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(EstateNewsWire.com, October 05, 2012 ) San Francisco, CA- The Chicago Board of Education was downgraded from an A2 to A1 by the Moody’s Investors Services on Thursday. The group cited the increase in salaries for teachers under the recent labor accord, which has yet to be ratified, as part of the reason for the drop in grade.
The school system is the nation’s third largest, and has not budgeted for the pay raises, according to Moody’s. The $6.4 billion in debt is still a glaring reminder of the difficult situation facing the administrators and officials.
Chicago teachers recently won a 17.6% average pay raise over four years after striking in September. The district stated that the new contracts would accumulate to $74 million per year.
The pay-raises were not the only reason for a downgrade by Moody’s. There is concern of an impending spike in pensions and payments, while state aid continues to be delayed.
The Chicago school system must find ways to cut $1 billion in deficit in 2014, and with the strength of the teachers union, it appears the uphill battle to cut costs will be more difficult than ever.
"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," the credit agency said.
The teacher’s pensions are only 60% funded for 2011, according to the Civic Federation, a finance watchdog group. Civic Federation’s President has said the Board of Education will have to cut personnel and close low-enrollment schools to offset the deficit.
Voters have the option to approve a plan to increase property tax above its current cap; however, Moody’s warned: "If progress is not made toward improving the financial condition and liquidity of district operating funds, or if challenges arise in making the required pension contributions, the district's general obligation credit quality will be impaired."
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