Moody’s Investors Service downgraded the Chicago Board of Education’s general obligation debt rating one notch to B3, further into junk status, citing liquidity and pension concerns.
In its ratings report Sept. 26, Moody’s noted that Chicago Public Schools’ fiscal year 2017 budget approved in August assumes $465 million in pension assistance that is not yet definite to reach its roughly $700 million required employer contribution this year.
Specifically, the budget relies on a $215 million contribution from the state, which is contingent on further pension reform, and a $250 million property tax levy, the proceeds of which will not be available until after June 30, the close of the fiscal year. The board of the $9.5 billion Chicago Public School Teachers’ Pension & Retirement Fund has not yet agreed to a delay for this portion of the school district’s payment, which is due June 30, Moody’s noted.
The ratings agency added that its outlook for the cash-strapped school district is negative and failure to make required pension contributions and other commitments could lower its rating further.
According to Moody’s, “inclusive of pension contributions, other post-employment benefit obligation contributions and debt service, the district’s fixed costs represented a significant 22% of operating revenues in fiscal year 2015.” The school district’s required pension payment rose 150% in fiscal year 2014 alone and annual payments continue to rise.
Ronald DeNard, senior vice president of finance for Chicago Public Schools, said: “Moody’s view remains an outlier from other ratings agencies’ perspectives on Chicago and its sister agencies. CPS’ budget has improved over last year, with more than $600 million in new revenue commitments and more than $200 million in structural reductions since their last rating. Looking ahead, CPS will continue to work to strengthen its finances and finalize the path forward to fiscal soundness in the years to come.”
The pension fund reported $9.5 billion in unfunded liabilities as of June 30, 2015.