Standard & Poor's Ratings Services said it is monitoring the Chicago Board of Education's plans for fiscal 2016 and its efforts to bring expenditures in line with revenue.

The board announced new leadership on July 16, but is continuing its strategy of pushing the state to enact changes that would help the board improve its financial situation.

On July 13, the board announced that the preliminary budgets distributed to schools assumed that the state will provide the board with $500 million in assistance, through pension or other changes. If this assistance does not become available, the board would consider additional cuts and borrowing during the fiscal year.

The board anticipates releasing a budget for fiscal 2016 in August, with approval scheduled for the Aug. 26 board meeting.

On July 2, the board's BBB GO debt underlying rating was placed on CreditWatch with negative implications, which reflected the view that the board's credit quality could deteriorate if the fiscal 2016 budget did not include a credible plan to improve the board's fiscal imbalance.

Within the CreditWatch period, the agency will follow the board's efforts to balance its budget as well as the assumptions underlying these efforts. The current proposal, if finalized, has vulnerabilities.

Budgeting for $500 million in relief from the state that has not been secured might prove overly optimistic and not support steps toward rectifying structural mismatches. The agency evaluates the board's management as part of its analysis under its financial management assessment (FMA) methodology.

Should the board's assumptions hold without further support, this could weaken its view of management's revenue and expenditures assumptions.

A delay of further cuts until later in fiscal 2016 and a planned use of additional borrowing for operational costs would reflect a continued deferral of budgetary adjustments needed to improve structural balance. Similarly, deferment of pension payments without a credible plan to catch up on those payments in the near term also would reflect a deferral of needed budgetary adjustments.

Although the board continues to focus on the state in the hope that the state will act to improve its financial situation, the analysis continues to focus on the board itself and how the board manages its financial position.

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.