Standard & Poor’s downgraded Chicago Public Schools’, or CPS’, credit rating one notch further into junk territory on Nov. 9, to a rating of B from B+. S&P also assigned a negative outlook, meaning the ratings firm could downgrade the school system again in the near future.
This is more bad news for CPS and Chicago taxpayers, as the downgrade will only increase borrowing costs for the district and the burden on city taxpayers.
The ratings agency blamed the downgrade on the recently agreed-upon contract between CPS and the Chicago Teachers Union, or CTU. The firm said the agreement will only “exacerbate” the district’s “structural imbalance challenges,” according to an agency statement reported in the Chicago Sun-Times.
Not only does the new teachers’ contract contain no major reforms, it’s expected to cost CPS a total of $9.5 billion over the next four years – costing at least $100 million more in 2017 when compared with the last contract.
S&P also blamed the district’s continued reliance on borrowing to pay its bills. As Moody’s Investors Service noted in its own recent downgrade of CPS, the interest rates on some CPS debts are now a sky-high 9 percent. As a result of those borrowing costs, nearly 10 percent of all CPS revenues are dedicated to paying the district’s yearly debt service.
The fact that CPS is spending so much money on debt costs is not surprising. CPS has borrowed irresponsibly for decades. Since 1998, the district has tripled its outstanding debt burden to over $6 billion.