New Contract Earns Chicago Schools 2nd Credit Downgrade – In One Quarter

Kyle Olson

9/29/2012 12:01:00 AM - Kyle Olson

Sound financial management clearly wasn’t a concern to any party involved in the recent contract negotiations in Chicago Public Schools.

They were warned that new labor expenses might result in a credit downgrade for the financially-strapped school district, and they chose to ignore it.

Now it has comes to pass. The credit rating agency Moody’s has downgraded the school district for the second time in one quarter.

Moody’s wrote:

“The negative outlook reflects the school district's budgeted depletion of reserves to fund ongoing operations in fiscal 2013; the moderate additional unbudgeted salary costs of labor contract negotiations, which have not yet been ratified by CTU; an estimated $1 billion budget deficit for fiscal 2014; and the sizable increase in pension contributions following a three-year relief period. Significant budget adjustments will be necessary, but the demonstrated power of collective bargaining suggests that future budget controls may be difficult for the district to implement.”

Chalk one up for the Chicago Teachers Union. It’s insistence on pressing for higher wages at a time when the district could not afford it has pushed CPS even closer to financial collapse. And Mayor Rahm Emanuel doesn’t deserve a pass. He didn’t have the guts to stand up to the union, and now schoolchildren and taxpayers will pay.

The downgrade will, of course, make it more expensive for the school district to borrow money, complicating an already messy financial situation.

As EAGnews.org has previously stated, it’s baffling how a business-savvy Board of Education could seemingly check its brains at the negotiating room door. How could people who run successful multi-national corporations allow such poor management of taxpayer resources? “The negative outlook reflects our view that the district will be hard-pressed to make the budget adjustments necessary to close an estimated $1 billion budget gap for fiscal 2014. In particular, the duration of the recent CTU strike demonstrates that labor issues may continue to be a ratings factor,” Moody’s wrote.

A word to the wise in Illinois, and particularly Chicago: Look at your neighbors to the north in Wisconsin. They solved the collective bargaining problem, and their schools are getting by just fine.