A teachers strike against the Chicago Public Schools is a negative credit factor for the district, which may have to offer budget-busting salary increases to reopen schools, Moody's Investors Service said on T hur sday.
"The magnitude of the union's demands and the disruption caused by the walk-out of 29,000 employees are credit negatives for CPS," the credit rating agency said in a report.
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The already strained budget for the nation's third-largest school system could come under even more pressure depending on the outcome of labor negotiations. While the fiscal 2013 budget assumed a 2 percent salary hike over four years, the Chicago Teachers Union, which was seeking a 30 percent increase over two years, recently rejected the district's offer of a 16 percent increase over four years, according to the report.
"Although the ultimate outcome of the negotiations remains uncertain, it's highly likely that actual salary increases will exceed budgeted salary increases," Moody's said.
On Thursday, there were signs that the strike, which began on Monday, could end soon.
The district's $5.16 billion budget for the fiscal year that began July 1 drained reserves and levied property taxes at a maximum rate to help deal with a $665 million deficit.
The school system's shaky finances, along with rising pension costs and contentious labor relations, led to credit rating downgrades. Moody's dropped its rating to A1 with a negative outlook from Aa3 in July.
On Thursday, the rating agency said the negative rating outlook "encapsulates the likelihood of further credit deterioration on a backdrop of narrow reserves, escalating pension costs, and potential for unbudgeted increases in teacher salaries."