Fitch Rates Chicago Board of Education, Illinois' $95.7MM GOs 'A+'; Outlook Positive

CHICAGO--(Business Wire)--
Fitch Ratings assigns an underlying 'A+' rating to the Chicago Board of
Education, Illinois' (the board) unlimited tax general obligation (UTGO)
refunding bonds (dedicated revenues) as follows:

--Approximately $75.4 million series 2009B;

--Approximately $20.3 million series 2009C.

The bonds are scheduled for negotiated sale on or about June 24, 2009. In
addition, Fitch affirms the 'A+' rating on $4.6 billion of outstanding GO debt.
The Rating Outlook remains Positive.

The bonds are alternate bonds payable from pledged general state aid revenues,
and if insufficient, from unlimited ad valorem taxes levied against all taxable
property in the City of Chicago. Pledged revenues are expected to provide not
less than 1.1 times (x) debt service coverage. Proceeds will refinance
outstanding variable rate debt, formerly supported by a liquidity facility; the
current issuance will be variable rate debt, fully supported by a letter of
credit. Fitch expects to provide a rating on these transactions considering the
letters of credit and the underlying rating within the next week.

The underlying 'A+' rating reflects the successful completion of three-quarters
of the Chicago Board of Education's sizable $5.1 billion capital program, the
city of Chicago's diverse economic base, and the board's moderately high overall
debt burden. The Positive Outlook is based on an improved financial position and
augmented reserve levels; demonstrated support from senior governments for both
operations and the board's capital plan; and enhanced educational programs which
have contributed to student achievement. Fitch expects the board will continue
to face budgetary strain from increased pension payments and other personnel
benefit costs. Fiscal 2009 is likely to produce a shortfall, although less than
originally budgeted due to spending cuts, including staffing reductions, and
additional revenue from federal and local sources. Fiscal 2010 will require
further budget cuts as pension payments balloon further, though federal stimulus
funds will help offset the need for program adjustments. Maintenance of adequate
fiscal reserves, despite spending pressure and the financial effects of a
weakened economy, is a key credit consideration.

The city of Chicago's tax expanded at a rapid 10% average annual rate since
2003. Both the tax and employment bases are diverse, and the city is the
economic engine of the state. Nonetheless, like many large urban areas, Chicago
has significant subprime mortgage exposure and foreclosure rates are well above
the national average. As the area has experienced job losses particularly in
financial services and construction-related employment, the city's unemployment
rate increased to a high 10.6% in April 2009.

The Chicago Public School's (CPS) financial position has improved in the past
several years through strong budgetary management and continued tax base
expansion with modest property tax increases. Enrollment declines of 1-2%
annually have necessitated reductions in teaching staff and, consequently,
instruction expenditures have remained largely flat in the past four years as
wage increases offset workforce reductions. In fiscal 2008, the unreserved
general fund balance improved to $432.4 million, or 9.8% of spending, compared
to $307.7 million (7.5%) in fiscal 2006. While the board recognized a sizeable
$194 million surplus, the board revised the revenue recognition period from 90
days to a more conservative 30 days, resulting in an accounting adjustment of
$159 million.

In fiscal 2009, the general fund is likely to produce a modest shortfall,
although it is expected to be less than the $100 million originally expected.
Final results, however, are contingent on the receipt of delayed state grants.
Fiscal 2010 will be a difficult year for CPS, as pension payments have increased
more than tenfold since 2006 and teacher contracts, though settled through 2012,
provide somewhat generous wage increases of 4% annually. Fitch anticipates that
CPS will again adjust staffing levels as well as seek efficiencies in other
areas of spending. Management plans to use stimulus funds to help maintain
existing special education, bilingual, and preschool programs.

The board has reduced its variable rate debt exposure significantly in the past
year; currently less than 20% of total debt is in variable rate modes compared
to over 40% in 2008. Many of its variable rate demand obligations have also
become bank-held bonds. Although the board faced elevated interest rates, debt
servicing costs have been manageable and within budget, according to board
management.

The board's overall debt burden is moderate to moderately high, at $4,870 per
capita and 4.3% of market value, primarily the result of $9.4 billion in
outstanding overlapping debt. The board's pension system was 80% funded as of
June 30, 2008, but Fitch expects a significant drop in the funding ratio due to
investment losses in the current fiscal year. The board adopted GASB 45 two
years early, and its total liability to the Health Insurance Program for retiree
health care is a significant $2.1 billion as of June 30, 2008.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings
Melanie A.J. Shaker, +1-312-368-3143 (Chicago)
Amy R. Laskey, +1-212-908-0568 (New York)
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com

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