Legislation giving CPS public school principals collective bargaining powers could add to labor pressures that may eventually weigh on Chicago Public Schools' rating, Fitch Ratings warned in a special commentary on the measure passed by lawmakers earlier this month.
"CPS spends approximately two-thirds of its general fund budget on employee salaries and benefits," Fitch said. "While HB5107 will not affect CPS' rating in the short-term, CPS' ability to manage labor conflict could affect credit quality over time."
If HB5107 is signed by the governor, CPS will need to negotiate with its teachers through Chicago Teachers Union and its administrators through their own separate elected bargaining unit. That adds "another layer of labor complexity in a district well-known for its standoffs between mayors and CPS and union leadership," Fitch Ratings analyst Ashlee Gabrysch said in the report.
Mayor Lori Lightfoot, who is seeking a second term in next month's election, and the Chicago Teachers' Union have argued often over COVID-19 and other policies leading to a walkout last January. Teachers also went on strike in 2019 over a new contract.
Fitch upgraded the Chicago Board of Education several notches over the last few years moving it one level away from investment grade at BB-plus with a stable outlook, but fiscal strains are mounting so any new pressures pose a burden to efforts to shed the junk label.
The bill gives rights to CPS principals enjoyed in some other states, like New York City, and the effort in Illinois underscores a national trend that has seen public school employees press for higher wages and improved working conditions after a difficult few years of reduced staffing and low wages amid pandemic concerns.
"Nationwide teacher and other school staffing challenges will continue to compel districts to make salaries more competitive to attract and retain staff, increasing cost pressures at a time when federal pandemic stimulus dollars are drying up," Gabrysch said.
The bill lifts the barrier to collective bargaining rights for supervisory individuals who primarily are charged with managerial duties and don't have key roles in contract negotiations involving employees that report to them. The bill prohibits administrators who are required to hold administrative licenses from striking, unlike Illinois teachers. It impacts only CPS.
Lawmakers signed off on the bill during their lame-duck session ahead of the swearing-in of the new legislature.
The final word rests with Gov. J.B. Pritzker. "The governor is looking forward to reviewing it now that it is headed to his desk," spokeswoman Olivia Kuncio said in an email.
The Chicago Board of Education's upgrades resulted from hikes in state funding levels and city property tax levies for pensions and capital. A flood of $2.8 billion of federal COVID-19 money allowed the district to stay on track with balanced budgets, rebuilding reserves, and trimming its level of short-term borrowing to manage cash flow.
Three of four ratings remain in junk territory and clouds loom once CPS exhausts federal aid in fiscal 2025. The district projects a return to red ink beginning in fiscal 2026 with a $628 million gap.
The district must accommodate growing wages and benefits under its teachers' contract — $120 million annually — and inflation is raising expenses.
"The large proportion of fixed and essential spending commitments and the challenging labor environment may constrain the district's ability to achieve meaningful expenditure savings in response to an unexpected decline in revenue," Fitch said in its December report affirming the rating.
Howard Cure, director of municipal bond research at Evercore Wealth Management LLC, sees the potential change as another burden weighing on schools, but not the most difficult to navigate.
"I agree that it doesn't help the finances or bargaining position of the city to add another layer of labor complexity to the negotiations," he said. "I think the real challenge for the city will be the ability to close schools and potentially lay off teachers and administrators given the steady decline in enrollment."
CPS principal resignations and retirements rose last year from 2020 and 2021 levels, so it's looking to fill positions, which can be a hard sell for teachers who don't want to lose their collective bargaining rights. "HB5107 could potentially lead to hiring more administrators from within a school's teaching ranks if principals successfully bargain to adjust wages," Fitch said.
The principals' advocacy group that pressed for passage, in part to give principals greater say in districtwide policy, dismissed Fitch's position.
"The number of principals in Chicago Public Schools is minuscule compared to other staff groups that have negotiated agreements with CPS, so Fitch's 'cost pressures' claim seems bizarre in that context," Troy LaRaviere, president of the Chicago Principals & Administrators Association, said in a statement.
If signed, the change comes as the district must navigate the
The district has $8.6 billion of long-term debt with a final maturity in 2048 and is rated BBB by Kroll Bond Rating Agency, BB-plus by Fitch Ratings, BB by S&P Global Ratings, and Ba2 by Moody's Investors Service.
The district operates
CPS took a neutral position on the legislation and said in response to the Fitch report that it "remains committed to collaborating with our school leaders as they meet the needs of students, families, teachers, and staff."
The district noted that, if signed, the district would be the only one in the state where managerial employees have become eligible for possible unionization. "We maintain that the tenets of this legislation hold true for all districts in the state," a statement read.
The legislation impacts CPS only because, unlike other public districts in Illinois, CPS principals report to a chief executive and local school council, both with the power to fire them and with interests sometimes at odds with each other.
