CPS borrows another $500M at sky-high interest rates

CPS borrows another $500M at sky-high interest rates

Chicago Public Schools has issued an additional $500 million in long-term high-interest bonds, following $387 million the district borrowed from JPMorgan in June.

One month after borrowing $387 million from JPMorgan, Chicago Public Schools has borrowed an additional $500 million through long-term high-interest loans, according to the Chicago Sun-Times.

The district initially had announced plans to borrow $250 million, according to Reuters. But CPS opted to sell $500 million in bonds after receiving $1.1 billion in orders for the bonds, CPS Senior Vice President Ron DeNard said in a statement reported by the Sun-Times.

DeNard also said the 7.25-7.65 percent interest rates on the bonds are lower than the 8.5 percent interest rate paid in connection with the district’s 2016 bond offering.

On July 6, Moody’s Investors Service warned CPS of another potential credit downgrade after the district failed to make a payment in full to the Chicago Teachers’ Pension Fund.

As CPS’ credit rating declines, it will become more expensive for the district to borrow money, as CPS will have to offer higher interest rates on bonds to attract buyers. CPS is already paying interest rates similar to those seen during the 2008 financial crisis.

CPS has been junk-rated since 2015, but in September 2016, Moody’s downgraded CPS to a B3 rating, which is below the junk threshold, and reflects the fact that CPS owes more than $9 billion.

The district’s debt will only grow as CPS continues to borrow money at sky-high interest rates. CPS used proceeds from its $387 million loan to make a partial payment to the Chicago Teachers’ Pension Fund. That $387 million loan will cost the district more than $70,000 in interest a day, or around $7 million in interest total.

Rather than addressing the district’s pension crisis, CPS is counting on a multimillion-dollar bailout from the state to ease its budget woes, along with new, costly borrowing and high property taxes.

CPS’ growing pension debt mirrors Illinois’ larger pension crisis. Like Illinois, CPS should embrace real pension reform and institute 401(k)-style retirement plans for all new employees, and offer that option to current employees, as prescribed in the Illinois Policy Institute’s Budget Solutions 2018.

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