CPS gets a debt-rating downgrade as teachers prepare to vote on contract

Chicago teachers this week will vote on a contract their union agreed to after a seven-day strike. How the cash-strapped school district will pay for the raises and other financial provisions of that contract has yet to be fully explained, a point driven home when a leading bond-rating agency downgraded Board of Education debt last week.

"The negative outlook reflects our view that the district will be hard-pressed to make the budget adjustments necessary to close an estimated $1 billion budget gap for fiscal 2014," Moody's Investors Service said in a news release. "In particular, the duration of the recent CTU strike demonstrates that labor issues may continue to be a ratings factor."

Downgrading the rating for the board's general obligation debt to A2 from A1, Moody's pointed to the district's dire financial picture. Chicago Public Schools is depleting its cash reserves to deal with a $665 million deficit and faces $338 million in back pension payments that come due in 2014.

Moody's noted that the district must now also contend with "a moderate increase in salary costs" associated with the labor contract with the Chicago Teachers Union and will be "hard-pressed" to make the budget adjustments necessary to close an estimated $1 billion budget gap for fiscal 2014.

The tentative contract calls for teachers to retain annual base salary increases as well as see wage gains every year for experience and for advanced education.

"If progress is not made toward improving the financial condition and liquidity of district operating funds, or if challenges arise in making the required pension contributions, the district's general obligation credit quality will be impaired," Moody's said.

CPS blamed previous administrations who did not address "the long-standing financial issues of the district as well as the pension crisis facing our system."

"When we entered the district, we were faced with both an educational and financial crisis, and while we are committed to tackling both at every turn, we have chosen to put our kids and their academic achievement first and not leave them behind," said CPS spokeswoman Marielle Sainvilus.

"Over the past year, we have cut more than a half-billion dollars ? all outside of the classroom. We know this is not enough to undo years of revenue losses and misplaced priorities that have left the district with the fiscal crisis it faces today, and we continue to make tough decisions to put CPS on the best financial footing possible, without sacrificing investments in our children's education."

Meanwhile, the tentative contract has also led to calendar changes for this school year, upsetting many parents who have already made plans for spring break

Sainvilus said that because of the strike, the district needed to adjust the end dates of each quarter. Because of those shifts, CPS officials decided to move spring break to the week of March 25, she said.

nahmed@tribune.com

Source: http://www.chicagotribune.com/news/ct-met-cps-moodys-20120930,0,126288.story?track=rss

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