Markets News

Moodys' downgrades Chicago Schools to A1

July 10 (Reuters) - Moodys’ Investors service downgraded on Tuesday the rating on Chicago Board of Education’s general obligation debt to A1 from Aa3 and revised the outlook to negative from stable.

The downgrade, which affects $5.9 billion of debt, reflected “a financial profile marked by mounting budgetary pressures and the expectation of a substantial reduction in reserves and liquidity in fiscal 2013,” said the rating agency.

On Friday the Chicago Public Schools unveiled a $5.16 billion fiscal 2013 budget that cut spending and levied property taxes to a maximum rate to tackle a $665 million deficit.

Moodys said the Chicago board has an estimated $1 billion budget shortfall for fiscal 2014 and faces a declining trend of “pension funding levels with dramatic increases in required contribution levels in coming years.” It also mentioned “some uncertainty regarding outcome of labor contract negotiations.”

Among the factors that may induce further ratings cuts, Moody’s mentioned continuing delays or reductions in state aid payments, as well as the possibility of jumps in such costs as pensions.