Chicago Public Schools (CPS) is once again facing a significant budget shortfall as it prepares for the 2024-25 academic year. The current school board, which holds a majority appointed by Mayor Brandon Johnson, has approved an unbalanced budget and requested that Illinois lawmakers provide $150 million in state funding during the November veto session to avoid layoffs and furloughs. However, skepticism remains about whether such emergency assistance will be forthcoming, raising concerns about the district’s financial stability in the near term.

Beyond the immediate crisis, CPS confronts a long-standing structural deficit largely driven by the costs of funding teacher pensions. Unlike school districts elsewhere in Illinois, CPS is responsible for financing its own teacher pensions through the Chicago Teachers Pension Fund (CTPF), a legacy system established in 1895. The district is projected to allocate over $1 billion toward pension contributions in the upcoming year, with around $368 million covered by the state and $647 million coming from a dedicated property tax levy authorized exclusively for this purpose. Despite this, CPS has historically had to divert additional funds from its operational budget to meet pension obligations.

In contrast, other Illinois school districts rely primarily on the state-run Teachers Retirement System (TRS) for pension funding, with state contributions covering approximately 98% of the need. CPS’s pension fund is roughly on par with TRS in terms of funding status, with the CTPF covering about 48.1% of its liabilities as of mid-2024 compared to TRS’s 45.8%, though both remain underfunded. Chicago’s overall municipal pension funds present a more severe picture, hovering near 25%.

One proposed long-term solution involves merging the CTPF with TRS, thereby shifting full responsibility for teacher pensions to the state, a practice common in many other states. Advocates argue such a merger could reduce administrative costs, improve investment returns through economies of scale, and remove pension investment decisions from local political influence, particularly that of the Chicago Teachers Union. Former CPS CEO Paul Vallas has suggested increasing state funding of the CTPF to levels comparable to TRS, though this approach would not address inefficiencies linked to operating two separate pension systems.

Any legislative move to shift CPS’s pension burden to the state would involve substantial new expenditures by Illinois taxpayers and require changes to state law, particularly regarding the use of the property tax levy now dedicated strictly for teacher pensions. There is discussion about potential compromises, such as continuing to have Chicago taxpayers cover pension costs arising from legacy agreements—specifically a pre-2017 deal in which teachers contribute only 2% of their salaries to retirement costs, leaving CPS responsible for the remaining 7%.

Additionally, relieving CPS of its pension expenses might enable the district to resume contributions to the Chicago Municipal Employees’ Annuity & Benefit Fund (MEABF), which covers certain non-teacher employees and retirees of CPS and other city agencies. CPS had agreed to provide $175 million annually to MEABF during the pandemic under Mayor Lori Lightfoot’s administration, but attempts by Mayor Johnson to sustain those payments through borrowing met resistance and contributed to the firing of CPS CEO Pedro Martinez.

Critics caution that merging pension funds and state takeover of teacher pensions would not fully resolve CPS’s fiscal challenges, which also include under-enrollment and operational inefficiencies. School closures and district reforms would still be necessary to address structural imbalances.

While some may view increased state involvement in CPS’s pension obligations as a form of bailout and question its fairness to other Illinois taxpayers, proponents argue the current arrangement is inequitable. CPS carries a unique and disproportionate pension burden compared to other districts whose property taxpayers pay only for education costs. Addressing pensions directly is seen by some as the most viable path toward stabilizing the finances of the nation’s fourth-largest public school system.