CHICAGO – Chicago Public Schools made a $467 million payment to its teachers’ pension fund Friday to meet its fiscal 2017 obligations to the fund.
CPS had already paid a small piece while another $12 million of the $733 million contribution is made by the state and the remaining $250 million will be credited once revenue from a reinstated teachers’ pension property tax levy is collected later in the summer.
“Only CPS has to take hundreds of millions of dollars out of the classroom for teacher pensions, but despite the unfairness of this law, CPS is meeting its obligation to our teachers’ pensions today,” CPS chief executive officer Forrest Claypool said in a statement. “Governor Rauner should follow our example and meet his obligation to Illinois’ students.”
CPS wants the state to provide more pension help as it does for all other school districts.
CPS closed in recent weeks on the private placement of two tranches of grant anticipation notes totaling $387 million in order to meet the pension obligation. The district last month announced its intention to leverage up to 85% of the $467 million of overdue block grants the cash-strapped state owes the district.
The cash was needed due to Gov. Bruce Rauner’s veto of $215 million of pension help and ongoing grant payment delays.
The initial rate on the $275 million was set at punishing 6.39%. The initial rate on the $112 million was set at 6.41%. Both mature on March 31 when the district expects to have collected the fiscal 2017 grants. JPMorgan is the purchaser of both tranches.
The rates will be reset monthly based on 70% of the London Interbank Offered Rate plus a spread of 550 basis points. The spread is up from 400 basis points on the district’s $1.55 billion of fiscal 2017 tax anticipation note issues of which $950 million remains outstanding. Recent one-year note sales that carried top MIG1 or SP-1-plus ratings priced at below 1%.
Rating agencies have been watching closely for any signs that the school district is at risk of losing market access given its precarious liquidity and any move to delay or reduce the pension payment would have been viewed negatively as a sign of deepening distress, analysts have said.