August 31, 2015 / 4:50 PM / 4 years ago

Moody's sees negative credit factors in Chicago school budget

CHICAGO, Aug 31 (Reuters) - The Chicago Public Schools’ recently approved $5.7 billion budget is structurally out of balance and could weaken the district’s already low credit standing, Moody’s Investors Service said on Monday.

The nation’s third-largest public school system has a “junk” rating of Ba3 with Moody’s, which said the budget constitutes a negative credit factor for the district.

The budget, unanimously approved by the Chicago Board of Education last Wednesday, relies on nearly $400 million in nonrecurring revenue gained through debt restructuring and tapping reserves or surpluses, and $480 million in assumed, but uncertain monetary aid from the state of Illinois, the rating agency said.

In addition, the fiscal 2016 spending plan “optimistically assumes no salary increases” for teachers, whose contract expired on June 30, according to Moody’s.

“With salaries and benefits close to 70 percent of general operating fund expenditures, any personnel-related increases that result from contract negotiations would exacerbate the district’s operating pressures,” Moody’s said.

The school system, which has more than $6 billion of debt outstanding, plans to sell up to $1.04 billion of general obligation bonds. (Reporting by Karen Pierog; Editing by Jeffrey Benkoe)

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