CHICAGO — Chicago Public Schools’ already strained balance sheet can ill afford the added burden of its first teachers strike in 25 years with the “magnitude” of the union’s demands and disruption negatively pressuring the credit, Moody’s Investors Service said Thursday.
“The magnitude of the union’s demands and the disruption caused by the walk out of 29,000 employees are credit negatives for CPS,” Moody’s said. “The resolution of the strike and the outcome of negotiations…could materially impact projected budget deficits for fiscal 2013 and beyond.”
Teachers went on strike Monday and tense negotiations have continued through the week with both sides trading barbs over unresolved issues. They include how teachers are evaluated and job security. Pay and benefits have been a less contentious issue with the latest CPS offer providing a 16% raise over four years. Both sides said they expected to reach an agreement later Thursday with a meeting set for Friday afternoon of the Chicago Teachers Union’s House of Delegates to vote on a pact.
After the district closed a $665 million gap, the Chicago Board of Education passed a $5.2 billion budget for fiscal 2013 last month that does not include funding for the raises so the board will have to amend the plan to accommodate the final contract.
The district nearly drained its reserves to close the 2012 deficit and next year faces an up to $1 billion deficit when higher teacher pension payments resume after the expiration of a state approved pension holiday.
“The teachers strike exacerbates the already formidable credit pressures faced by CPS,” Moody’s said in its credit outlook Thursday. “The negative outlook on CPS’s A1 general obligation rating encapsulates the likelihood of further credit deterioration on a backdrop of narrow reserves, escalating pension costs, and potential for unbudgeted increases in teacher salaries.”
Earlier this summer, Standard & Poor’s downgraded the board’s rating to A-plus from AA-minus. It assigns a stable outlook. Fitch Ratings revised its outlook for the board’s A-plus rating to negative from stable. Moody’s downgraded the board’s $6 billion of debt to A1 from Aa3.