(Bloomberg) -- The abrupt changeover in leadership at the Chicago Board of Education has caught the attention of Moody’s Ratings, which said analysts are monitoring the situation amid mounting financial challenges for the school district.
Chicago Mayor Brandon Johnson appointed a new slate of board members earlier this month after all seven prior designees resigned from their seats. While the management changes alone don’t represent a “material” shift in credit quality, the new board may undertake policies that could change the district’s financial operations,” Moody’s analysts led by David Levett said in a report on Tuesday.
The district is already forecasting deficits for the next five years, gaps that could be compounded by additional costs like pay raises related to a new contract currently under negotiation with the Chicago Teachers Union. The company grades the district’s bonds as Ba1, one-step below investment grade, according to the company.
“Like all K-12 school districts, CPS is entering more challenging operating environment,” according to Moody’s.
Chicago’s challenges include the city government’s demand that the school district pay about $175 million of non-teacher pension costs this year. The friction has grown since Johnson reportedly urged the district to take on a $300 million short-term loan to cover costs for pensions payment as well as a new teachers contract currently under negotiation.
An increase in such cash-flow borrowing would create a budget imbalance between revenues and expenditures — something Moody’s views as credit negative.
District Chief Executive Officer Pedro Martinez had refused to take the loan and rejected Johnson’s request for his resignation. Martinez is appearing in front of the Chicago City Council’s education and child development committee meeting Wednesday that will focus on Chicago Public Schools’ budget.
(Updates with Moody’s credit rating on the district’s debt in third paragraph.)
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