CHICAGO – The junk-rated Chicago Board of Education approved $840 million of new money borrowing backed by a citywide capital improvement tax levy and another $160 million of refunding bonds.

The board previously approved an initial capital program of $338 million for fiscal 2017, but CPS chief executive officer Forrest Claypool has said a supplemental budget is in the works, so the projects to be financed with the new borrowing remains unclear.

"This up-to amount would be for construction under the supplemental capital plan and funded by revenue from the new capital improvement tax," said CPS spokeswoman Emily Bittner. "Because these bonds have a dedicated revenue source, they will not impact CPS' operating budget. We anticipate releasing the supplemental capital plan after we've gone to market."

The City Council approved the new levy last year along with a phased-in $543 million annual property tax increase to fund city contributions to its public safety pensions.

The dedicated capital improvement tax bonds would also carry the same ad valorem tax pledge assigned to the district's other general obligation alternate revenue bonds. On its past deals, the district has pledged state aid or some other stream as the alternate revenue source although it can tap any available revenues. It has always abated the ad valorem tax but has stressed with bondholders that its lawyers believe the tax could withstand a restructuring.

The refunding authorization would shift floating-rate bonds to a fixed rate.

The board's Wednesday meeting was its first since CPS and Chicago Teachers' Union negotiators reached agreement on a new four-year contract that averted a strike set to begin earlier this month. The board has canceled its November monthly meeting as it holds hearings on a revised budget.

The board will then meet earlier in December when it's expected that members will sign off on a revised budget that reflects the cost of the contract if teachers ratify it in the coming days.

Last month, Moody's Investors Service dropped the district further into junk, to B3 from B2, and maintained a negative outlook. The district has about $7 billion of debt and $9.5 billion of unfunded pension liabilities. CPS is rated B-plus by both Fitch Ratings and S&P Global Ratings and carries a low investment grade rating from Kroll Bond Rating Agency. All assign negative outlooks and S&P has the credit on negative watch.

 

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