Moody’s upgrades Chicago Public Schools.A higher grade investment grade

The Chicago Board of Education on Wednesday raised its issuer credit rating and Moody’s Investors Service debt rating by one notch from Ba2 to Ba1. Although still speculative grade, it is one level below investment grade status. The rating outlook remains positive even after the upgrade.

Moody’s cited an improvement in Chicago Public Schools’ net operating cash balance, which fell from less than 5% of revenue in 2018 to 13% in 2023. Cash flow Improved cash flow as seen by reduction in borrowings. The fixed cost ratio declined to approximately 20% of revenue, supported by increased revenue from state subsidies and increased property tax revenue.

District finances have benefited from: Evidence-based financing framework Passed by the Illinois General Assembly in 2017. This framework includes “Hold harmless” clause This ensures that districts no longer receive less money than the previous year due to enrollment declines. The state also passed a pension wealth tax to fund pension costs. Expected revenue of $557 million in 2024.

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Chicago Public Schools saw enrollment increase in fall 2023 after years of decline, and while Moody’s called the district’s economic indicators “solid,” the ratings agency noted several areas of concern.

The district’s leverage ratio is high, reaching nearly 500% of revenue, and available liquidity is limited. The general fund’s net cash balance is currently less than 5%. Moody’s said the company faces a “more challenging operating environment” as federal aid from the Elementary and Secondary School Emergency Relief Fund is expected to taper off.

Additionally, its net cash balance for operating funds is the lowest among large school districts in the United States. This puts it at the bottom of the list of the nation’s 12 highest-rated school districts in terms of enrollment.

“The region’s leverage ratio remains high relative to its peers as adjusted net pension liability (ANPL) accounts for the largest share and debt has not declined for many years,” said David Levett, vice president and senior analyst at Moody’s. Probably.” “The primary factor contributing to the district’s higher ANPL is that the district has historically made lower pension contributions, including the acquisition of pension leave.”

Levett said the driving force behind Moody’s rating upgrade was an improvement in net cash from operations. He also noted that the district’s 2024 budget is balanced.

Still, he said, CPS “as an ESSER will begin to face difficult budget choices in the coming years.” [Elementary and Secondary School Emergency Relief] This is the main reason why the budget shortfall in 2025 is $391 million.

“While it is not uncommon for school districts to project large gaps during the year that are then closed during the budget process, the projected gaps are an indication that the district is entering a more difficult operating environment,” he said. ”. “It also makes it less likely that the district will continue to build up reserves at the rate it has.”

Levett said without new revenue or spending adjustments, the district’s reserves could decline. If the net working capital cash balance falls below 5% of revenue, there is a possibility of a downgrade. If cash flow borrowing increases again and the unpaid tax advance increases at the end of the financial year. or if leverage exceeds 580% of returns.

Conversely, if a school board is able to maintain a net cash balance between 10% and 15% of revenue, or the leverage ratio drops further below 450%, and the fixed assets become fixed-rate In such cases, Moody’s may upgrade the debt to investment grade. The cost ratio is still less than 20% of revenue.

District officials did not respond to requests for comment on the upgrades.

Fitch Ratings has assigned a BB+ issuer rating to the Board of Directors and its unrestricted general taxable general obligation bonds, which recently exceeded $600 million. General obligation bonds sold in October. The district’s capital improvement tax bonds have been given his A rating, which provides some protections. From school district management.