Chicago Public Schools debt slides deeper into ‘junk’ status

Austin Berg

Director of Content Strategy

Austin Berg
January 15, 2016

Chicago Public Schools debt slides deeper into ‘junk’ status

Standard & Poor’s Ratings Services issued a two-notch downgrade to the Chicago Board of Education on Jan. 15, citing failure to address the district’s structural financial problems.

All three major credit rating agencies already agree that Chicago Public Schools’, or CPS’, credit is “junk.” But Standard and Poor’s Ratings Services took action Jan. 15 to knock CPS debt down the ratings ladder even further.

S&P downgraded Chicago Board of Education, or CBOE, general obligation bonds to “B+” from “BB” with a negative outlook, signaling further downgrades are likely. S&P issued its downgrade a day after CBOE posted its preliminary official statement for an upcoming $875 million bond sale.

“The rating action reflects our view of the board’s low liquidity and significant reliance on market access to continue supporting operating and debt-service expenses,” said S&P analyst Jennifer Boyd in a statement, adding that “adverse business, financial, or economic conditions will likely impair the board’s capacity or willingness to meet its financial commitments.”

The “B+” rating means CBOE bonds are “highly speculative,” the second tier of junk. The downgrade will punish the district with higher borrowing costs as CPS attempts to restructure old debt and paper over a massive budget shortfall.

Rather than address its structural problems, CPS for decades chose to spend recklessly outside the classroom, using skyrocketing per-student revenues to fund unsustainable teacher salaries and benefits.

Outrageously high borrowing costs are the inevitable consequence of this negligence, as is pain felt by Chicago students who lack access to a quality education.

Pulling CPS back from the brink of bankruptcy will require bold action in the Windy City, including empowering teachers with 401(k)-style retirement plans and ending teacher-pension pickups.

 

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