Moody's revises Chicago Public Schools' outlook downward

Moody's Ratings revised the outlook on the Chicago Board of Education to stable from positive on Monday.

The rating agency cited the district's reduced likelihood of improving its fiscal condition at the pace it had been and said the credit could weaken absent significant changes to revenues or expenditures.

While the district's economic indicators remain solid, and its revenue base is stable due to steady property tax growth and a hold harmless provision in the state aid formula, the district's Ba1 issuer rating is "constrained," Moody's said.

CPS has a narrow general fund net cash position of about 1% of revenue. Inclusive of the debt service fund, which includes cash escrowed for debt service, net cash is still low, at just over 10% of revenue.

And the district's budget gap for fiscal 2027 is estimated to be over $500 million. But closing its structural budget gap may prove difficult because the district would have to either cut services ? a solution opposed by its vocal teachers' union ? or win additional state support, Moody's added.

Moody's noted Illinois lawmakers ended the fall veto session without taking any action on additional state revenue for CPS that could change the district's financial path.

"The district's fiscal 2026 budget included material expenditure reductions and some one-time items that will maintain level reserves," Moody's said in a press release. "The district still has a structural shortfall and will face a large budget gap materially exceeding $500 million going into the fiscal 2027 budget process."

Still, the rating agency said it expects CPS will have enough short-term borrowing capacity to survive delays in property tax disbursements from Cook County for at least the next few months.

The stable outlook also assumes no major reductions in federal aid.

Moody's said any material worsening of financial operations, including increased use of cash flow borrowing, could lead to a downgrade. If federal aid is interrupted or cut, the district's market access weakens, or operating cash flow becomes strained, a downgrade could also result.

If the rating agency sees sustainable progress in reducing the district's budget gap, or if CPS restores confidence that it can maintain a net cash balance above current levels, including a general fund net cash position nearing 5%, Moody's could upgrade the district.

Also on Monday, Moody's affirmed the Ba1 issuer rating on CPS and the Ba1 ratings on the district's general obligation unlimited tax debt.

At fiscal yearend 2024, CPS had about $7.9 billion in total outstanding GOULT debt.

Fitch Ratings assigns the district an issuer rating and unlimited tax general obligation bond rating of BB-plus with a negative outlook after a revision from stable in September.

KBRA rated the CPS bonds that priced last week BBB-minus. Bonds with a legal opinion from the board regarding the property taxes securing them were rated BBB. KBRA's outlook on all the CPS bonds is negative.

S&P Global Ratings rated the district's bonds BB-plus with a stable outlook.

CPS did not respond to a request for comment by press time.