Last week, Moody’s Investors Service downgraded the credit rating of Chicago Public Schools. Today, it’s Fitch Ratings that’s downgrading CPS. The school district’s credit rating now sits at A with a negative outlook, the same rating given to Illinois, which has the lowest rating of all 50 states.
According to Fitch, the downgrade was caused by the district’s deteriorating financial condition, exacerbated by the facts that:
- the labor agreement between CPS and the Chicago Teachers Union reduces flexibility and increases costs at a time of highly stressed operations;
- CPS is depleting its reserves to cover the fiscal year 2013 budget gap;
- CPS will have an estimated $1 billion budget shortfall in fiscal year 2014;
- the CPS pension contribution will more than triple in fiscal year 2014;
- the retiree health insurance plan for Chicago teachers is even more poorly funded than the pension plan;
- the district’s debt levels are above average and CPS is considering restructuring the debt to delay paying down the principal;
- Chicago’s employment base and housing market are under substantial stress; and
- the state’s special legislative session in August failed to reform pensions.
Fitch warned that another downgrade is coming if CPS doesn’t address its fiscal year 2014 budget gap or is unable to contain the growing pension and debt service costs.
But rather than control the growing pension costs, CPS can expect those costs to increase under the new contract. The pension fund for Chicago teachers has just 32 percent of the money it should have in the bank today in order to earn enough investment income to pay out earned benefits. The approved CTU contract, which spiked salaries by an average of 17.6 percent, will only make the pension crisis worse.
If that weren’t bad enough, Chicago teachers pay just 2 percent of their salary toward their own pensions. (Illinois law requires them to pay 9 percent of their salary, but three-quarters of those contributions are picked up by the taxpayer as a perk.) And remember: the average starting pension for a Chicago teacher with 30 or more years of experience is $77,496. Over the course of the typical retirement, they will collect more than $2.4 million in pension benefits.
Rahm is running out of revenue options. Taxpayers in Chicago are already sending an entire extra week’s worth of pay to Springfield to cover Gov. Quinn’s massive income tax hike. Chicago Public Schools has already hiked property taxes to maximum extent allowed by law. Will Rahm make the tough choices to get Chicago’s fiscal house in order? Or will he increase pressure on Quinn and use his connections in the White House to seek a federal bailout of Chicago teachers’ pensions?