10/02/2012 04:34 pm ET Updated Dec 02, 2012

Chicago Schools' Credit Rating Cut Yet Again Amid Budget Pressure In New Strike Deal

* Fitch downgrade adds to negative rating actions

* Cites increased budget pressure in wake of teacher pact

* Move follows Moody's, S&P actions

CHICAGO, Oct 2 (Reuters) - Credit ratings for the Chicago Board of Education continued their slide down the investment grade ladder on Tuesday with Fitch Ratings dropping its rating to A from A-plus, citing increased budget pressures in the wake of a tentative deal that ended a teachers' strike last month.

"The labor agreement following the recent Chicago Teachers' Union strike results in considerable increased costs to the Chicago Public Schools," Fitch said in a statement. "The increases come at a time of highly stressed operations, when Fitch believes spending reductions are imperative to maintaining fiscal stability."

The nation's third-largest school system has been hit with a stream of negative rating actions since unveiling a $5.16 billion fiscal 2013 budget in July that drained reserves and levied property taxes at a maximum rate to tackle a $665 million deficit.

Moody's Investors Service cut the Chicago Board of Education's rating in July and again last week, when it was downgraded to A2 with a negative outlook from A1. Standard & Poor's Ratings Services dropped the rating to A-plus with a stable outlook from AA-minus in August. Fitch initially took action in August by revising its outlook to negative from stable. On Tuesday it maintained that negative outlook affecting about $6.1 billion of Chicago school debt.

A statement on Tuesday from the Chicago Public Schools pointed to "an educational and financial crisis after years of revenue losses and misplaced priorities."

"While we've cut more than half a billion in spending outside the classroom, many more tough choices must be made to address ballooning pension costs and an estimated $3 billion combined deficit over the next three fiscal years," the statement said, adding that support for students would not be sacrificed.

The latest credit downgrade came as a three-year contract with an option for a fourth year was up for a ratification vote by the 29,000-member teachers union on Tuesday. School officials pegged the contract's cost at $74 million a year or $295 million over four years, but have yet to say exactly how they will accommodate the increase in the current fiscal year or the next year, when the deficit is expected to hit $1 billion.

Fitch noted that the upcoming deficit was due to the district's use of reserves in its current budget and a "dramatic jump" in pension costs in fiscal 2014.

The expiration of a three-year, state-approved pension funding holiday will push the school system's fiscal 2014 pension payment to $534 million from just $196 million this year.



Chicago Teachers Strike