Comment on S&P issues Chicago Board of Education a warning: Find revenue or ‘scale down’ operations to fund CTU contract

Sarah Macaraeg, Chicago Tribune: Business
Fri, 12/13/2024 - 5:55pm

S&P issues Chicago Board of Education a warning: Find revenue or ‘scale down’ operations to fund CTU contract

Global credit ratings firm S&P rang the alarm on Chicago Public School finances last week, weighing in on the ongoing political gridlock between district leadership, the Chicago Teachers Union and Mayor Brandon Johnson with a warning: How the Board of Education opts to fund the CTU’s forthcoming contract will determine the financial health of the district for years to come. “Failure to sustain structural solutions by either increasing ongoing revenues or containing costs to offset the financial impact of a new CTU contract could mark a turning point in the board’s recent positive financial trend and jeopardize its fiscal stability,” according to S&P analyst Ying Huang. In other words, the board must identify a reliable source of new revenue or “scale down” CPS’ current $8.4 billion operating costs, according to S&P, one of three credit ratings firms whose determinations impact government agencies’ ability to issue bonds, which are often used to fund major one-time capital projects, such as new school buildings or fleets. Negative credit ratings result in higher interest rates, in which fine margins can make a big difference, of potentially millions over a bond term, which tends to match the lifetime of a project, such as a building expected to be in use for 30 years. If CPS wants to maintain its current “BB+/Stable” rating — which the district has strived for years to improve — neither drawing upon the $1 billion the district has in reserves, nor taking on new debt to fund the contract is an option, warned the S&P.  Huang’s note is a vindication by an authoritative third party of CEO Pedro Martinez’s refusal to take out a short-term, high-interest loan that the mayor, a close union ally, proposed in July. Martinez’s job at the helm of the district has been in a precarious position since, as tension surrounding the collective bargaining negotiations with CTU continues to mount. A vote on a budget amendment to in part, fund the contract is expected before the end of the school year.

 

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