Chicago public schools are struggling with debt, and it’s not because schools are overspending on the children.
One day after the city of Chicago took a big hit to its credit rating, a leading bond-rating agency further downgraded the Chicago Public Schools debt to “junk” status. The Moody’s Investor Service applied the Ba3 rating to the Chicago Board of Education’s $6.2 billion in debt. Like the city, CPS is facing a huge problem with increasing required contributions to teachers’ pensions.
“The Ba3 rating reflects CPS’s steadily escalating pension contributions and use of reserves to fund those contributions,” Moody’s said. “We believe pension costs will place increasing strain on the district’s precarious financial position absent material revenue growth or expenditure reduction, both of which appear increasingly difficult for the district to achieve.”
The rating means the school system’s ability to pay off its debt is at risk. It also means it will cost more for CPS to borrow in the future.
Of course, the teacher’s unions are killing the messenger, blaming the credit rating agency for, well, rating the credit.
“The downgrade is an example of how the rating agencies work in concert with bond holders in pushing our city and schools to the brink by recklessly increasing termination fees and costs of borrowing. Today’s action by Moody’s induces further political panic to force the City to implement even more misguided fiscal decisions that will hurt our students and public schools,” said teachers’ union spokeswoman Stephanie Gadlin.
As the CPS budget negotiations continue for next year, inflated pension contributions will likely do damage beyond the credit rating, directly on classrooms. According to the Chicago Sun Times:
[Interim CEO Jesse] Ruiz warned of cuts that are sure to affect children unless the General Assembly works out a deal to alleviate CPS’ $700 million pension payment this year and overall $9 million pension liability.
“This letter is to let you know that while we continue to work on individual school budgets for next school year, we do not think it is productive or in the best interest of our school communities to release school budgets that will drastically impact our classrooms if Springfield does not take action,” he wrote in the letter dated May 11.
The pension-budget tug of war exposes the real struggle in Chicago’s public school system: is school funding better spent on students, or keeping the unions quiet?