Standard & Poor’s drops Chicago Public Schools’ credit rating

Chicago Public Schools finances got poor marks ahead of a plan to sell $426 million in bonds, with Standard & Poor’s citing a new contract with the Chicago Teachers Union among the reasons for downgrading the district’s credit.

The agency lowered CPS’s rating from B+ to B, a move that likely means the district will have to boost the amount of interest it will pay in order to entice buyers for the bonds.

“The rating action reflects our view of the district’s continued weak liquidity in its most recent cash flow forecast and reliance on cash flow borrowing, combined with the increased expenditures in the district’s new labor contract that exacerbate the district’s structural imbalance challenges,” analyst Jennifer Boyd said in a statement.

S&P also had a negative outlook for the district’s finances going forward, giving the district one-in-three chance of another credit downgrade within a year.

CPS spokeswoman Emily Bittner said in a statement that the district was making “important strides” with its finances and was working to win increased funding from the state. School officials said other credit rating agencies had not altered their outlook on the district’s debt.

“Looking ahead, while CPS has reduced our administrative footprint to keep resources in classrooms, the district continues to push for long-term education funding reform from the state of Illinois,” Bittner said. “Education funding reform will lay the groundwork for fiscal stability, not just for Chicago’s schools but for countless struggling districts around the state and students living in poverty.”

The budget for this school year relies on a one-time $215 million payment from the state to cover pension costs, a payout that hinges on Gov. Bruce Rauner and the Democrat-controlled Legislature reaching a compromise on pensions and a state budget. A new four-year contract with the Chicago Teachers Union will cost the district an additional $55 million this year for teacher raises, an amount to be paid for with an other one-time infusion of cash from city tax increment finance surplus money.

CPS says the four-year contract will cost $9.45 billion.