CTU strike deal leads to CPS credit downgrade

On Thursday, Moody’s Investors Service downgraded the credit rating of Chicago Public Schools. The school district’s credit rating now sits at A2 with a negative outlook, the same rating given to Illinois, which has the lowest rating of all 50 states. According to Moody’s, the downgrade reflects CPS’s weakened financial condition, caused primarily by the facts that:...

On Thursday, Moody’s Investors Service downgraded the credit rating of Chicago Public Schools. The school district’s credit rating now sits at A2 with a negative outlook, the same rating given to Illinois, which has the lowest rating of all 50 states. According to Moody’s, the downgrade reflects CPS’s weakened financial condition, caused primarily by the facts that:

• The Chicago Teachers Union makes it difficult for CPS to implement budget reductions;
• CPS must contend with the unbudgeted salary increases associated with the new CTU contract;
• CPS is draining its reserves in fiscal year 2013;
• CPS will have an estimated $1 billion budget shortfall in fiscal year 2014; and
• the CPS pension contribution will more than triple in fiscal year 2014.

Moody’s indicated that the only way to improve the district’s credit rating is for CPS to structurally balance its budget over the medium term, significantly improve its cash reserve levels and reduce its liabilities for retirement benefits.

Rather than reduce its pension liabilities, however, CPS can expect those liabilities to increase under the new contract. The Institute has already highlighted what Chicago teachers’ high average salary means when teachers retire. In 2011, the average Chicago teacher who retired after 30 years in the classroom received a starting annual pension of $77,496. Over the course of an average retirement, this teacher will collect more than $2.4 million in taxpayer-funded retirement money.

Not surprisingly, their pension fund has just 32 percent of the money it should have in the bank today in order to earn enough investment income to pay out earned benefits. The approved CTU contract, which spiked salaries by an average of 17.6 percent, will only make the pension crisis worse.

And given that Chicago teachers contribute just 2 percent of their salaries to their own pensions, taxpayers will ultimately be left holding the bag. (Chicago teachers are required by law to pay 9 percent of their salary toward their pensions, but taxpayers pick up three-quarters of that required contribution as a perk.)

Taxpayers are tapped out. They lost an entire week’s worth of pay to the state’s massive income tax hike. They’ve been nickeled and dimed to death by their local governments. And earlier this year, Chicago Public Schools hiked property taxes to the maximum extent allowed by law. Meanwhile, the City is also reportedly considering tax hikes on cigarettes and entertainment.

Rahm failed to achieve substantial cost-saving measures out of the CTU strike and he is running out of revenue options. Will he increase pressure on Quinn or use his connection in the White House to seek a federal bailout of Chicago teachers’ pensions?