Chicago Public Schools’ budget surplus not enough to improve S&P rating

The Chicago Public Schools’ first budget surplus in three years won’t be enough to raise their general-obligation bond rating with Standard & Poor’s.

The ratings agency said Wednesday that despite the “positive” news released last month in the cash-strapped district’s comprehensive annual financial report, CPS will keep its “B+” rating with a stable outlook.

“CPS is gradually making progress in addressing its budgetary challenges evidenced by a return to a positive fund balance, less reliance on short-term borrowing, and an improvement in its liquidity,” the agency said. “However, in our view, significant short- and long-term challenges remain.”

S&P noted that the fiscal year that ended last June remained “structurally imbalanced due to the board’s reliance on debt and other one-time actions to cover the budget gaps.”

The district closed out the fiscal year ending last June with nearly $324 million left over in its general operation fund, a turnaround of nearly $600 million from a year earlier when CPS closed out with a $275 million deficit.

CPS Controller Melinda Gildart credited the windfall to debt restructuring and increased cash flows through TIF revenue and changes to the state’s school-funding formula. Gildart said she expected numbers to “level off” this year.

“Ongoing challenges” that S&P cited include the CPS’ enrollment decline, lawsuits as a result of the district’s mishandling of sexual misconduct complaints and contract talks with the Chicago Teachers Union, which has said it will seek 5 percent raises.

“The district’s fiscal 2020 budget assumptions on labor costs — given the contract will likely not be finalized — and whether it can achieve another operating surplus will be critical,” the agency said.

CPS also has more than $12.3 billion in unfunded teacher pension liabilities.

“In addition, a new mayor will take office in May 2019, which could result in changes to spending and policy priorities,” S&P said.

CPS officials did not immediately return a request for comment on S&P’s report.