CHICAGO – Illinois Gov. Bruce Rauner’s rewrite of a school funding overhaul using his amendatory veto powers may put some school district ratings at risk as distribution of state aid is now in jeopardy, Fitch Ratings said in a report Wednesday.

Rauner followed through Tuesday on his threat to rewrite pieces of Senate Bill 1 which overhauls how school aid is distributed. His primary dispute with the bill has been extra pension help that’s provided to the cash-strapped Chicago Public Schools. He labeled it a “bailout” and cut some of the district’s aid.

Illinois school districts funding and ratings are at risk as state's latest political battle plays out. Adobe Stock

State aid can’t be distributed until the bill or some other legislation passes using an evidence-based distribution model, a provision Democrats put in the budget package that survived a Rauner veto last month.

“The veto threatens the timeliness of the first distribution of general state aid to all K-12 school districts,
which is set in statute for Aug. 10,” Fitch wrote. “A return to political gridlock specifically related
to school funding puts at risk the ability of school districts to open all of their schools with a
full complement of services.”

“Should there be an extended impasse, ratings for the Chicago Board of Education and other Illinois school districts with limited financial flexibility could be at risk,” Fitch said. CPS carries a junk level rating of B-plus with a negative outlook.

The Senate has 15 days to act. It can attempt to override the AV or concur. If it does nothing the bill dies. House action would be needed after the Senate action. Fitch said concurrence appears unlikely given “the rancor of the debate” and an override “seems unlikely” despite the decision of some Republicans to break with the governor to pass the budget.

“The budget crisis brought bipartisan agreement to a solution in a way that the school funding formula may not,” Fitch wrote.

Negotiations are continuing in an attempt to broker a compromise.

Fitch said the current battle differs from the conflict during the State's two-year budget impasse when lawmakers approved kindergarten through 12th grade spending and aid payments were prioritized even in the face of a growing bill backlog.

While some districts can weather the potential delay by using reserves or short term borrowing, others like CPS lack much flexibility to manage. Fitch said it would be monitoring the impact and take possible rating actions on a case-by-case basis.

Though district ratings could eventually suffer, the school funding issue won’t have a “near-term negative effect” on the state BBB issuer credit rating and negative outlook.

The administration is awaiting a final assessment from the Illinois Department of Education on the full impact of the changes Rauner made. But Senate Democratic senators received an initial assessment from caucus staff that warns the changes would cost an additional $221 million that’s not accounted for in the budget. The governor also loosens the provision that hold districts harmless based on fiscal 2017 funding levels to open up districts to cuts after three years if they lose enrollment.

The Rauner administration said the blame for potential delays in aid distribute is the fault of Senate Democrats.

“They waited 60 days, from May 31st to July 31st , to send the school funding legislation to the governor. They failed to work on the legislation during the special session. The amendatory veto is not to blame for the delay of school funding. The Democrats who put off action for one of our most important issues, the education of our children, jeopardized school funding,” said Rauner spokeswoman Laurel Patrick.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.