CHICAGO — Fitch Ratings slapped the Chicago Board of Education with a one notch downgrade to A-minus in the latest consequence of the school district's budget woes driven by a years-long reliance on one-shot stopgaps to erase red ink.

The rating agency also put the district on notice that a drop into the BBB category looms without change.

"The downgrade is based on continued difficulty in addressing Chicago Public Schools' large structural budget gap," Fitch wrote Monday, adding it believes "dramatic changes are necessary" to support ongoing operating and fixed cost spending.

"Options within the board's control appear unlikely to be sufficient and non-recurring sources that have been available in recent fiscal years are no longer available. Problems are exacerbated by significant management turnover in the last two years," analysts said. "Fitch will downgrade the rating into the BBB category if there is not a clear and meaningful reversal in this trend over the near term."

The action impacts $5.5 billion of outstanding general obligation debt.  Most of the debt is also secured by the district's state aid.

CPS faced a nearly $1 billion gap in its current fiscal 2014 budget largely due to a spike in pension payments and an ongoing structural imbalance stemming from it use of non-recurring revenues like reserves and debt restructuring to address past shortfalls. It dipped deeply into reserves to erase the 2014 red ink.

The district did not respond immediately for a comment on the latest downgrade.

"We can't cut our way out of this crisis. We need meaningful pension reform that can generate significant savings and prevent devastating future cuts to our schools," Barbara Byrd-Bennett, the district's chief executive officer, said last month after the district passed a budget.

Moody's Investors Service downgraded the board's rating one notch to A3 in July, leaving a negative outlook in place for the credit, on the same day CPS announced its budget. Standard & Poor's rates the board A-plus and stable.

The Chicago Public Schools' credit, once firmly in the double-A category, has been battered in recent years over the decisions to rely on one-shots as leaders sought to stave off deeper cuts that could impact classrooms. The district's finances grew more precarious this year because it faced a $400 million spike in pension contributions, to $613 million, after the expiration of a three-year partial pension payment holiday granted by state lawmakers.

The Fitch assessment laid out a bleak picture of the mounting fiscal strains the district faces from rising pension payments, the $100 million annual price tag for the four-year teachers' contract struck to end a strike last year, and high debt expenses with little revenue flexibility to shore up its books.

The district is limited by property tax levy caps, faces flat to declining state aid levels, and has already enacted deep budget cuts including a record number of nearly 50 school closings this year.

Management turnover also worries analysts.

Chicago Mayor Rahm Emanuel last year replaced schools chief executive officer Jean-Claude Brizard with Byrd-Bennett after a little more than a year on the job following the first teachers' strike in more than two decades. The district has also seen turnover in financial management department affecting the treasurer and chief financial officer positions, and its debt manager departed recently.

"Fitch believes this lack of continuity, if it persists, will make addressing budgetary and pension-related problems even more challenging," analysts wrote.

The district whittled the $1 billion budget deficit in its $5.6 billion operating budget this year down to about $700 million by raising its property tax levy to the maximum permitted, and making cuts that included local school spending. This year's budget drains the district's $604 million unrestricted reserve. Officials are drawing another $39 million from a restricted tort fund balance and $54 million will come from a debt service fund reserve, marking a first time use of that account to cover rising debt service. The move will free up state aid previously earmarked for debt service. The fund will still hold $195 million.

While the three-year pension payment holiday eased budgetary stress in the short run, it made the 2014 reckoning all the more difficult to digest and hurt the teacher pension fund's health. The account was 60% funded at the close of fiscal 2012 with total unfunded liabilities of $6.8 billion up more than 130% since 2008. The current payment structure is designed to bring the fund up to a 90% funded ratio by 2059.

The district — like the city — has blamed inaction at the state level on reform for its pension woes. A legislative conference committee is expected to soon unveil a new state-level package that local governments hope could then be applied to them.

Fitch did not offer a positive assessment of any deal's prospects and strains between district management and labor don't bode well for a local solution.

"Meaningful pension reform at the state level appears more remote as time passes with no resolution, and challenged labor-management relations make an independent solution unlikely," analysts wrote.

The district's debt service also poses a strain but officials have announced plans to scale back spending on capital projects to $100 million to $200 million annually over the next few years from levels of $500 million to $700 million in recent years.

Fitch called the move a positive step but warned "maintenance-related needs may exceed planned spending." Other debt management positives include a reduction in variable-rate debt with staggered expiration dates on remaining liquidity facilities.

The district on Monday released the final version of a 10-year educational facilities master plan. The board will vote on the plan Wednesday.  The district faces a $3.5 billion deficit in the level of capital improvement needs estimated for repair and maintenance alone.

"CPS will prioritize facility renovations and investments in high-quality programs as we continue to address $1 billion-plus deficits annually over the next few fiscal years," Byrd-Bennett said in a statement.

The closure of nearly 50 schools is projected to trim about $43 million off annual operations spending although CPS will spend $78 million this year for improvements to schools taking in students from the shuttered facilities. A total of $400 million will be saved in capital spending over the next decade expected from the closures.

Fitch praised the district's conservative budgeting that has typically resulted in better than projected results. The district employs more than 23,000 teachers and has an enrollment of 404,000 students in more than 600 schools. 

"Investors should continue to monitor management's budget updates, operating reforms, and relationship with union membership closely as they will be vital to the financial health of the district through the midterm," Morningstar Inc. municipal analyst Elizabeth Foos said in a recent research report.

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