Analyst: CPS Has 'No Choice' But To Borrow $1B Amid Cash Crunch
CHICAGO (CBS) -- A top financial analyst said bond rating agencies probably won't be troubled by the Chicago Board of Education's vote to borrow more than $1 billion to help the Chicago Public Schools address a massive budget crunch in the coming year.
The school board approved the new borrowing on Wednesday, a day after the Illinois House rejected a three-week delay for a $630 million payment due to the teachers' pension fund on June 30. The district also is facing a $1 billion operating deficit.
It might not sound like a good idea for CPS to borrow $1 billion more when it's already heavily in debt, but Performance Trust Capital Partners director Brian Battle said CPS has no real options.
"They need to borrow this money short-term, so they can make a massive pension payment that's coming due here in two weeks. And they do not have legislative relief from Springfield. So they have no choice, other than to take out a short-term loan – sort of a payday loan – until they can secure some longer-term funding," he said.
Battle said bond rating agencies will understand the district's position.
"CPS might get downgraded, because of an action like this, but really the rating agencies will deem this as a reasonable tactical thing to do. You know, you don't want to default if you have another option. You don't want to not make the payment if you have another option," he said.
According to Battle, bond agencies want to see CPS come up with a long-term plan to address its budget and pension issues, and that might mean a property tax hike.