Credit rating agencies again downgrade Chicago Public Schools
The Chicago Tribune reports that Moody’s Investors Service, which had already cut the Chicago Board of Education’s rating once in July, cut it again last week. Moody’s now grades the Chicago Public Schools at A2 with negative outlook.
According to Moody’s, buying a bond issued by the nation’s third-largest school system is now slightly more risky than buying a bond issued by Botswana. As of December 2011, Moody’s rates Botswana at A2 with a stable outlook.
Botswana, a landlocked country of about two million people located in Southern Africa, boasts one of the strongest economies in Africa and one of the fastest growing economies in the world.
On the other hand, according to the Chicago Sun Times, CPS is — in its own words — racked by “an educational and financial crisis after years of revenue losses and misplaced priorities.”
In August, the Standard & Poor’s credit rating service Ratings Services downgraded Chicago’s public schools from AA-minus to A-plus.
Most recently, Fitch Ratings lowered its rating of CPS from A-plus to A.
“The labor agreement following the recent Chicago Teachers’ Union strike results in considerable increased costs to the Chicago Public Schools,” the Chicago Tribune cited Fitch as saying in a statement.
“The increases come at a time of highly stressed operations, when Fitch believes spending reductions are imperative to maintaining fiscal stability.”
Fitch’s downgrade occurred on Tuesday, when the 29,000-member teachers union was set to ratify or reject a proposed three-year contract that tentatively ended a recent strike. The projected contract will cost $74 million a year.
The Chicago Teachers Union threw its support behind the contract. It exacts an average pay raise of nearly 18 percent for teachers as well as some increases in benefits.
The average Chicago public school teacher already make about $76,000 per year according to figures provided by CPS. If teachers ratify the deal, which the Chicago Tribune says is expected, the average teacher will make about $90,000 — with full benefits and summers off.
Meanwhile, next year, the Chicago Public Schools deficit will reach $1 billion.
The Chicago Tribune adds that CPS will see a massive increase in pension costs in 2014. Thanks to a deal with the Illinois state legislature, the school system has enjoyed a recent pension discount. In 2013, CPS will pay only $196 million into pensions. However, in 2014, the amount owed will be $535 million.
CPS has taken a general credit-rating beating in recent months. In July, the Board revealed its $5.16 billion fiscal 2013 budget, which will deplete reserves and maximize property taxes in an attempt to cope with over $6 billion in debt.