(Bloomberg) -- Chicago Mayor Brandon Johnson faces one of the biggest tests of his administration as turmoil with the school district — marked by an abrupt mass resignation by the board — threatens to further erode the already-stretched finances of the nation’s third-largest city.
The first-term mayor is staring down a nearly $1 billion deficit next year — the most since the depths of the pandemic — as well as a surprise gap this year after the school system refused to pay a pension bill. School officials rejected Johnson’s plan to borrow the money and aldermen have chastised him.
On Monday, Johnson announced his proposed new members for the board, drawing opposition from political and corporate power players — who have been suspicious of his progressive agenda and now say they fear the turmoil in the district could undo gains made in attracting businesses to Chicago.
“The city’s financial disrepair has already had an impact, especially in the business community,” said Pete Kadens, an entrepreneur that made his fortune in the solar and legal cannabis industries before co-founding Hope Chicago, a nonprofit focused on funding postsecondary education. “When you have great education, that drives young, working class families that we want here to the city. But instead we’re driving them away.”
Despite the pushback, Johnson repeatedly defended his authority to appoint a new board and said he wouldn’t tolerate school budget cuts. “As far as what we are prepared and willing to do to ensure that every single child gets what they deserve, everything is on the table,” he said in a press conference on Monday where he reiterated the need for more state support.
The opposition comes as Johnson needs support for next year’s spending plan that he is set to present on Oct. 30, two weeks later than planned. Revenue is missing projections, and the city has halted hiring. Propelled into office by the teachers union, Johnson hasn’t delivered on campaign promises like taxing the rich, forcing him to stretch the dollars that run the city, serve the school district and pay for massively underfunded pensions.
“The fiscal reliability of the school system, just as the fiscal reliability of the city, that’s a fundamental issue for the prosperity and continued success of the city,” said David Axelrod, a Chicago-based political strategist and former adviser to President Barack Obama. “Everybody is dealing with the same thing. Where are the resources?”
Chicago and its school district have a history of financial problems. Caught in the long-running state budget impasse, Chicago’s schools struggled to remain solvent in 2017 and borrowed at steep interest rates to stay afloat. Johnson’s predecessor Lori Lightfoot, had started to put the city on firmer fiscal footing — Chicago shed its junk credit rating in 2022.
The city even hosted the Democratic National Convention in August, as part of Governor JB Pritzker’s efforts to highlight Chicago as the Midwest’s economic engine. A spokesperson for Pritzker said he doesn’t have the legal authority to intervene in the current situation with the school district.
Charged with educating more than 320,000 students, Chicago’s junk-rated school district is integral to the city’s success. But enrollment has plummeted over the past decade, and the teachers’ union is in contentious negotiations with the board for higher wages and more resources. But now that the pandemic federal aid is running out, the district projects annual shortfalls topping $500 million in 2026 and 2027.
The district and union agree that the state needs to provide more funding for the city’s schools.
Schools are seen by many residents as stabilizing community forces that provide free or reduced-price lunches to low income children as well as a safe spot in areas hardest hit by crime.
Adding to the pressure, Chicago had been counting on the school district to pay about $175 million of non-teacher pension costs this year. To help fund this, Johnson had reportedly urged the district to take on a $300 million short-term loan. But the district’s chief executive officer, Pedro Martinez, appointed by Lightfoot, had refused. He laid out his opposition in a Chicago Tribune op-ed where he warned about the risk to the district’s credit rating. Martinez also said he rejected Johnson’s request for his resignation.
The district plugged spending gaps with federal aid and “further use of one-time measures like a short-term loan to cover teacher salaries or pension costs will exacerbate the district’s ability to achieve structural balance,” said Ashlee Gabrysch, a director at Fitch Ratings, which grades the district at BB+.
Growing Pushback
Criticism from business and civic leaders is mounting. Three former district CEOs, city clerk Anna Valencia and Illinois Comptroller Susana Mendoza are among the officials who rallied behind Martinez. The Chicagoland Chamber of Commerce and the Civic Committee of the Commercial Club of Chicago, a CEOS club that includes senior leaders from companies like McDonald’s Corp., Ulta Beauty Inc. and Morningstar Inc., also voiced their support for the imperiled CEO.
“The management stability, educational quality, and financial state of the Chicago Public Schools are critical,” the chamber and committee said in an Oct. 6 letter. “We strongly urge the board to keep CEO Martinez in place, reject the misguided proposal to borrow more money, and work with all parties to bring transparency and long-term fiscal stability and quality education to the school system.”
The district is gradually shifting from a school board appointed by the mayor to one with elected members starting this November. That change was a catalyst for the resignations, according to a joint statement from the city and board.
This isn’t the first time Johnson has met resistance. Voters rejected his proposal to increase a tax on real estate sales over $1 million, and his plan to add a charge to securities transactions never materialized. Pritzker also called the NFL’s Chicago Bears’ plan for a complex with a new lakefront stadium that Johnson backed a “non-starter.”
To be sure, the mayor has had several wins. He passed measures for paid family leave, reformed wages for tipped workers and made investments in youth employment. He allocated $250 million of city funds to support unhoused residents and oversaw a reduction in crime.
Johnson needs to coalesce support around his agenda, including city council approval on his budget, and nearly all of the aldermen signed a letter rejecting his board overhaul.
--With assistance from Isis Almeida and Miranda Davis.
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