A third financial ratings agency lowered the credit rating for the Chicago Public Schools to “junk” status on Friday, dealing another blow to the cash-strapped city school system.
The move by Standard & Poor’s Ratings Services followed similarly grim statements issued recently by the other two major agencies, Fitch Ratings and Moody’s Investors Services, the Chicago Sun-Times is reporting.
After observing “the board’s decisions in constructing” a new budget for the coming fiscal year, Standard & Poor’s downgraded CPS’ long-term rating from “BBB” to “BB” with a negative outlook.
In a statement, Standard & Poor’s made references to the Chicago Board of Education’s perennial deficits, dwindling cash reserves and the vote last month to borrow as much $1.16 billion by selling bonds.
“The rating action reflects our view of the proposed fiscal 2016 budget, which includes what we view as the board’s continued structural imbalance and low liquidity with a reliance on external borrowing for cash flow needs,” said Standard & Poor’s credit analyst Jennifer Boyd.
The agency warned that it could further lower its rating of the school district’s debt within the next year.
Moody’s rated CPS debt at junk status in May, and Fitch announced it too had lowered the CPS credit rating to junk level on July 27.
Those actions suggest CPS will pay higher interest rates when the planned bond sales take place in the coming months.
“There is no question that Chicago Public Schools faces enormous financial challenges, and this report from S&P confirms the urgency of reaching a comprehensive budget solution with our partners in Springfield to prioritize education funding and finally end pension inequity,” CPS’ chief financial officer, Ginger Ostro, said Friday. “As our students in the classroom are making historic strides, it’s more important than ever for our leaders to work together to protect their gains.”