S&P Global Ratings has revised the Chicago Board of Education's outlook to negative, pointing to worsening reserves and liquidity and "a lack of structural budgetary discipline," including the board's assumption of additional state funding to balance its fiscal 2027 budget.
The rating agency in Thursday's action affirmed its speculative-grade BB-plus rating on the board's general obligation and alternate revenue source bonds.
The lowered outlook is a sign of negative momentum for the district, which could affect pricing of its paper in the primary and secondary markets.
"We believe a failure to secure assumed (state) funding, or a lack of offsetting growth in other revenue streams, poses a risk of budgetary imbalance that could pressure the rating during the one-year outlook period," S&P said in its rating report.
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"If the liquidity position and TAN borrowing deteriorations persist mainly due to operational pressures, we believe there could be downward pressure on the rating," S&P said.
S&P Director Ying Huang said S&P sought to understand "whether the liquidity pressure is mainly from things out of their control, such as the Cook County tax delay, or is it partially due to their operational pressure?"
The outlook revision was driven in part by the "operational pressure that resulted in reserve drawdowns, which, consequently, would also weaken their liquidity position," Huang said.
It also stemmed from the district's
Besides the question of the board's willingness to "actually meet the structural imperatives," said Joe Ferguson, president of the Civic Federation, a fiscal watchdog group, there is the issue of mounting costs, including from a new contract with the teachers union.
In its report, S&P also noted the district's debt burden and $15 billion pension liability, which is 47.7% funded.
Chicago Public Schools had about $9.6 billion in outstanding debt at the end of fiscal year 2025. Many of the district's outstanding bonds are alternate revenue source bonds whose pledged revenues include pledged state aid, and S&P said Illinois' fiscal stability plays an important role in supporting the board's rating. S&P rates Illinois GOs A, after a one-notch upgrade
The district's 2027 budget counts on $150 million in state aid, which would require state lawmakers to take action during their brief veto session in November and December, to avert layoffs and hiring freezes.
"They need a three-fifths majority in both the (state) House and Senate, which in our view is a very high bar to clear," Huang said.
"It's quite clear that S&P regards that $150 million wish in the direction of Springfield to have been troubling and undermining of confidence," Ferguson said. "This corroborates the view… that the decision to take a flyer on Springfield was the wrong decision. ... The instability, political and financial, in the city itself is an added factor for concern."
The district has seen enrollment plunge to 323,047 in 2025 from 372,214 in 2018, although enrollment has recently ticked up from its nadir of 319,769 in 2023, according to
S&P said the current footprint of 621 schools "is not aligned with its enrollment" after the long stretch of declines.
The rating agency criticized the district's high operational spending — which was "intensified by the new Chicago Teachers Union contract that introduced a total estimated cost of $1.5 billion over fiscal years 2025-2028," S&P said — for the same reason.
"Our view is that structural budgetary gaps preferably should be addressed with structural measures, and in that sense, adjusting their expense base by shrinking their staffing or facilities to align with their enrollment level… would be considered a structural approach," Huang said.
S&P could revise the outlook back up to stable if CPS manages break-even operating results in fiscal 2027 and draws up a structurally balanced budget for fiscal 2028, the rating agency said.
The board could see a downgrade if its actual results in fiscal 2027 underperform the budget, or if it doesn't include structural solutions in its next budget and pushes significant budgetary imbalance into the outyears.
The rating agency said it will be closely watching the district's transition to a fully elected board over the one-year outlook period.
"The transition to a fully elected board has the potential to reduce the political influence from the city administration and the CTU, which could be a win for independent fiscal management," Huang said. "However, from a credit standpoint, we see this as a period of transition that introduces new unknowns. We don't know yet how this new board will prioritize fiscal discipline versus other political measures or mandates."
Ferguson said the outlook revision vindicates the members of the hybrid board, all elected, who pushed back against budgeting for money from Springfield that may never arrive.
"Those blinking the reality now have a clear message that it's time to do the work," he said.
CPS spokespeople did not respond to requests for comment by press time.
Moody's Ratings assigns CPS an issuer rating and general obligation unlimited tax debt rating of speculative-grade Ba1. The outlook is stable after a downward outlook revision in November.
Fitch Ratings rates the district's unlimited tax general obligation bonds BB-plus with a negative outlook. KBRA rates the district's bonds BBB-minus, except for bonds with a legal opinion from the board regarding the property taxes securing them, which it rates BBB. KBRA's outlook is negative.
