The state budget crisis continues to harm all of Illinois with harsh financial impacts, and Chicago Public Schools are finding themselves in the middle of the unbalanced books.
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Recently, CPS were forced to borrow money at interest rates far higher than a typical government would permit.
Relying on borrowed money for the rest of the school year, the cost of the latest loan comes with an interest rate four times higher than a state government with good credit ratings would see, according to the Chicago Sun Times.
A week after borrowing $375 million from J.P. Morgan at a rate of 6.39 percent, CPS secured another $112 million from the same lender at 6.41 percent.
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The school district has a junk credit rating, which is where Illinois’ credit rating is headed, as well, according to Fox News.
This means higher costs of borrowing, worsening the deficit and making it even harder for taxpayers to climb out of the fiscal hole where the state currently resides.
The Illinois budget stalemate poses a problem for CPS because of the short-term borrowing structure they operate with, a system largely financed through grant anticipation notes that are eventually repaid by state block grant money owed to CPS.
While the monstrous rates are an indication of the tight financial situation CPS is currently facing, its consistent permission and access to a borrowing market is a positive sign of lenders’ financial optimism for the school district, Matt Fabian, a partner at Municipal Market Analytics, told the Sun Times.
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That said, school officials and Gov. Bruce Rauner are still arguing over who to blame for CPS’ junk bond status.
The money CPS secured for this year will allow them to make a $721 million payment to the teacher pension fund on Friday, which many lawmakers and education personnel consider a feat on its own, given the state of Illinois’ disastrous budget.
“We’re in a death spiral,” Ted Dabrowski, Illinois Policy Institute’s vice president of policy said in an interview. “Illinois has the worst pension crisis in the nation and needs the boldest reforms. There is no doubt that junk bond rating [for the state] is on its way.”