Moody's Investors Service said it has downgraded the rating to A2 from A1 on Chicago Board of Education, Ill.'s general obligation debt.

The outlook remains negative. The A2 rating and negative outlook apply to $6.4 billion of the district's outstanding GO debt. The Chicago Board of Education serves as the primary debt issuing arm for Chicago Public Schools.

The downgrade to the A2 rating reflects a weakened financial profile marked by the budgeted depletion of reserves to fund ongoing operations in fiscal 2013; an impending spike in pension payments following three years of legislatively-authorized pension relief; and continued delays in intergovernmental revenues from the state of Illinois (general obligation rated A2/stable outlook).

In fiscal 2013, the district must also contend with a moderate increase in unbudgeted salary costs associated with the recently negotiated, but not yet ratified, labor contract with the Chicago Teacher's Union (CTU). The A2 rating also reflects the district's substantial and diverse tax base, which is coterminous with the city of Chicago (GO rated Aa3/negative outlook); and an above-average debt burden.

The negative outlook reflects Moody's view that the district will be hard-pressed to make the budget adjustments necessary to close an estimated $1 billion budget gap for fiscal 2014. In particular, the duration of the recent CTU strike demonstrates that labor issues may continue to be a ratings factor.

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