* 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.