CHICAGO — The Chicago Board of Education on Wednesday paved the way for a Chicago Public Schools sale of up to $800 million of new-money and refunding general obligation debt and qualified school construction bonds as soon as next month to help pay for the 2011 capital budget and ease an operating deficit.
The board approved an amended resolution raising the authorized borrowing level by $100 million to $800 million, although CPS may use the full amount in the upcoming issues.
The school district plans to raise at least $400 million in new money. The refunding — which includes some debt restructuring to achieve near-term budget relief — has not yet been sized and would be sold after the new-money issuance, according to market participants.
The district joins the growing list of issuers seeking to take advantage of federal stimulus bond programs before their expiration — at least in their current form — at the end of the year. CPS will issue Build America Bonds and will exhaust its $257 million 2010 federal allocation of qualified school construction bond issuance with the transaction.
Siebert Brandford Shank & Co. is senior manager on the BAB piece, Loop Capital Markets LLC is senior manager on the QSCBs, and Morgan Stanley is senior manager on the refunding, according to market participants. CPS officials did not return a call for comment.
The board last month approved a $6.5 billion fiscal 2011 budget after the district’s administration added debt restructuring to the mix of measures to eliminate a $370 million deficit without fully draining reserves. The district is also struggling with a delay in some state aid payments.
The administration’s original proposal to tap all $190 million of the district’s ending fund balance to address the deficit had come under fire from the Civic Federation of Chicago, and some school board members.
Even as CPS has struggled annually with deficits, its fund balance has totaled at least 5% of its operating and debt-service budget. An internal policy set in 2008 requires a balance of between 5% and 10%. The fund balance is cited by rating agencies as a significant credit strength.
Chicago Public Schools — which operates 675 schools and serves 417,800 students — has $4.6 billion of outstanding debt that carries AA-minus ratings from Fitch Ratings and Standard & Poor’s and Aa2 from Moody’s Investors Service.
To keep a long-term $5 billion capital program on track, the budget includes plans to borrow $600 million — down from $665 million proposed in the current budget — to support an $807 million fiscal 2011 capital budget for new school construction, ongoing facility maintenance and other upgrades. About $400 million in new-money debt planned in fiscal 2010 wasn’t sold, so total new-money borrowing for fiscal 2011 could reach $1 billion.
The district’s near-term budget struggles could be eased should Chicago decide to open up a pot of about $700 million of surplus tax-increment financing revenues to help deal with a looming $655 million deficit in the city’s 2011 budget. The district would be entitled to several hundred million from the surplus. Chicago Mayor Richard Daley will announce the city’s proposed budget next month.
