KBRA Assigns BBB Rating to the Board of Education of the City of Chicago, Unlimited Tax GO Bonds (Dedicated Revenues), Series 2025A; Affirms Rating for Parity Bonds; Outlook Remains Negative
5 Sep 2025 | New York
KBRA has assigned a long-term rating of BBB to the Unlimited Tax General Obligation Bonds (Dedicated Revenues) of the Board of Education of the City of Chicago, IL (Chicago Public Schools), Series 2025A. The Outlook remains Negative.
We have affirmed the long-term rating of BBB on those outstanding series for which, like the Series 2025A Bonds, KBRA has not received a legal opinion provided by the Board and approved by KBRA's outside counsel, that the property taxes securing the bonds should likely be treated as "special revenues", as defined under the U.S. Bankruptcy Code in a Chapter 9 legal proceeding. For those series with associated special revenue legal opinions, the BBB+ rating is affirmed.
The continuation of the Negative Outlook reflects KBRA’s expectation that, despite the balanced FY 2026 budget, fiscal pressures will remain acute given CPS’s constrained liquidity, structural imbalance, continued reliance on non-recurring revenues, and heavy fixed-cost burden. Further liquidity erosion, failure to secure adequate long-term revenues, significant mid-year budget revisions or a loss of market access would likely trigger downward rating pressure.
KBRA maintains low investment-grade ratings on the District’s GO bonds, albeit with recognition of continued downside risk, given our view that despite persistent fiscal challenges, the District is likely to maintain near-term market access and state support sufficient to meet essential obligations, including payment of debt service on Alternative Revenue Bonds (“ARBs”) issued under the Local Government Debt Reform Act and School Code.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- Sound security structure, with Pledged State Aid Revenues as the primary source of repayment and a dedicated property tax levy as a secondary source. The dedicated property tax levy, if required, is deposited directly with the Bond Trustee.
- Continued increases in State funding under the EBF formula, which includes hold harmless provisions that effectively remove enrollment decline related funding risk, providing additional resources to CPS.
- The Board’s annual teachers’ pension costs are supplemented by a dedicated pension property tax levy and the State contribution for normal pension costs.
Credit Challenges
- While the unassigned General Operating Fund balance grew significantly over the past five years, reaching a strong 14.1% of expenditures, cash flow is very narrow, necessitating reliance on TAN borrowing to support operations at various points throughout the fiscal year.
- Mounting fiscal challenges destabilized District leadership, which is operating with an interim CEO and a newly elected/appointed 21-member Board. The District’s CFO has announced her departure, effective early September 2025.
- Pension costs continue to grow despite a dedicated pension property tax levy and the State’s assumption of normal pension costs.
Rating Sensitivities
For Upgrade
- Sustained improvement in the Board’s liquidity position.
- Structurally balanced financial operations going forward, as projected by an annually published long-term financial plan.
For Downgrade
- Further deterioration in the Board’s liquidity position.
- Worsening structural budgetary imbalance.
- Non-adherence to fiscal discipline and/or Board adoption of credit negative policies, including borrowing for operations.
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