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Ratings Agency Downgrades Chicago Schools' Debt

The Chicago school district's debt was downgraded to junk status by Moody's Investors Services, one day after the ratings agency did the same for the city's bond rating.

The downgrade means that the country's third largest school district may face higher borrowing costs going forward, The Chicago Tribune reported. The downgrade applies to the district's $6.2 billion general obligation debt.

The downgrade is the latest fallout for both the city and the school district after the Illinois Supreme Court ruled on Friday that changes made to the state's pension law in 2013 to reduce benefits for government workers were unconstitutional.

Moody's downgraded the city's debt to junk status on Tuesday; it followed with the Chicago public school system and the Chicago Park school district on Wednesday.

The ratings agency said the downgrade reflected its "negative" outlook for Chicago public schools.

From Moody's statement on Chicago public schools :

"We believe pension costs will place increasing strain on the district's precarious financial position absent material revenue growth or expenditure reduction, both of which appear increasingly difficult for the district to achieve. Based on the Illinois Supreme Court's May 8 overturning of the statute that governs the State of Illinois' (A3 negative) pensions, we believe that the district now has fewer options for reducing its own pension costs. "

Among the changes that can improve the district's rating: an increase in revenues or reduction in operation costs, along with curbing unfunded pension obligations, the agency said.

Chicago Tribune reporter Heather Gillers has more on the possible ramifications as a result of the downgrade, which you can read here.

The district faces a $1.1 billion shortfall this fiscal year.

Interim schools CEO Jesse Ruiz said that while the downgrade will not affect the district's credit rating, "it does reaffirm why we must address Chicago public schools' urgent financial crisis and finally bring equity to Chicago public schools and our city's taxpayers."

"Despite cutting more than $740 million from the central office and operations, we are projecting a deficit of $1.1 billion, driven by $700 million in pension costs," he said in the statement. "This crisis is now at our classroom doors and we urge Springfield to prioritize education funding and end the broken pension system that forces Chicago taxpayers to pay twice for teacher pensions."

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