(Source: Noreen S. Ahmed-Ullah Chicago Tribune (MCT) — A credit rating agency has changed its outlook for Chicago Public Schools bonds from stable to negative because of the district’s troubled financial situation.
Fitch Rating, with headquarters in both New York and London, said the district’s financial challenges in 2014 when CPS will face $338 million in back pension payments is leading to the negative outlook.
“The Negative Rating Outlook reflects the significant financial challenges the Chicago Public Schools (CPS) faces in fiscal 2014 as pension costs increase and a highly contentious relationship with its labor unions evolve,” according to a press release on Fitch’s website. “Fitch recognizes the district’s history of effectively addressing budgetary gaps but believes the upcoming combination of pressures is exceptionally difficult.”
The lowering outlook comes as the district gets ready to sell $500 million in general obligation bonds during the week of Aug. 13 to fund school capital projects.
Fitch did affirm it’s A+ rating on the district’s outstanding $5.6 billion debt. Fitch is one of three nationally recognized statistical rating organizations.
Last month, CPS officials proposed a budget that called for depleting the district’s cash reserves. That ledMoody’sInvestor’s Services to downgrade the district’s bond rating to A1 from Aa3.
Moody’sdowngraded bond rating will mean $1 million to $2 million more in interest payments for bonds issued in the coming year, CPS officials said. The change in outlook by Fitch should not have that kind of effect, said CPS spokeswoman Becky Carroll.
In a press release, Fitch analysts warned its rating for CPS bonds could be downgraded unless the district addresses what the credit rating agency predicts will be a $770 million budget gap in 2014. Unfavorable rulings in a number of lawsuits filed by the Chicago Teachers Union, which could involve significant payments to the union or even a prolonged strike “whose resolution results in a financial obligation to CPS” also could lead to a downgraded rating, Fitch analysts warned.
“Fitch recognizes the positive steps the Chicago Public Schools have taken toward the path of financial stability in cutting more than a half-billion in spending over the last year, while also underscoring the mounting financial challenges facing the district,” Carroll said. “We are committed to making the tough decisions necessary to move the district toward long-term financial stability, while also protecting and investing priorities that are necessary to boost our children’s academic achievement.
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