CHICAGO (Reuters) - The Chicago Board of Education gave final approval on Wednesday to a five-year teachers contract that ended an 11-day strike last month and also passed an amended fiscal 2020 budget that relies on one-time revenue and savings to fill a hole caused in part by higher labor costs.
Escalating pension payments, drained reserves and debt dependency have pushed general obligation credit ratings for the nation's third-largest public school district into junk.
The contract, which gives teachers an average raise of 16% over five years, was ratified last week by the Chicago Teachers Union. Chicago Public Schools (CPS) said that contract, along with a deal reached with another union, added $48 million to the $7.7 billion the board approved in August.
The amended $7.84 billion budget covers that expense along with a $60 million shift in pension costs from the city of Chicago to CPS largely with money saved from not making up six of the strike days, as well as a $66 million additional allocation of surplus Chicago tax increment funding.
CPS is counting on future growth in property tax revenue and state funding to accommodate an estimated $1.5 billion in additional costs over the life of the new contract.
Heather Wendell, the district's budget director, said the contract brings certainty over future labor costs.
"The overall costs related to the contract we feel are completely manageable," she told the board.
Major credit rating agencies have raised concerns, particularly if state aid falls below the district's projections.
CPS's financial outlook improved with a revenue boost starting in fiscal 2018 under a new Illinois school funding law. But S&P Global Ratings said earlier this month that given the district's "long-term challenges," achievement of an investment-grade rating is unlikely.
(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis)