When Governor Rauner vetoed the agreement that would have sent $215 million to CPS it was money that was earmarked for pensions. But the pension is just one bill that must be paid. If CPS doesn’t get the money from Springfield, it has to cut somewhere else.
Like your heating bill in January. It must be paid or no heat. Even if It means beans, not meat, for dinner. Or parents skipping meals so the kids can eat.
But CPS just told the banks not to worry. CPS students may get beans. But the banks who lend CPS money for capital improvements? They have a promise to be paid no matter what.
A preliminary prospectus released this week contends that those investors have nothing to fear. That’s because the bevy of up to $938 million new school construction projects — including several brand new schools — will be financed by a $45 million property tax increase approved by the City Council last year for the sole purpose of school construction.
Remember the 50 public schools that Rahm closed because they were underutilized?
“The credit is secured by a new, unencumbered, limited purpose, dedicated property tax levy within the school district that will be statutorily limited to capital improvement. [It] cannot be used for operating expenses,” (Ronald DeNard, senior vice president of finance for CPS,)” said.
While normal CPS bonds have been rated as junk by bond rating agencies, these bonds are rated much higher to satisfy the fears of banks and investors who were skittish as a result of Governor Rauner’s threats of CPS bankruptcy.
While current state law does not allow the school district to enter Chapter 9, Gov. Bruce Rauner has said such an option should be on state books and that CPS is an ideal candidate for such a filing.
Rauner’s comments on the subject earlier this year rattled investors ahead of a deal that drove up the district’s borrowing cost to a high of 8.5%, 500 basis points over the Municipal Market Data’s top-rated benchmark at the time and near the state’s 9% cap.
In the event the state added a municipal bankruptcy provision to state law and CPS landed in Chapter 9, the law firms say the special revenues designation would shield the pledged revenues from the code’s automatic stay on payments on pre-petition debt and should protect the bonds from a haircut in any confirmation plan.
The banks are protected.
The students? Not so much.