CHICAGO, Sept 23 Fitch Ratings on Monday
downgraded the rating on the Chicago Board of Education's $5.5
billion of outstanding general obligation debt to A-minus from A
due to the school system's large structural budget gap.
The rating agency also maintained a negative outlook on the
lower rating because of the board's limited options to fix the
"Fitch will downgrade the rating into the BBB category if
there is not a clear and meaningful reversal in this trend over
the near term," it said in a statement.
The nation's third-largest public school system faced an
approximately $1 billion deficit for fiscal 2014, which began
July 1, due in part to a big jump in pension payments after a
three-year, state of Illinois-sanctioned partial pension holiday
The district, along with the city of Chicago, which is also
facing a huge increase in pension payments in 2015, would need
state legislation to rein in pension costs. But lawmakers have
yet to reach an agreement on dealing with the state's own
pension funding problem.
The fiscal 2014 budget included the closure of dozens of
schools, a property tax increase and the use of reserves to
tackle the deficit, according to Fitch. But the board is
projecting budget gaps topping $900 million for each of the next
two fiscal years.
In July, Moody's dropped the school system's rating a notch
to A3. It cited a high debt and pension burden by the school
system, which shares the same property tax base with Chicago.
Also in July, Chicago had its GO rating cut three notches to A3.