CHICAGO – City Colleges of Chicago took a fresh rating hit this week because of the state's prolonged budget impasse.
Fitch Ratings on Tuesday dropped the community college district's issuer default credit rating and rating on $242 million of general obligation/alternate revenue bonds from a 2013 issue to A-plus from AA-minus. The system is formally known as Community College District 508. The outlook is stable.
The alternate revenues pledged include tuition and fees and state grants.
The downgrade "reflects the financial deterioration that has been brought on by a prolonged revenue stress," Fitch wrote.
The district relies on state aid for 30% of its funding so it's been hard-pressed to deal with "limited and sporadic funding" allocated during the state's nearly 22-month-old budget impasse. Various property related taxes account for 33% of its revenues and federal grants make up 20%. Tuition revenues, net of scholarship allowances, make up 14%.
"The timing of this revenue stress, during a period when the district was already planning to draw down reserves for capital, has exacerbated the financial deterioration and impaired the district's overall financial resilience," Fitch wrote.
State funding plummeted by two-thirds to $20 million in fiscal 2016 and a special six-month stopgap budget for fiscal 2017 approved last June provided just a $26 million appropriation, well below the $54 million budgeted amount. The district has implemented a non-faculty hiring freeze and has scaled back its capital spending. The district had been drawing on reserves for capital spending.
If a state budget is passed and budgeted funding is received, unrestricted cash and investments should fall to roughly 13% of spending in fiscal 2017. If no budget is passed and further state funding is not received, they may fall to approximately 7% of spending, Fitch wrote.
The rating remains supported by solid expenditure flexibility and a moderate long-term liability burden. The district is the third largest community college district in the nation, with seven colleges and six satellite sites serving a total of 100,444 students.
S&P Global Ratings last year hit the district with a two-notch downgrade to A-plus from AA and assigned a negative outlook after it drew down reserves to balance its books amid uncertainty over the timing and size of future state funding.