administration will support any of these reforms as the administration wants to sustain its bureaucracy and maintain control over school resources and CTU leaders want to protect and expand its members and increase their compensation, while limiting accountability and competition. Both are opposition to be overcome if the Windy City and its schools are to balance their budgets without punishing tax increases and quality school choices for all Chicago’s children are to be provided.
Paul G. Vallas is CEO of The McKenzie Foundation and a policy advisor at the Illinois Policy Institute. Mr. Vallas ran for mayor of Chicago in 2023 and previously served as CEO of Chicago Public Schools.
