Some Chicago Board of Education members made the case Thursday that the school district should make a controversial payment to the city to help cover a pension contribution, with some suggesting that refinancing debt might turn up the needed money.Mayor Brandon Johnson’s office floated the refinan cing idea earlier this week, arguing the school district could potentially find the $240 million it needs by restructuring existing debt.At the first of two hearings this week about a proposed amendment to the Chicago Public Schools budget, CEO Pedro Martinez, who doesn’t want the school board to make the pension payment, acknowledged Thursday that CPS refinances debt annually. But he said he doesn’t think refinancing is an option for balancing this year’s budget because officials are planning on restructuring debt to shore up next year’s deficit, which is expected to be more than $500 million. The second hearing is scheduled for Friday.The crux of the problem is that City Hall and CPS still disagree over whether the school district should make the $175 million payment into the Municipal Employees’ Annuity and Benefit Fund covering non-teacher CPS staff. And each side is upping the stakes by issuing warnings if the school board doesn't side with them.Martinez unveiled a new argument this week for why CPS should not make the payment. He wrote in a letter to families and staff last week that if the board agrees to pay into the pension fund, it would use up the rest of the district's available money this year and possibly derail Chicago Teachers Union contract negotiations — ultimately leading to a strike. He recommended prioritizing the labor contract.CPS officials gave the board Thursday their strongest warning yet against a loan, arguing that state law doesn’t allow bonds to be used to cover operational expenses. So borrowing in that way would leave the budget unbalanced, officials said."You're not legally allowed to pass a budget that is not balanced," Martinez said. "To get into contracts, or any kind of agreements, with a budget that's not balanced, that you know as a board is not balanced, is actually a crime. It's actually a misdemeanor and could result in the loss of a board seat. If staff are complicit in that, staff would lose their jobs as well, and that's by law."The mayor has said CPS shouldn’t be choosing to pay for the labor contracts or pension costs over the other. Johnson’s administration has insisted that CPS officials find a way to cover contracts for the CTU and the new principals union — both of which are still in negotiations — and also make the $175 million pension payment.Johnson had harsh words this week for Martinez, who he said promised City Council members this fall that the school district would make the payment. And a majority of the City Council — 27 members — sent Martinez a letter this week demanding he pay the pension cost.If the city does not get the payment before March 30, it will be in danger of closing its 2024 budget with a deficit, and Johnson will have to get City Council approval to reach into reserves to fill the hole.“I want to believe that the CEO did not come before the City Council and lie to them,” Johnson said when asked what he would do if the board decides not to make the payment. “[Martinez] gave the City Council his word. You want me to answer that if the CEO lied to the City Council, what's the contingency plan around someone being dishonest?”The amendmentCPS has $139 million left to allocate from special taxing districts called TIFs that City Hall handed over in the fall. But if CPS pays the labor contracts and pension costs, officials would need to find a way to make up the rest of the gap — estimated around $240 million — to get through this school year.The school board is considering a proposed budget amendment that says all three costs will be covered. But exactly how will that happen? That’s the several-hundred-million-dollar question, and it’s still vague.A few possible options are listed in the amendment, but each one has been knocked back by either city or district officials.Additional money from TIFs? The city says that funding is determined every fall, not throughout the year, and CPS already received a record amount from Mayor Brandon Johnson’s administration for this school year.Budget cuts? Both the mayor and CPS have opposed any cuts that disrupt classrooms, and district officials have told board members that, this late in the school year, it would be impossible to find enough cuts to make up the needed cash.A loan? That idea has been publicly shot down by Martinez and has faced enough political and public backlash — including from many school board members — to likely make it untenable. That’s even if the actual loan terms don’t include high interest rates like Martinez has previously suggested. The mayor’s office said Martinez also added the possibility of the city taking on debt on CPS’ behalf, but City Hall called that a nonstarter.Meanwhile, the refinancing plan proposed by the mayor’s office this week would see CPS pull cash out of its existing debt by spreading out repayment further into the future. Senior mayoral aides said the school district would be able to pay off the maneuver within a few years because Johnson has started the process of expiring TIF districts, which will send hundreds of millions in funding back to CPS.Board president Sean Harden, who was appointed by the mayor, promised board members that in the coming days a financial firm hired by the school board would provide options for paying for the teachers and principals contracts, as well the pension payment. He said the board will have those options before the vote on the amendment March 20.“It will be a major component to determining what our next steps are for the board,” he said. “So I think at this point, we still have all the options on the table.Harden, as board president appointed by the mayor, only votes to break a tie. Two-thirds of the other 20 members must vote in favor of an amendment for it to be approved. The city can likely count on at least 12 votes, including 10 members who were appointed by the mayor and two who won their seats with strong CTU backing. A third elected member, Jennifer Custer, was endorsed by the CTU but so far has appeared more independent than other CTU-backed members.The city needs the moneyThe city’s budget year that ended Dec. 31 is relying on that $175 million from CPS before the books close at the end of March. City Hall is legally obligated to pay the district’s non-teacher pension costs and already did so to the tune of $400 million. But the city is arguing the school district should help pay for the thousands of non-teaching CPS staff who are part of the pension fund. Former Mayor Lori Lightfoot started shifting some of that burden onto CPS on an escalating schedule.The mayor’s office said if the school board decides not to make the pension payment, the city will have to find a way to plug its budget hole this month, and City Council members will be upset. Alds. Jason Ervin (28th) and Jeanette Taylor (20th), Johnson’s City Council chairs for the Budget Committee and Education Committee, respectively, wrote the letter to Martinez on Wednesday, signed by 27 council members, demanding that he “follow through on his commitment” that he made in a Council hearing in October to reimburse the city for the pension payment.Senior mayoral aides pointed out that the city spends hundreds of millions supporting the school district every year, from waiving water and sewer fees to using money from special taxing districts to build and renovate schools. The mayor’s office said it is already fielding questions from City Council members who want to know if they can pull back support from CPS should it not make the payment.Several school board members aligned with the mayor said they take these threats to heart, with Jitu Brown of the 5th District calling it “politics 101.”Board member Debby Pope, a mayoral appointee in the 2nd District, said staff pensions are an "obligation that we need to find a way to fund."And if that funding involves rearranging things, I think that's what we have to do," she said. "If that funding involves some kind of loan at a non-predatory, normal interest rate, I think that's what we have to do. … Yes, we have to obviously do some rearranging for next year. There's no doubt about that." Several of the board members not aligned with the mayor questioned making the pension payment, especially as the school district grappled with how to come up with staff and principal that will be retroactive once their contracts are settled.SEIU Local 73, which represents some school support workers, also — somewhat surprisingly — expressed concern about the consequences of the school district making the pension payment. SEIU 73 was a strong backer of Johnson and has been allies with the CTU — though that relationship has strained in recent months.“We don't know how, if you take on the pension payment, you plan to make ends meet,” SEIU 73 Executive Vice President Stacia Scott testified during public comment on Thursday. “We don't think this board should take it on if it means mass cuts, furlough days and balancing the budget on low wage, working class support staff.”Hal Woods, policy chief at KidsFirst, a group that organizes parents, urged the board to reject the city's repayment request. If CPS takes a loan to pay it, he said it would “mean fewer teachers, increased class sizes, fewer counselors and reduced after- school programs.“I hear from countless families who are deeply worried that the board might make potentially devastating decisions based on political convenience without genuinely listening to the families who would feel its impact the most historically,” Woods said.The school board is dealing with a particularly tight budget.Going into this school year, CPS had to find $500 million of savings, even without including the pension payment and the labor costs. In part, district leaders said they were counting on spending about $24 million less on engineering and maintenance.Just in the past month, it became clear those projected savings were not going to materialize. The board approved a transfer from its general education fund to its facilities management account because it needed to pay the company that manages school engineers more money.Hundreds of transfers from one budget line to another happen every month in CPS’ mammoth budget, but this was one of the biggest transfers over the past five years, according to an analysis by WBEZ.CPS said multiple factors contributed to this “budgetary shortfall,” including overtime expenses, increased costs of equipment and supplies and salary raises for building engineers so they could keep up with city engineers.“Finally, given that a significant number of our buildings are more than 80 years old, maintenance costs are inherently high,” a CPS spokesperson said in a statement.CPS said district officials are now looking for other savings in the $8.4 billion operating budget. ...read more read less