CHICAGO — Rating pressures on the financially strapped Chicago Public Schools eased a bit Thursday when Standard & Poor’s revised its outlook to stable from negative on the district’s AA-minus rating in recognition of its move to trim costs to help eliminate a $700 million gap in its fiscal 2012 budget.
The agency affirmed the AA-minus in the first rating review since the Chicago Board of Education’s adoption of a new $5.9 billion spending plan over the summer. Fitch Ratings and Moody’s Investors Service currently rate the board’s $5.6 billion of general obligation debt A-plus and Aa2, respectively.
Fitch downgraded the district last fall due to its fiscal struggles and reliance on non-recurring revenues to balance the budget. Moody’s has assigned a negative outlook since last October. Both are expected next week to release updated reviews.
The latest analysis comes ahead of the district’s $400 million new-money sale slated for the week of Oct. 10, according to public finance participants. Jefferies & Co. is the senior manager and Rice Financial Products is co-senior of the deal, approved by the board at its meeting this week. Proceeds will fund capital projects.
“The outlook revision reflects the cost-reduction measures and other steps taken by the board and its new management team that helped improve the general fund balance in fiscal 2011 and close a large budget gap in fiscal 2012,” said Standard & Poor’s analyst John Kenward. “We believe that these steps will help the board to successfully address its budgetary challenges and maintain adequate reserves in the future.”
Chicago Mayor Rahm Emanuel and his handpicked leader of the district, Jean-Claude Brizard, welcomed the news and promoted it as a sign that their policies were working even though some moves, such as canceling a collective bargaining raise for teachers, have come under attack on some fronts.
“We have worked hard to stabilize CPS’ financial position in the face of a large deficit by reining in costs, trimming unnecessary spending, and making the right investments,” chief executive Brizard said in a statement. “This positive financial news today is an indication that there is an increase in confidence in the reforms we are making, and we will continue to pursue needed changes.”
Standard & Poor’s said the rating is supported by the city’s diverse economic base, the board’s strong financial management and budgeting policies, and successful management of a massive capital program.
It also reflects a moderately high debt burden as a percentage of market value and analysts’ view of budgetary pressures caused by property tax caps, Illinois’ fiscal woes, and rising pension payments. The state is chronically behind on aid owed to the district as it is on payments due to most vendors and aid recipients.
The district’s budget closes a $712 million deficit through a mix of administrative and program cuts, a maximum property tax increase, and $241 million from reserves.
CPS officials said the use of reserves and the tax increase were needed to stave off deep academic program cuts.
Even with the draw on reserves, the district expects to rebuild them over the year and close out the fiscal year with a $289 million fund balance, or 5.6% of expenses. The district strives to meet a 5% goal.