A Wall Street ratings agency took issue with a competitor’s recent conclusion that Chicago Public Schools could let an automatic tax hike kick in to ease the pressure of mounting debt costs.
Fitch Ratings did not argue with the grim appraisal of CPS finances presented by Moody’s Investors Service three weeks ago. But Fitch said it "disagrees" with Moody’s finding that CPS could choose to hit up taxpayers to handle its debts if state aid falls short.
Moody’s said in a report last month that a tax hike amounting to more than $400 million annually is one of three "painful options" CPS "could elect to use" if it fails to secure more state funding and runs out of rope in its ongoing practice of borrowing money and cutting costs.
"Unless by ‘elect’ Moody’s is referring to a successful ballot referendum, a plain reading of (state law) indicates this is not the case," Fitch said Wednesday in a retort to Moody’s findings.
Provisions in district borrowing contracts trigger an automatic tax hike under certain circumstances. Fitch argued CPS would run afoul of state law if it chose that route.
Later this month, CPS is due to send bankers what amounts to a large credit card payment. The district has borrowed billions of dollars by issuing long-term bonds that can be repaid with help from "alternate revenue" such as state aid dollars meant to fund classrooms.
If CPS doesn’t have enough alternate revenue to pay off its creditors, city property taxes jump to make up the difference. A CPS spokeswoman said the district has the financing needed to cover its debt payment and such a tax hike will not happen this year.
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Moody’s said in January that CPS could take state aid pledged to pay off debt and instead use it for operational purposes, allowing the automatic property tax hike to cover the debt payment. Fitch said such a move wouldn’t stand up in the courts.
"As there is no option in the law to apply alternate revenues to operations, Fitch believes any attempt to do it would draw a successful challenge in litigation opposing an attempt to levy taxes while alternate revenues were available for debt service," Fitch said in its report.
A Moody’s spokesman would not comment directly on Fitch’s report.
Such disagreements between Wall Street ratings agencies are rare, one financial analyst said.
"It’s not usual that the ratings agencies will comment on one another, or even admit that another exists," said Matt Fabian, a partner at Concord, Mass.-based Municipal Market Analytics.
CPS officials still need to balance this year’s budget but have delayed announcing additional cuts, as the Illinois Senate reconvenes next week to consider a complex series of legislation aimed at ending the state’s ongoing budget impasse.
Ratings agency says big tax hike is ‘most likely’ CPS fix Juan Perez Jr. and Hal Dardick
A massive property tax hike is the “most likely” way for the financially teetering Chicago Public Schools to find its way out of a sea of red ink, a major Wall Street ratings agency said Thursday — a conclusion district officials were quick to reject.
A tax hike of “more than $400 million annually”…
A massive property tax hike is the “most likely” way for the financially teetering Chicago Public Schools to find its way out of a sea of red ink, a major Wall Street ratings agency said Thursday — a conclusion district officials were quick to reject.
A tax hike of “more than $400 million annually”…
(Juan Perez Jr. and Hal Dardick)
School board President Frank Clark said the district could present its third spending plan of the year in hearings the week of Feb. 13.
CPS has already implemented furloughs to trim a fraction of the looming shortfall, while officials discuss cuts to other expenses including the length of the school year.
Making the debt payment later this month will plunge the district’s cash balance deeper into the red before a surge of property tax revenue arrives this spring. That means CPS needs cash advances from investors to handle such expenses.
CPS spokeswoman Emily Bittner, in an email, said the district has secured the short-term loan needed to make this month’s debt payment, and that it wouldn’t turn to a property tax increase to settle the tab.
jjperez@tribpub.com
Twitter: @PerezJr
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