CHICAGO (AP) — Moody's Investors Service downgraded the debt of both the Chicago Public Schools and the Chicago Park District on Wednesday, a day after it downgraded the city's bond rating to junk status.
Moody's has given a Ba3 rating to the school district's debt, down from a Baa3 rating, saying the district faces "increased strain on its precarious financial position" due to last week's Illinois Supreme Court decision overturning state pension reform. It reduced the Chicago Park District's rating to from Baa1 to Ba1, one notch below investment grade.
The rating service's moves affect the school district's $6.2 billion in general obligation debt and the park district's $616 million in general obligation debt.
Jesse Ruiz, interim CEO of Chicago Public Schools, said the court's decision shouldn't have impacted the school district's credit rating, noting the rating agency did not downgrade the state when the court ruled the Legislature's restructuring of Illinois' pension obligations violated the state constitution. However, Ruiz said Moody's action reaffirms why lawmakers must make changes to help the school district address its financial crisis.
"Despite cutting more than $740 million from the central office and operations, we are projecting a deficit of $1.1 billion, driven by $700 million in pension costs," Ruiz said.
Moody's acknowledges school officials are working to find ways to cover increased pension payments but said "solutions remain uncertain."
A park district spokesman did not immediately return telephone calls for comment.
The bond rating determines how much governmental agencies must pay to borrow money, with a lower rating increasing the cost of borrowing.
When Moody's lowered the city's bond rating on Tuesday, it noted Chicago's tax base is "highly leveraged by the debt and unfunded pension obligations" of the city and overlapping governments.