CHICAGO (Reuters) - The Chicago Board of Education will vote next week on a plan to keep its junk-rated school system afloat with a note sale of up to $1.55 billion, along with the refunding of as much as $385 million of outstanding bonds, according to a meeting agenda released on Thursday.
In addition to the debt issuance, the board on Monday will also take up a $5.7 billion fiscal 2018 budget for the Chicago Public Schools (CPS) that relies on nearly $570 million in new state and city funding that may or may not materialize.
Citing mismanagement at CPS, Illinois’ Republican Governor Bruce Rauner earlier this month used an amendatory veto to eliminate about $300 million in state money the district was counting on under a new school funding formula bill. The veto action halted the flow of state aid to Illinois’ 852 school districts and led leaders of the Democratic-controlled legislature into negotiations to find a bipartisan solution.
Chicago Mayor Rahm Emanuel, who controls CPS, has not disclosed where money will come from to plug holes in the school budget.
Escalating pension payments have led to drained reserves, debt dependency and junk credit ratings for CPS, the nation’s third-largest public school system.
The $1.55 billion tax anticipation notes, on which the district would rely to fund operations between biannual property tax collections, match the amount of notes CPS issued in fiscal 2017, which ended on June 30. However, borrowing costs for the fiscal 2018 notes are expected to rise to about $79 million versus $35 million for the previous fiscal year, according to the district’s budget documents.
CPS also proposed the refunding of high-interest-rate variable-rate general obligation bonds issued in 2011, 2013 and 2015.
“It appears that (CPS) is trying to take advantage of market access to bring down the extraordinarily high cost of that debt,” said Laurence Msall, president of the Civic Federation, a Chicago-based government finance watchdog.
A CPS spokeswoman did not respond to questions regarding the borrowing.
In July, the district sold $500 million of new and refunding unrated GO bonds that fetched yields as high as 7.65 percent.
Moody’s Investors Service put the district’s B3 rating under review last month for a possible downgrade into the highly speculative Caa level, citing financial stress due to late or uncertain state funding.
Reporting by Karen Pierog; Editing by Matthew Lewis