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Moody's Downgrades Chicago Schools Further Into Junk Status

Chicago Public Schools' financial reputation took another hit from a major Wall Street credit ratings agency on Monday.

By Juan Perez Jr.

Chicago Public Schools' financial reputation took another hit from a major Wall Street credit ratings agency on Monday.

Moody's Investors Service dropped the district's bond rating further into junk status, lowering its view of the school system's debt one notch to a B3 rating.

Moody's cited a variety of factors for the downgrade. Among them: the district's reliance on short-term borrowing, a "deepening structural deficit" and a budget "built on unrealistic expectations" of help from a state government with money woes of its own.

Word of the downgrade came on a day when the district announced budgets at about 300 schools would lose a total of $45 million because of enrollment declines, and the Chicago Teachers Union said its members authorized a strike if contract talks break down.

Moody's warned its debt rating could decline even further. The district's junk bond rating could make borrowing more expensive.

On Wednesday, the Chicago Board of Education is set to vote on what's now a roughly $338 million capital budget that relies on borrowed money. The capital budget's size is likely to swell amid plans to borrow up to $945 million in long-term debt for a variety of other school infrastructure projects.

Other major agencies also have CPS in junk bond territory but have not yet made further downgrades.

Fitch Ratings agency, however, recently reiterated its gloomy take on the district's "strained, structurally imbalanced" operations that continue to rely on short-term borrowing and have limited reserves, and are "poorly positioned to absorb even a mild economic downturn."

Standard & Poor's also expressed "major concerns" about the district's "extremely weak" cash position while warning it could downgrade CPS debt absent a "credible and sustainable long-term solution to its financial pressures."

The district's top financial officer said in a statement Monday that the system's finances are improved compared to last year.

"Moody's view remains an outlier from other ratings agencies' perspectives on Chicago and its sister agencies," CPS Senior Vice President of Finance Ron DeNard said. "Looking ahead, CPS will continue to work to strengthen its finances and finalize the path forward to fiscal soundness in the years to come."

(c)2016 the Chicago Tribune

Caroline Cournoyer is GOVERNING's senior web editor.
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