CHICAGO – City Colleges of Chicago suffered a two-notch downgrade after it drew down reserves to balance its books amid uncertainty over the timing and size of future state funding.
S&P Global Ratings on Friday lowered the system that run's Chicago's seven community college system to A-plus from AA and assigned a negative outlook. The system is formally known as Cook County Community College District No. 508. The downgrade impacts the district's debt from a $250 million issue in 2013.
"The downgrade reflects the weakened unrestricted net assets and use of reserves in fiscal 2015 and likely use of combined general fund reserves after reduced state revenue in fiscal 2016," said analyst Blake Yocom, adding that those factors are coupled "with the potential risks should the state fail to adopt a fiscal 2017 state budget and no additional funds are appropriated for CCDs."
The rating agency warns that a lack of additional state appropriations this year could spark liquidity concerns by the end of fiscal 2017 next June. "Additionally, the rating action reflects our view of the potential effects on the district's tax base due to the combined pension liabilities and debt of the overlapping governmental entities," added Yocom.
State lawmakers have approved stopgap funding for part of what's owed to the state's public higher education system for fiscal 2016 and fiscal 2017 with remaining funding expected to be taken up early next year. It's unclear whether lawmakers, who have been locked in a budget impasse, will resolve their differences next year and whether aid levels will be cut from prior budgeted amounts.
At the city level, the system is holding its property tax levy steady as the city and Chicago Public Schools turn to property owners to bear a greater burden. Chicago is phasing in a $543 million hike over the next few years. CPS's fiscal 2016 $2.4 billion levy would rise to $2.74 billion in fiscal 2017 under a request being voted on the school board Wednesday.
The Chicago Civic Federation endorsed City Colleges' $524 million budget for holding the line on the tax levy and tuition and called it a "reasonable plan given the uncertainty surrounding funding from the state of Illinois."
City Colleges balanced its books on short-term fixes first implemented in fiscal year 2016, such as drawing on its cash reserves, delaying capital expenses, not filling vacant positions and a hiring freeze, the federation wrote in a recent review.
"City Colleges has again appropriately managed its budget at a time of State funding uncertainty without increasing the burden on Chicago taxpayers," said federation president Laurence Msall. "Unfortunately, no amount of shrewd planning can sustain Illinois' local governments if the State continues to operate without a comprehensive balanced budget."
