Fitch assigns an 'A+' rating to the Chicago Board of
Education, Illinois' $6.9 million Unlimited Tax General Obligation
(GO) Bonds (Dedicated Revenues - Qualified Zone Academy Projects),
Series 2006A, which are scheduled to sell by private placement on May
31 and close on or before June 7. D.A. Davison & Co. and A.C.
Advisory, Inc. are serving as financial advisors. As qualified zone
academy bonds authorized by Section 1397E of the Internal Revenue Code
of 1986, the bonds have a preliminary maturity of May 2016 and offer
to eligible taxpayers a federal income tax credit. There will be no
interest payments and the bonds are not subject to optional or
mandatory redemption. Fitch affirms the 'A+' rating on $3.5 billion of
outstanding GO debt. The rating outlook is stable.
The bonds are alternate bonds payable from pledged general state aid revenues, and if insufficient, from unlimited ad valorem taxes levied against all taxable property in the City of Chicago. Pledged revenues will provide not less than 1.1 times debt service coverage. Proceeds will renovate, rehabilitate and equip qualified zone academies within the district.
The 'A+' rating reflects the successful completion of three-quarters of the Chicago Board of Education's sizable $5.1 billion capital program, diminished future capital financing needs, and proportionately greater discretionary spending in the operating budget. In addition, the rating is based on continued capital program financial support from the City of Chicago and the State of Illinois, enhanced educational programs (which have contributed to student achievement), greater financial stability, and the city's strong economic and tax bases. In addition, state legislation has institutionalized reform measures that previously were temporary. Other rating factors include high, although stabilizing, debt levels due to the large scope of the capital program, slow amortization rates accommodating the debt service revenue structure, and the limited revenue-raising flexibility created by the tax levy limitation law. Fitch rates the City of Chicago's GO debt 'AA'.
In November 2003, the Chicago Teachers Union approved a new contract, retroactive to July 1, 2003 and running through June 30, 2007. Although teachers will receive annual increases of 4% and greater healthcare benefit options in the contract period, the Board of Education will have more flexibility in managing the teaching staff. Increased personnel costs in fiscal 2004 contributed to weaker financial performance which reduced available balances, but the board intends to rebuild its reserves over several years.
The Board of Education of the City of Chicago (replaced in 1995 by the Chicago School Reform Board of Trustees and renamed on July 1, 1999) and its management made significant progress over the past nine years in stabilizing finances and improving educational initiatives. The Board has supplemented reform efforts by implementing an educational program emphasizing strong curricula foundations and instructional coherence. In the future, tax cap restrictions will still limit revenue-raising ability, although the board has outlined potential expenditure controls and revenue-raising options.
In fiscal 2002 through 2004, declining state aid and personal property replacement taxes, combined with increased labor costs, lowered the district's total fund balance to $307.5 million (8.2%). The ending unreserved general fund balance in 2004 totaled $196.5 million (5.2%), compared with $208.4 million (5.8%) in 2003. To bolster its financial position over the next three to four years, the board is seeking additional gains in state foundation aid and spending efficiencies. After several years of budgetary shortfalls, the district is expected to improve its financial position. With additional spending restrictions and a modest tax increase, the general fund balance is budgeted to increase $83.5 million in fiscal 2005 (unaudited), raising the general fund balance to $391 million (10.1%).
The capital program is one of the largest urban school infrastructure programs in the country and totaled $5.1 billion in fiscal 2003. Currently, the district has $3.9 billion in capital projects completed or in progress; about 94% of the $3.6 billion in high-priority projects has been completed. The remaining $1.2 billion balance of capital spending initiatives represents more discretionary projects, which will be undertaken once the board identifies new funding sources.
The overall debt burden is manageable but trending high, at $4,612 per capita and 5.1% of market value, primarily the result of $9.2 billion in outstanding overlapping debt. Direct debt is equivalent to $1,425 per capita and 1.6% of market value.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
The bonds are alternate bonds payable from pledged general state aid revenues, and if insufficient, from unlimited ad valorem taxes levied against all taxable property in the City of Chicago. Pledged revenues will provide not less than 1.1 times debt service coverage. Proceeds will renovate, rehabilitate and equip qualified zone academies within the district.
The 'A+' rating reflects the successful completion of three-quarters of the Chicago Board of Education's sizable $5.1 billion capital program, diminished future capital financing needs, and proportionately greater discretionary spending in the operating budget. In addition, the rating is based on continued capital program financial support from the City of Chicago and the State of Illinois, enhanced educational programs (which have contributed to student achievement), greater financial stability, and the city's strong economic and tax bases. In addition, state legislation has institutionalized reform measures that previously were temporary. Other rating factors include high, although stabilizing, debt levels due to the large scope of the capital program, slow amortization rates accommodating the debt service revenue structure, and the limited revenue-raising flexibility created by the tax levy limitation law. Fitch rates the City of Chicago's GO debt 'AA'.
In November 2003, the Chicago Teachers Union approved a new contract, retroactive to July 1, 2003 and running through June 30, 2007. Although teachers will receive annual increases of 4% and greater healthcare benefit options in the contract period, the Board of Education will have more flexibility in managing the teaching staff. Increased personnel costs in fiscal 2004 contributed to weaker financial performance which reduced available balances, but the board intends to rebuild its reserves over several years.
The Board of Education of the City of Chicago (replaced in 1995 by the Chicago School Reform Board of Trustees and renamed on July 1, 1999) and its management made significant progress over the past nine years in stabilizing finances and improving educational initiatives. The Board has supplemented reform efforts by implementing an educational program emphasizing strong curricula foundations and instructional coherence. In the future, tax cap restrictions will still limit revenue-raising ability, although the board has outlined potential expenditure controls and revenue-raising options.
In fiscal 2002 through 2004, declining state aid and personal property replacement taxes, combined with increased labor costs, lowered the district's total fund balance to $307.5 million (8.2%). The ending unreserved general fund balance in 2004 totaled $196.5 million (5.2%), compared with $208.4 million (5.8%) in 2003. To bolster its financial position over the next three to four years, the board is seeking additional gains in state foundation aid and spending efficiencies. After several years of budgetary shortfalls, the district is expected to improve its financial position. With additional spending restrictions and a modest tax increase, the general fund balance is budgeted to increase $83.5 million in fiscal 2005 (unaudited), raising the general fund balance to $391 million (10.1%).
The capital program is one of the largest urban school infrastructure programs in the country and totaled $5.1 billion in fiscal 2003. Currently, the district has $3.9 billion in capital projects completed or in progress; about 94% of the $3.6 billion in high-priority projects has been completed. The remaining $1.2 billion balance of capital spending initiatives represents more discretionary projects, which will be undertaken once the board identifies new funding sources.
The overall debt burden is manageable but trending high, at $4,612 per capita and 5.1% of market value, primarily the result of $9.2 billion in outstanding overlapping debt. Direct debt is equivalent to $1,425 per capita and 1.6% of market value.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.