CHICAGO – The Chicago Teachers Union is moving closer to a strike that would mark a setback in the junk-rated Chicago Public Schools' efforts to stabilize its finances.
The CTU announced Monday that more than 95% of members who submitted a ballot last week voted in favor of authorizing a strike, easily meeting a 75% required threshold.
The authorization was expected after teachers overwhelmingly endorsed a strike in a previous round of voting late last year. The union's House of Delegates will meet on Wednesday to discuss a possible strike date which could come as soon as Oct. 11, based on labor rules.
Teachers earlier this year launched a one-day work stoppage. They went on strike for more than a week in the fall of 2012 when the union and Chicago Public Schools could not agree on a new contract. It was the first strike in more than two decades.
Labor pressure was one of many reasons Moody's Investors Service cited Monday afternoon in downgrading the Chicago Board of Education's already-junk rating another notch to B3 from B2.
"The downgrade to B3 reflects the district's increasingly precarious liquidity position and acute need for cash flow borrowing to support ongoing operations," Moody's wrote. "The downgrade is also based on CPS's deepening structural deficit, with budgets that are built on unrealistic expectations of assistance from the State of Illinois (Baa2 negative), which faces its own financial challenges. The rating also incorporates escalating pension contribution requirements, strong employee bargaining groups that impede cost cutting efforts, and elevated debt service expenses."
CPS is offering raises in a new multi-year contract offer but it wants to phase out the $130 million annual tab for covering 7% of teachers' 9% pension contribution. The union argues that the contract offer results in a pay cut and is strike-worthy.
CPS spokeswoman Emily Bittner said in a statement: "CPS teachers have helped propel Chicago students' remarkable academic gains – so even in a difficult financial environment, CPS is offering teachers a raise that was already supported by both the CTU leadership and an independent third party arbitrator."
CPS' poor relationship with labor represents a sore spot in its credit profile.
"The last contract negotiation with the Chicago Teacher's Union was highly acrimonious and involved a strike. Talks regarding a new agreement to replace the recently expired contract have so far yielded no resolution and the CTU has authorized another strike," Fitch Ratings wrote in a report earlier this year listing the issue as one of a handful of key rating drivers.
"Negotiations with the Chicago Teachers' Union for a new labor contract, which are ongoing and could result in additional pressure on the budget depending on the resolution," S&P Global Ratings warned in its most recent report leaving the district's B-plus rating on negative credit watch.
The Chicago Board of Education last month adopted a fiscal 2017 budget that closes a $1.1 billion gap with additional state funding, cuts, and higher property taxes. Some of the state funding is contingent on state lawmakers adopting pension reforms.
The district has relied heavily on credit lines to manage negative cash flow and earlier this month issued $325 million of tax anticipation notes under a new fiscal 2017 credit line. It intends to borrow another $150 million next month.
In addition to short-term borrowing of up to $1.5 billion, the district alerts investors in its most recent offering statements to its continued plans for long-term borrowing despite the punishing interest rates it pays. The district intends to tap a $45 million property tax levy for capital spending – approved by the city council last fall -- to back borrowing this year under a $945 million bonding appropriation.
Fitch also assigns a junk ratings with a negative outlook. Kroll Bond Rating Agency rates some of the district's bonds BBB and others BBB-minus, all with a negative outlook.
CPS sought to downplay the Moody's downgrade and highlight its strides. "Moody's view remains an outlier from other ratings agencies' perspectives on Chicago and its sister agencies. CPS' budget has improved over last year, with more than $600 million in new revenue commitments and more than $200 million in structural reductions since their last rating. Looking ahead, CPS will continue to work to strengthen its finances and finalize the path forward to fiscal soundness in the years to come," the district's fiscal chief Ron DeNard said in a statement.
