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Following City, Chicago Public Schools Credit Rating Junked

CHICAGO (CBS) -- One day after the city of Chicago took a big hit to its credit rating, a leading bond-rating agency further downgraded the Chicago Public Schools debt to "junk" status.

The Moody's Investor Service applied the Ba3 rating to the Chicago Board of Education's $6.2 billion in debt.

Like the city, CPS is facing a huge problem with increasing required contributions to teachers' pensions.

"The Ba3 rating reflects CPS's steadily escalating pension contributions and use of reserves to fund those contributions," Moody's said. "We believe pension costs will place increasing strain on the district's precarious financial position absent material revenue growth or expenditure reduction, both of which appear increasingly difficult for the district to achieve."

The rating means the school system's ability to pay off its debt is at risk. It also means it will cost more for CPS to borrow in the future.

On Tuesday, the city of Chicago's bond rating was also downgraded to "junk" status.

According to Moody's, the district's net annual pension contribution will increase by 6 percent this year. In fiscal 2015, the district's mandatory net annual pension contribution totals $635 million.

Further increases are scheduled in future years.

Moody's also downgraded the credit rating for the Chicago Park District.

"The downgrade is an example of how the rating agencies work in concert with bond holders in pushing our city and schools to the brink by recklessly increasing termination fees and costs of borrowing. Today's action by Moody's induces further political panic to force the City to implement even more misguided fiscal decisions that will hurt our students and public schools," said teachers' union spokeswoman Stephanie Gadlin.

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