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*** UPDATED x1 - Pritzker responds *** Moody’s issues warning on school funding impasse

Thursday, Aug 17, 2017

* Press release…

Moody’s has issued a short report on the failure of the State of Illinois (rated Baa3/negative outlook) to distribute the first payment of FY 2018 general state aid to its school districts. This action is credit negative for those districts, and will weigh most heavily on those with significant dependence on state aid and lower cash reserves. The lapsed distribution follows the state’s failure to adopt a new state aid funding formula, as required by the state’s fiscal 2018 budget bill, enacted on July 6. The state’s distribution of grants owed to districts from the previous year somewhat mitigates the delay, but the effects will grow if the impasse continues.

While Illinois’ FY 2018 budget increases school district funding, it makes the distribution contingent on the state’s adoption of an “evidence-based funding” model. On August 1, Illinois Governor Bruce Rauner issued an amendatory veto of Senate Bill 1 (SB 1), which would have created the model required by the budget bill. A three-fifths majority in the legislature is required to adopt his amendments, override his veto or pass another bill to change the formula. On August 13, the Senate passed on override of the veto. The House came back into session on August 16, but has yet to act on an override.

Moody’s rates 256 school districts in Illinois. We expect 5-20 of these will have deteriorated credit within months because they may use cash reserves or borrow to cushion effects from the state aid delay. The delay will harm more districts if the impasse extends for several months. However, districts that source less than 10% of annual revenue from state aid, approximately 100 of rated school districts, would likely weather even a funding delay that lasts a year or longer with minimal effect on their reserves and credit profile. Illinois districts with lower property wealth or higher poverty tend to rely much more heavily on state aid.

Among Moody’s-rated Illinois school districts, 17 received more than 40% of revenue from state operating aid, while an additional 32 relied on aid for 30%-40% of revenue. However, many of those districts carry very high cash balances. Illinois school districts across the rating scale tend to hold higher cash reserves compared with school districts in other states.

*** UPDATE ***  Pritzker campaign…

After Bruce Rauner’s school funding veto caused the state to miss its first payment to public schools across the state, Moody’s warns that dozens of schools may see “deteriorated credit within months.” The ratings agency says Rauner’s failure on school funding leaves public schools with a “credit negative” outlook, meaning downgrades could be right around the corner starting with low-income and high-poverty districts.

This new warning from Moody’s comes just a day after Rauner’s school funding plan received zero votes in the House and two weeks after Fitch said Rauner’s veto could cause more credit downgrades at state colleges and universities.

“Public school kids in low-income districts are being shoved aside by Bruce Rauner, even after he couldn’t get a single vote on his school funding plan,” said Pritzker campaign spokeswoman Jordan Abudayyeh. “This failed governor should be ashamed of himself for putting the education of our kids in jeopardy while he pursues a devastating plan that has zero support.”

- Posted by Rich Miller        

13 Comments
  1. - Huh? - Thursday, Aug 17, 17 @ 11:05 am:

    1.4% - yeah, so what? I don’t work for the rating agencies. As a matter of fact, I don’t work for anybody. I’m a volunteer.


  2. - Norseman - Thursday, Aug 17, 17 @ 11:07 am:

    Rauner doesn’t care. He wants everyone else to hold their breath until he gets his agenda.


  3. - Anon221 - Thursday, Aug 17, 17 @ 11:15 am:

    To run a District Financial Report off the ISBE website for a snapshot of funds available. 2016 is the latest.

    http://webprod1.isbe.net/finprofile/profile.aspx


  4. - Dome Gnome - Thursday, Aug 17, 17 @ 11:25 am:

    Here we go again, from crisis to crisis.


  5. - Eagle Eye - Thursday, Aug 17, 17 @ 11:30 am:

    Kristina to Bruce while droppin’ a g: “Hostage takin’ is fun!”


  6. - Free Set of Steak Knives - Thursday, Aug 17, 17 @ 11:43 am:

    Worth noting that one of the primary goals of the Rauner administration since Day One has been to force school districts to deplete their cash reserves.

    In the view of Rauner and the IPI, districts with big cash reserves should be cutting property taxes.


  7. - H-W - Thursday, Aug 17, 17 @ 11:51 am:

    If by compromise, the leaders and the governor agree to take $100 M from our state treasury and give it to private schools, heaven help us. Junk bond status seems reasonable for a state that cannot balance its checkbook and cannot pay its public schools, but can purchase $100 M in favors from private schools.


  8. - Tequila Mockingbird - Thursday, Aug 17, 17 @ 12:05 pm:

    That Baa3 rating is the equivalent of a D minus minus. Next step is off the cliff. Crisis is an overused word but not for this.


  9. - Disgusted Downstate - Thursday, Aug 17, 17 @ 12:30 pm:

    So the districts hurt the most by this stupid political battle, the ones who will be forced to borrow to keep their doors open for more than a few weeks, will now also get to worry about how increased borrowing costs will affect them.

    It’s a good thing our governor is all about education. Can you imagine where our schools would be right now if he didn’t care so much? /s


  10. - PhD - Thursday, Aug 17, 17 @ 1:19 pm:

    == the ones who will be forced to borrow to keep their doors open for more than a few weeks ==

    These school districts tend to small and rural. What party tends to represent such communities? Is the goal of the political battle worth the potential harm?


  11. - Oswego Willy - Thursday, Aug 17, 17 @ 3:14 pm:

    Pritzker’s Crew did a good job reminding that the Veto is important to understand where Rauner fails…

    This…

    ===Public school kids in low-income districts are being shoved aside by Bruce Rauner, even after he couldn’t get a single vote on his school funding plan,” said Pritzker campaign spokeswoman Jordan Abudayyeh. “This failed governor should be ashamed of himself for putting the education of our kids in jeopardy while he pursues a devastating plan that has zero support.”===

    This is how you sum it all up after disclosing the Veto trigger.

    This is an “in the groove” type of messaging tying it all together.

    Good stuff.


  12. - Earnest - Thursday, Aug 17, 17 @ 3:39 pm:

    >Pritzker’s Crew did a good job

    Hypotheticals really annoy me, but I find myself wondering how much less damage would have been done over the past several years had the Democratic Party of Illinois done at least a fraction as well at messaging as Pritzker has. Frankly, I think his messaging may have helped the budget pass, as there was finally a counter to the Rauner messaging out there.


  13. - Oswego Willy - Thursday, Aug 17, 17 @ 3:44 pm:

    ===but I find myself wondering how much less damage would have been done over the past several years had the Democratic Party of Illinois done at least a fraction as well at messaging as Pritzker has.===

    I’m a choir, you keep preachin’…

    What that failure did is highlight where these messages shine.

    Pritzker’s Crew has done well, exceptional with prepared work. They are getting much better in quick response too, again to their credit.


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