CHICAGO -- Standard & Poor's Corp. yesterday placed $17 million of triple-B rated Chicago Board of Education debt on CreditWatch with negative implications.
The rating agency cited the board's consistent difficulty in balancing its budget and the lack of a permanent solution to its fiscal troubles.
The rating agency's action came the same day the board was forced for the first time to shut down the school system for due to a lack of a balanced budget for fiscal 1994, which began yesterday.
Insured debt sold for the school system by the Chicago Public Building Commission is not affected by the action.
Todd Whitestone, a managing director at Standard & Poor's, said that the rating agency's action was spurred by the announcement that the Illinois General Assembly will meet today in a special legislative session to consider a $300 million GO bonding plan to bail out the beleaguered school system.
Whitestone said that the plan, which would help pay for the board's operating expenses this fiscal year and next through bonding, does not resolve the board's long-term structural budget problems.
The board currently faces a $299 million deficit in its $2.8 billion fiscal 1994 budget. The Chicago School Finance Authority, the board's financial oversight panel, rejected the board's budget on Tuesday because it was not balanced as required under state law.
Without a balanced budget, the system was forced to shut down, leaving the scheduled opening of schools on Sept. 8 in jeopardy. Debt service payments were not affected by the shutdown.
In a press release, Standard & Poor's said that its CreditWatch action is partly the result of "a lack of consistent and orderly budget process, which relies on the prospect of a failure to open schools for an impending academic year to achieve a solution."
Standard & Poor's said that resolution of the fiscal 1994 budget will determine the rating action on the board's debt. The rating agency added that it is taking no action on the school finance authority's outstanding debt, which is rated AA.
However, Standard & Poor's said that it will monitor the authority's involvement in any new debt program to ensure that the credit strength is not reduced.
"Any new debt plans for the [authority] must be reviewed carefully," the rating agency said.
Paul Devine, vice president and assistant director of the Great Lakes regional ratings group at Moody's Investors Service, said that Moody's is "waiting to see what happens when the dust settles," referring to the resolution of the fiscal 1994 budget. Moody's rates the board's general obligation debt Baa.
Devine said that Moody's is concerned about the board's potential for borrowing to pay for operating expenses.
Gov. Jim Edgar, who last week ordered lawmakers to convene in a special session today, has said that he and Daley are "in agreement" on the approach of the mayor's $300 million bonding plan. However, Senate Republicans said they would call for an amended version of the proposal that would call for about $200 million of bonding.
Daley yesterday unveiled the legislative package he Will present to state lawmakers today. The package includes his $300 million bonding plan announced on Aug. 17 and other measures to help reform the school system. A bailout plan must be approved by a three-fifths majority of the legislature.
Under Daley's bonding plan, $300 million of GO bonds would be issued by the Chicago School Finance Authority in two installments. Of that, $120 million would be allocated to the school system's fiscal 1994 budget, and the remainder to the 1995 budget.
To fill in the remaining budget deficit in fiscal 1994, Daley has proposed $82 million in concessions by city labor unions and $97 million in pension fund transfers, and cuts in other funds.
The bonds would be backed by a portion of the oversight authority's property tax levy, which provides debt service on bonds issued in the early 1980s to bail out the school system.
Because the bonds are retired or refinanced, the estimated annual savings of $31 million would be transferred directly to the board of education's operating budget. Daley has said the funds can be used to pay off the 14-year bonds until another source of revenues is found.
Daley has held out the possibility that revenues from riverboat gambling admissions fees could replace the property taxes used to pay off the bonds if Edgar and state lawmakers allow a riverboat gambling complex in the city. Daley has said he will lobby for passage of the riverboat plan in the fall legislative session.
Meanwhile, Illinois State Senate Republicans yesterday said they were willing to consider an amended version of Daley's plan.
Mark Gordon, spokesman for Senate President James Philip, R-Wood Dale, said that Philip will call for a reduced borrowing -- in the $200 million range -- and also a pilot school voucher program that would include private schools in Chicago.
In addition, the Republicans want to give the school finance authority more control in the form of an inspector general who would have line-item veto power over the board's budget, Gordon said.
The Republicans also would like to eliminate the proposed diversion of about $55 million in teacher pension fund contributions to balance the budget, Gordon said. The diversion was included as a cost-cutting measure in Daley's plan, he said.
Steve Brown, spokesman for House Speaker Michael Madigan, D-Chicago, said the speaker is prepared to support Daley's plan.
Also, legislative measures would be needed to allow for flexible use of state funds for supplemental services, administrative and financial reforms in the school system, and changes in pension programs that would result in savings for the board, according to state and city officials.
Edgar has said that the passage of the legislation is necessary to allow Chicago school officials and the teachers union to help close the budget gap with union concessions.