The Republican removed help for Chicago Public Schools' pensions along with money the district formerly received in the form of a block grant, along with other rewrites.
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"With my changes, Illinois can achieve historic education funding reform that is fair and equitable to all Illinois' children," Rauner said at a Capitol news conference.
The bill now returns to the Democrat-controlled Legislature, where a three-fifths vote in both chambers is needed to either override Rauner's changes or approve them to be able to send money to schools this year. Both options will be difficult. If neither chamber can muster the votes, the legislation dies.
Ahead of Rauner's news conference, Democrats warned any veto would undo years of work aimed at overhauling a school-funding formula that's considered the most inequitable in the nation.
They urged Rauner not to engage in a "veto showdown" and to let Republican legislators continue closed-door negotiations that started over the weekend but fell apart Monday.
"If he vetoes the bill, the bill is dead," said state Sen. Andy Manar, a Bunker Hill Democrat who sponsored the legislation. "That action will set us back decades."
Rauner told reporters it would take a simple majority of legislators to approve his changes. But Democrats, citing a previous attorney general's opinion, say more votes are necessary because the law would have to take effect immediately in order to get money to schools.
A new school formula is required as part of a state budget deal that legislators approved in July over Rauner's veto, ending an impasse that reached a third year.
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Without the new school funding legislation, districts won't get paid. The first payment to schools is due Aug. 10.
No Illinois school has reported that it'll be unable to open on time, according to the Illinois State Board of Education. However, many say they'll only be able to last a few months.
In a southern Illinois district in West Frankfort, Superintendent Matt Donkin said there's only enough money for the district with about 1,750 students to meet payroll "a few times."
"That leaves a lot of uncertainty," Donkin said this week, likening the start of school to getting ready for takeoff in a plane with insufficient crew and an engine running half-speed.
"I don't know that you want to ride on that plane," he said. "But those are the effects that these funding battles have had. And it's not for the champagne and caviar in first class ... It's for the books, for the supplies, for those last-minute things."
Democrats approved the legislation in May but held on to it in what they said was an attempt to persuade Rauner not to use his threatened veto. The governor accused them of sitting on the bill to force a crisis, and set a Monday deadline for them to send him the measure.
Lawmakers from both parties agree the 20-year-old calculation currently used to fund public schools is unfair and forces school districts to rely heavily on property taxes, creating huge disparities in per-student funding. But they've clashed over how to fix it.
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The proposed formula Democrats approved channels money to the neediest districts first after ensuring that no district receives less money than last school year. It also includes pension help for Chicago.
Democrats insist the proposal is fair since Chicago is the only Illinois district that pays the employer portion of teacher pension costs. Rauner has repeatedly called it a "bailout."
He used his veto authority Tuesday to strip that money from the bill, saying it should be part of separate legislation governing pensions. But that cannot be done via an amendatory veto, even if Democrats were to agree. Instead, separate legislation would have to be approved.
Rauner also removed $250 million that the nation's third-largest district received as a block grant. Republicans say the grant provides more money than Chicago would receive if the amount were calculated based on enrollment - the way other districts get certain funds.
Rauner said Tuesday the money he removed would be redistributed to other struggling districts under his plan, though that only happens if the Legislature approves the changes.
Chicago Mayor Rahm Emanuel accused Rauner of playing politics with children's futures, saying it's time he "ensure a child's education isn't determined by their zip code or his political whims."
Here's Emanuel's full statement, issued Tuesday:
"This morning Governor Rauner vetoed SB1, ignoring the needs of Illinois' school children, the desires of school superintendents across the state, the voices of newspaper editorials across the state, and the recommendations of his own education funding commission. His math is fuzzy, his claims have been proven false and the only thing the governor's action advances is his own personal brand of cynical politics. It is well past time for Governor Rauner to stop playing politics with our children's futures, start demonstrating leadership, and ensure a child's education isn't determined by their zip code or his political whims."
Chicago Public Schools issued this statement:
"When Governor Rauner vetoed Senate Bill 1 today, he decided to take money away from the poor, give it to the rich and put all the state's schools in financial jeopardy - even though this bill is 90 percent of what Governor Rauner wants and gives 268 districts more than Chicago. Governor Rauner's objections to Senate Bill 1 are as baffling as they are false - in fact, just today, more independent fact checkers said his claims are bogus."
Illinois gubernatorial candidate JB Pritzker issued this statement Tuesday:
"Apparently 736 days worth of damage done by Bruce Rauner wasn't enough. Now he is holding school funding for Illinois children and families hostage and pitting communities against each other again by vetoing Senate Bill 1. Bruce Rauner is so blinded by his crusade against Chicago's children and families that he seems incapable of understanding a very simple fact: every child and every school district benefits under SB 1. Even though he supports 90 percent of the bill, Rauner and his new team of radicals once again chose to use our kids, parents, and teachers as leverage to try and score a political win."
Illinois Federation of Teachers President Dan Montgomery issued this statement Tuesday:
"Governor Rauner said a few things today with which we agree. He said education is a 'unifying issue,' and he is beyond disappointed that it has become a partisan fight. We are too, but let's not forget that it is Governor Rauner who pits downstate communities against Chicago for his own political gain, while independent fact checkers say there is no truth to his claims. It is Governor Rauner who vetoed a balanced, bipartisan budget to end a two-year crisis of his own making. And it is Governor Rauner who vetoed an education funding bill that would bring more equity and fairness to our schools for the first time in decades, because he 'only agrees with 90 percent of it.' Yes, it is disappointing that our children's future has become divisive, but it is the Governor himself playing politics with their first day of school."
Illinois gubernatorial candidate Chris Kennedy issued this statement Tuesday:
"This is a stunning low point in the history of our state. SB1 is a product of the governor's own School Funding Reform Commission and his characterization of the bill as a bailout for Chicago has been debunked by the BGA and Politifact. Yet, Bruce Rauner chose political games over our children. Our state is in desperate need of fundamental change in Springfield, including ending our reliance on a property tax system that inadequately funds our public schools. Today's veto proves that Springfield is broken and Rauner will not lead Illinois toward real change."
Illinois Lieutenant Governor Evelyn Sanguinetti issued this statement Tuesday:
"As a child who grew up in poverty, my schools didn't have the resources they needed to provide me with a quality education. Here in Illinois, too many children know this reality. Our school funding system has been broken for far too long. It shouldn't matter where you live or how much money your parents make - all children deserve access to a world-class education. As a member of the School Funding Commission, I fully support the Governor's Amendatory Veto because it ensures that every Illinois school district receives fair and equitable treatment. I am happy to see an evidence based formula that distributes money to school districts that need it most. I am confident the House and Senate will support a clean school funding bill that puts more money in the classroom for our students."
Illinois gubernatorial candidate and Alderman Ameya Pawar (47th Ward) issued this statement Tuesday:
"It's a shame that Bruce Rauner would put his own agenda before working families and Illinois school children. Education advocates, teachers and school superintendents, editorial boards, and working families across the state have spoken out against Gov. Rauner's threats to veto S.B.1, an evidence-based model for education funding that would provide more equity for our schools."
"No parent in this state is ever going to pick a politician over their school, or their teacher, or their child. Gov. Rauner got 90 percent of what he wanted in S.B.1. And yet, the only reason Gov. Rauner said he would veto this bill is because it helps Chicago Public Schools get the same parity and equity that all the other school districts around the state would.
"This is the same governor who talks about CPS as prisons and calls Chicago teachers illiterate. This is a governor who goes downstate to poor white communities and tells them that the reason why their schools don't get funded is because those people in Cook County and Chicago get more than their fair share. At a press conference earlier today, Gov. Rauner couldn't even answer questions about what he would like to see instead of the current version and he incorrectly stated that the General Assembly would need a simple majority to accept his veto, when it would actually require a three-fifths majority vote in both chambers. The governor is completely out of touch with the majority of Illinoisans who supported this common-sense approach to education funding, he's incompetent at doing his job, and he is ignoring all rational thought to pursue a racist, divisive agenda that puts millions of dollars of school funding at risk merely weeks before schools are scheduled to start."
Senate Republican Leader-Designee Bill Brady and House Republican Leader Jim Durkin issued this statement Tuesday:
"There is no question, this General Assembly must now double its efforts to ensure our schools open on time with a fair and equitable funding formula. After finally receiving the school funding legislation, the Governor took swift action and laid out a path to achieve that goal. Our caucuses stand with the Governor's recommendations and will oppose efforts to override his veto. With the support of Democrat legislators whose schools fare better under the Governor's plan, we believe the amended SB 1 should become law. However, we remain open to compromise developed through real, productive negotiations designed to reach consensus."
Illinois Comptroller Susana Mendoza issued this statement Tuesday:
"Here are the facts: SB1, the school funding bill negotiated with input from school superintendents and legislators from every corner of the state, treats all districts fairly and leaves no district with less funding than it has now.
The Better Government Association's PolitiFact Illinois calls 'FALSE' Governor Rauner's mislabeling of the bill as a 'Chicago bailout.' The fact-checkers found: 'The bill's Chicago pension component can't be called a 'bailout' or even a perk because it only gives CPS what every other school district already has.'
We urge legislators of both parties to override this wrong-headed veto as they did with the budget. If they do not, the fact is our office will not have the legal authority to make the next scheduled General State Aid payment to schools on Aug. 10. Governor Rauner will, in fact, be the first governor in our state's history to force Illinois schools to go without General State Aid payments - another trophy for his Hall of Shame."
The Chicago Teachers Union issued this statement Tuesday:
"This should be embarrassing but nothing seems to embarrass in post-Trump America.
Governor 1% - Rahm's public education mentor and the self-anointed patron saint of public schools - has the audacity to single out the largest school district in the state and reduce the amount of funding for our district, which is in desperate need.
Our school communities are being starved, our neighborhoods are ravaged by unprecedented violence, and our neighbors on the south and west side suffer from Great Depression-era levels of unemployment. And, instead of demanding that the wealthy pay their fair share to equitably resource schools throughout the state and expanding the public sector, Governor 1% fans the flames of regionalism to pit the schoolchildren of Chicago against those in other parts of the state. Meanwhile, Chicago's Mayor 1% says CPS will fall short of its budget goals even if the state legislature overrides Rauner's SB1 veto. Rahm continues his reverse Robin Hood governance by stealing millions of dollars of tax money for schools and redistributing it to wealthy developers and tourist attractions.
Chicago's children deserve better.
The solution is simple: new revenue from the state and city.
Rauner should drop the charade of governing and provide Chicago's students their fair share of funding, while Rahm should lead by example and pass real tax increment financing (TIF) reform and reinstate the corporate head tax.
The black and brown students used as backdrops in Rahm and Rauner's campaign commercials and in their failed legal strategies deserve more than their political posturing."
WLS-TV contributed to this report.