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Moody’s warns on grants to CPS, General State Aid

Thursday, Apr 27, 2017

* From Moody’s Investors Service…

On p. 4 of its new Weekly Credit Outlook for Public Finance released today (attached), Moody’s notes the ongoing budget impasse in the State of Illinois (rated Baa2/negative outlook) has delayed over $1 billion in payments to school districts, with a handful of districts facing increasing cash flow pressures and a growing potential for a material decline in reserves amid the continued delays. The most vulnerable districts are those that are highly dependent on state grant funding and those with limited operating reserves.

The most vulnerable rated school districts are Chicago Public Schools (B3/negative), Will County Community High School District 210 (Lincoln Way) (Ba1/negative) and Marion, et al Counties High School District 200 (Baa1). These three districts’ narrow cash reserves provide limited protection against continued delays

Illinois provides two types of cash distributions to schools: general state aid, which supports districts’ general operations, and categorical grants, which support specific programs such as transportation and special education. School officials report that general state aid has been received on time, but grant funding is increasingly delayed against a backdrop of continued state budget pressures. Reported lags in quarterly grant payments to districts have increased from approximately three to six months in prior years to nearly nine months in the current year.

We expect that delays in grants will not materially affect most rated districts because they have limited dependence on state grants and ample operating liquidity. Even districts with relatively high reliance on state grants, such as McHenry County Community Unit School District 200 (Woodstock) (Aa2) and Kankakee & Will Counties Community Unit School District 5 (Manteno) (Aa3), will not likely experience cash flow stress, though they may experience credit-negative declines in reserves.

Most rated Illinois school districts have limited dependence on state operating grants. In fiscal 2016, grants comprised less than 5% of revenues for 54% of rated districts, between 6% and 10% of revenues for 42% of rated districts, and more than 10% of revenues for just 4% of rated districts.

While general state aid revenues have continued to flow for Illinois school districts in the current fiscal year, a budget for schools will need to be passed for disbursements to continue in fiscal 2018. In the last two years, the state has passed its K-12 budget in May. Any event that results in delayed or reduced general state aid disbursements for Illinois schools could result in a much larger group of materially impacted credits.

Emphasis added.

- Posted by Rich Miller        

  1. - Rod - Thursday, Apr 27, 17 @ 4:23 pm:

    All true. Possibly tax increases on the State level are in order. Oh I forgot the Governor just said no to that.

  2. - City Zen - Thursday, Apr 27, 17 @ 4:31 pm:

    Lincoln Way is no surprise, considering the recent closure of Lincoln Way North.

  3. - RNUG - Thursday, Apr 27, 17 @ 4:37 pm:

    Wonder if the Governor was tipped this was coming … And that’s why they are floating a standalone k-12t bill.


  4. - Decaf Coffee Party - Thursday, Apr 27, 17 @ 4:38 pm:

    School finance is complicated. What has happened this school year is General State Aid has been fully funded and mostly paid on time, but what is known as Mandated Categoricals — the biggest being Special Education and Transportation — are separate from GSA has fallen way behind.
    Only 1 of 4 payments has been made (and that was made just last week) as we are more than 3/4 of the way through the fiscal year. It is probable that only 1/2 of payment 2 or, best-case scenario, all of payment 2 is made this fiscal year. Meaning half of what was budgeted won’t be paid.
    That means that some districts — those with high Transportation and/or Special Ed costs — actually are worse off this year than a year ago even with full GSA funding.
    So beware of campaign messages that tout fully funding GSA for the first time in 8 years. It’s only half a story.

  5. - wordslinger - Thursday, Apr 27, 17 @ 5:23 pm:

    –On p. 4 of its new Weekly Credit Outlook for Public Finance released today (attached), Moody’s notes the ongoing budget impasse in the State of Illinois (rated Baa2/negative outlook) has delayed over $1 billion in payments to school districts, –

    Say what…. Gov. Grade A, did you not wake up this morning and think about the kids and such, first thing?

    Instead of posting goofy messages on their school sign boards this week, school districts should have been screaming their heads off in the media for weeks about this.

    For crying out loud, $1 billion short for the “fully funded” K-12 schools is kind of a big deal.

  6. - JS Mill - Thursday, Apr 27, 17 @ 6:14 pm:

    @Decaf- Yesterday, the ISBE told IASBO conference attendees that we just received the one and only FY17 MCAT payment we would get during FY 17.

    If that is the case Illinois will fail to meet Maintenance of Edfort (MOE). If that happens one of two things will happen-

    1) Illinois will lose billions in federal matching funds.


    2) the ISBE will direct schools to reclassify GSA money as Special Ed reimbursement so they can meet MOE. If that happens they cannot claim full GSA funding.

    Either way it is a crap sandwhich inside a dumpster fire.

  7. - winners and losers - Thursday, Apr 27, 17 @ 6:34 pm:

    =the ISBE will direct schools to reclassify GSA money as Special Ed reimbursement so they can meet MOE. If that happens they cannot claim full GSA funding==

    Illinois has to meet the requirement in the Federal special education law, IDEA, for MOE, Maintenance of Effort (spending at least as much in State and local funds this year as was spent last year to keep any increases in Federal special ed funds from just allowing States to reduce State funds for special ed).

  8. - JS Mill - Thursday, Apr 27, 17 @ 6:46 pm:

    =Illinois has to meet the requirement=

    The last two years they have done so by requiring districts to move GSA funds to SPED.

    That is a fact.

  9. - Anonymous - Thursday, Apr 27, 17 @ 7:42 pm:

    Why hasn’t the state ended pensions for teachers yet?

  10. - DuPage - Thursday, Apr 27, 17 @ 8:21 pm:

    So much for Rauner’s phony “full funding for k-12.”

  11. - illini - Thursday, Apr 27, 17 @ 8:35 pm:

    @JSMill - “Either way it is a crap sandwhich inside a dumpster fire.”

    What a way to describe this disaster.

    On matters and issues like this I always defer to those who are more expert on the details.

    Thanks for sharing.

    And @Anonymous@7:42 - get a name!

  12. - RNUG - Thursday, Apr 27, 17 @ 9:18 pm:

    ==Why hasn’t the state ended pensions for teachers yet? ==

    Little issue of the Illinois Constitution and the Illinois Supreme Court saying things can’t be changed for existing workers and retirees.

  13. - AnonymousOne - Thursday, Apr 27, 17 @ 9:34 pm:

    End pensions for teachers===

    Just think of the money problems we’d solve if we just did away with teachers period? Too much money to pay these people, right? Just keep the buildings open,buy the books and have the kids learn on their own. Or, why not have everyone homeschool? Taxpayers would save a ton, wouldn’t they? Why pay so much? Snark.

Sorry, comments for this post are now closed.

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