Sunday, May 9, 2021

Chicago school debt turning to 'junk'


Just about two months after Moody’s Investors Service gave debt assumed by the Chicago Public Schools a junk status in May, Fitch Ratings announced today that it lowered its rating on CPS’ general obligation bond debt one notch, from ‘BBB–’ to ‘BB+’ with a negative watch, the Chicago Sun-Times reports.

Protesters about Chicago Public Schools in 2013 (Milosh Kosanovich via Flickr Creative Commons)

The rating service, in downgrading billions of school board bonds to junk status, said the change reflected the “limited progress” CPS has made in addressing a budget shortfall and the district’s low cash reserves, which it says are likely to be depleted by next year. The downgrade also comes as the district’s contract with the Chicago Teachers Union expired on June 30.

Forrest Claypool is just starting his job as school district CEO, and the district is looking at either running out of cash, cutting deeply into classroom operations, or taking out additional long-term loans to meet short-term obligations.

Three years ago, before a seven-day teachers’ strike that brought havoc to the districts hundreds of thousands of schoolchildren, Fitch also lowered the district’s rating, reports the Chicago Tribune. “The Negative Rating Outlook reflects the significant financial challenges the Chicago Public Schools (CPS) faces in fiscal 2014 as pension costs increase and a highly contentious relationship with its labor unions evolve,” the paper quoted a press release as saying. “Fitch recognizes the district’s history of effectively addressing budgetary gaps but believes the upcoming combination of pressures is exceptionally difficult.”

We don’t know at this point if this year’s downgrade has resulted from a similar combination of pressures.

Describe ways in which the nation’s third-largest school district can cut expenditures without affecting the quality of classroom instruction. See Common Core English literacy standard RST.11-12.7 for literacy in history/social studies, science, and technical subjects for more information.

Paul Katula
Paul Katula is the executive editor of the Voxitatis Research Foundation, which publishes this blog. For more information, see the About page.

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