Chicago Public Schools already had credit problems, but this week things got worse when the district prepared to go to market on over $1 billion in long-term borrowing. A large portion of the district’s existing bonds was downgraded by Moody’s Investor Service from Ba3 to its B1 rating.
In May, Moody’s ranked the district’s credit at junk status. Now the agency says the district’s rating could drop even lower, reports Juan Perez, Jr. of the Chicago Tribune. Similar downgrades followed by Fitch and Standard & Poor’s rating agencies.
The district is assuming that state legislators will come up with the money to help CPS with $500 million needed to fill the gap, but lawmakers have not yet approved such funding.
“Alternatively, the absence of a final state budget could put further pressure on the district as it approaches the latter part of its own fiscal year without clarity on state funding,” Moody’s said.
District analysts say CPS could run out of money and credit by January. The board plans to move forward next month despite what will probably be relentless borrowing prices. The debt load for CPS will be $7 billion after it takes its latest bonds to market.
NBC News Chicago reports that Moody’s based its downgrade of Chicago Public Schools’ credit rating on its “precarious” financial state of affairs and its unbalanced 2016 budget. Next year’s budget assumes $480 million in state funding. CPS is looking at increasing pension contributions and insistence from lawmakers to approve a state budget.
The Chicago Sun-Times’ Stefano Esposito writes that a Moody’s statement included that the rating also reflected:
“… recent use of reserves to fund recurring contributions” and “the district’s elevated debt levels. Favorably, CPS benefits from a large tax base and diverse economy.”
Chris Fusco, Dan Mihalopoulos, and Patrick Rehkamp of the Chicago Sun-Times explain more about CPS pensioners. One of every four retired workers from Illinois, the city of Chicago and the Chicago Public Schools is receiving a pension of over $60,000 annually.
They report that the total number of people on pensions is 80,365. For 13,240 of these retirees, the checks provide them with a yearly income of $100,000 or more, according to a Chicago Sun-Times/Better Government Association analysis of pension records. 20,004 retirees have incomes from their pensions between $80,000 and $100,000 per year.
Should these pensioners be blamed for the downgrades to CPS’ bond ratings? The Sun-Times says they shouldn’t. They say the problem is that government officials promised lifetime benefits to workers, and in some cases, to their surviving spouses, but they failed to apportion the tax dollars needed to sustain these funds over the long haul.
Not only did politicians skip or short the pension funds when the tax money was deposited, but they also continued to borrow to balance their budgets.
The Chicago Board of Education neglected to contribute any money to the pension fund for teachers, administrators and other employees of CPS for ten years between 1995 and 2005. Nevertheless, city officials are expecting to pay up to $1 billion into Chicago’s four pension funds next year.