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In This List

Charter School Brief: Illinois


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Pension Spotlight: Massachusetts

Charter School Brief: Illinois

As of Sept. 9, 2019, S&P Global Ratings maintains three public ratings on Illinois charter schools. The Illinois legislature first approved the state's charter school law in 1996, and approximately 65,000, or about 3%, of the state's kindergarten through 12th-grade (K-12) students were enrolled in 141 Illinois charter schools during the 2017-2018 school year. The vast majority (about 90%) of Illinois' charter schools are located in Chicago.

Total enrollment at Chicago Public Schools (CPS) has dropped by nearly 10% over the past five years, while charter school enrollment has grown by about 5% over the same period. Charter schools in Chicago serve approximately 13% of total K-12 Chicago students, the majority of which are located in low-income neighborhoods, serving a high free and reduced lunch population, where a quality education is in high demand.


While we've only assigned three charter school ratings in Illinois, all three are for vast networks with a large student base, more than 12 distinct campuses each, and healthy finances. As such, the credit profiles for our rated charter schools in Illinois are generally stronger than the rest of the sector, with approximately 67% of our Illinois charter school public ratings in the investment-grade category compared with 44% for the sector as a whole.

In January 2019, Illinois welcomed a new Governor, J.B. Pritzker, who ran on a campaign supporting a moratorium on charter schools, and; he recently approved the decommissioning of the Illinois State Charter School Commission, which we view as anti-charter. In May 2019, Chicago greeted a new Mayor, Lori Lightfoot, who also campaigned on a platform that would support a moratorium on new charter schools in Chicago. The new Mayor has stated she believes the relationship between CPS and charter schools must change, but we are unsure what that will mean in practice - we will continue to monitor her position on existing charter schools. A new deputy mayor of education and human services (the first of its position), who will be instrumental in the new Mayor's education policies, is Sybil Madison, who also is a former official at a charter school operator. It is unclear if her charter background will benefit the charter movement in Chicago, or more specifically, our rated schools. It is our opinion that the political climate in Illinois has potential to cause a negative impact on the charter school sector, some of which has already been realized with the approved decommission of the Illinois State Charter School Commission.

Meanwhile, relations between teacher unions and charter school operators in Chicago has traditionally been contentious, which culminated in a series of teacher and staffing strikes throughout the city. This movement subsequently inspired other strikes across the nation. Following the merger of the Chicago Teachers Union (CTU) with the Chicago Alliance of Charter Teachers in January 2018, there was an unprecedented increase in the number of charter school strikes, including at our rated schools. The first strike occurred in December 2018, with Acero Charter Schools Inc. participating, followed by another strike in February 2019, which involved four schools at the Chicago International Charter School which was resolved after nine days. A third strike occurred in Chicago in May 2019, involving three un-rated charter schools and two charter operators, with teachers advocating for increased pay, smaller class sizes, and increased student resources for mental health. We acknowledge that these discussion can result in better wages and working conditions for charter school employees, but also note that school closures, even if temporary, can pose a credit risk to the school's operations and financial flexibility. We will continue to monitor teacher unionization and ongoing labor relations for our rated charter schools.

Authorizer Framework

  • There are 13 authorizers in Illinois, most of which are public school districts. In Illinois, charter school applications must first be submitted to the resident public school district for approval. In the event of a denial of a renewal application, charter schools can appeal for authorization to the Illinois State Charter School Commission (the Commission) until July 1, 2020, after which, schools can appeal to the Illinois State Board of Education (ISBE). The dissolution of the Commission could limit charter school growth for new charters and limits the choices that existing charters have when appealing their nonrenewal.
  • Starting July 1, 2020, after the dissolution of the Commission, charter schools applying for an initial charter that are denied by their resident district will not have the ability to appeal to the ISBE. This will serve to limit new charter school growth in the state. In our view, this could be favorable for charter operators we rate by creating higher barriers to entry for new schools. Conversely, it undermines their ability to appeal to what we consider a procharter legislative body (the Commission).
  • On July 1, 2020, oversight of 11 charter schools currently under authorization of the Commission will transfer to the ISBE.
  • All of our rated charter schools are authorized by Chicago Public Schools (CPS), which is overseen by the Chicago Board of Education (CBOE). We believe there is inherent conflict of interest when the local school district authorizes a charter school, due to the district and the charter school directly competing for students and subsequent per-pupil funding, though we acknowledge that many charter schools are authorized by their local district, both in Illinois and the greater U.S. Most of our rated schools report a good working relationship with their authorizer, though they do not receive material support in terms of additional revenue, grants, or training and there has been a history of delayed payments from CPS to charter schools.
  • State education funding is paid first to CPS then passes through to the charter schools. This adds an additional layer of risk, as there is an additional possibility of withheld payment to the charter school. When state funding has been withheld, we have noted that the affected schools had sufficient reserves to sustain short-term withholding of state education funding. In our opinion this would more negatively affect credit quality the longer the duration of withholding without reaching a resolution between CPS and the affected charter schools.
  • The Chicago Public School's authorizer process is transparent, and renewal and application processed are well established in our opinion, though we are unclear if there is a formal appeals process. Per-pupil funding has been flat in the state and charter schools receive less per-pupil funding compared with their district peers, which can be seen as a weakness, though this is partially offset by charter schools having full discretion on how to use per-pupil funding. Some of our rated schools have reported delays in funding from the district, which, in addition to a history of budget impasses at the state level and volatile state funding, significantly pressures per-pupil funding.
  • Chicago charters and CPS have recently been in negotiations regarding state pass through payments. In the fourth-quarter of fiscal 2019, CPS temporarily withheld up to $50 million in payments that were due to charter schools. They reached an agreement in May 2019 and have made progress toward equitable funding with district schools, and now can receive 97%-103% of per-pupil revenue dollars for charter school students; previously it was 75%-125%. We will continue to monitor negotiations and any potential per-pupil revenue withholdings, as it could impair financial operations at our rated schools, but we believe negotiations are done for the time being.

Credit Fundamentals

Fiscal 2018 Illinois Charter School Metrics
Chicago Charter School Foundation (Chicago International Charter Schools) Noble Network Of Charter Schools Acero Charter Schools Inc.
Rating BBB/Stable BBB/Stable BB+/Stable
Campuses 14 18 16
Free and reduced lunch population (%) 83 89 95
Enrollment 8,282 12,345 7,495
Waiting list as % of enrollment 2.8 35.1 20.7
Student retention rate (%) 86 93.6 80.8
Lease adjusted MADS coverage (x) 2.27 4.14 2.41
Lease adjusted MADS burden (% total revenues) 5 4.3 9.2
Days unrestricted cash on hand 132.24 177.96 107.49
Total revenue ($000) 108,724 183,616 96,216


The charter schools in our currently rated Illinois universe tend to have:

  • Very large enrollment, with good to moderate student retention;
  • Low maximum annual debt service (MADS) burden and very high MADS coverage;
  • Sufficient liquidity for their respective ratings; and
  • Serve a high free and reduced lunch as well as a majority Latino or African American population

What We're Watching

Chicago out-migration.   While overall student enrollment in CPS has declined by 10% from five years ago, Chicago charter school enrollment has increased about 57,000 students. However, the population in Chicago overall is declining, with many residents moving out of state or to surrounding Chicago suburbs. Cook County's (Illinois' largest county) school age population has anticipated declines of 4.7% over the next five years through 2023. While we believe that population decline is not a positive credit factor for any demographic area, we do note that charter school enrollment has continued to increase despite these declines and we expect it to continue to grow.

Volatile state funding dynamics.   The Illinois budget has a history of impasses, most notably for the 2016 and 2017 fiscal years, which affected education across the state. However, the state has benefitted from two consecutive years of stable funding in fiscal years 2018 and 2019, and the fiscal 2020 budget was enacted on schedule and provides $640 million dollars to education funding in the state, which can be seen as a credit positive for our rated charter schools. We will however, continue to monitor if future payments are timely and made in full, which has been a past concern. The budget also includes $3.5 billion in education capital, which includes $415 million for maintenance, repairs and upgrades across all schools in Illinois. Up to $60 million of these funds could go to 40 charter schools in Chicago, though over half of it is slated to go to one charter school not rated by S&P Global Ratings. Noble Network of Charter Schools, however, expects to receive $2.75 million in grants for a gym renovation and expansion, HVAC, and fire safety improvements, which we view as a direct benefit of the state's capital budget though the timeline for grant distribution is not clear at this time.

Rising pension costs and low funding levels.   Illinois has a grossly underfunded state defined-benefit pension system in which all our rated schools participate. Our rated schools participate in the Public School Teachers' Pension and Retirement Fund of Chicago (CTPF), which we consider significantly underfunded at 45.2% as of June 30, 2018, down from 46.6% a year earlier, and 52% in 2015. We continue to view the 100% contributions toward required amounts of our rated charter schools favorably. Despite increased contribution requirements, we do not believe this is likely to result in budget stress for our rated charter schools at this time as contributions currently are manageable compared with total expenditures. Charter schools participating in the plan will continue to face increasing costs related to the low funded status; should pension contributions absorb a larger share of schools' budgets, our view of their debt burden profile could weaken.

Labor Relations.   A series of charter school teacher and staffing strikes throughout the city of Chicago has subsequently inspired other strikes across the nation. Of our rated schools, 74% of Acero's teachers are unionized; teachers at four of CCSF's 14 campuses are unionized, and Noble Network is currently not unionized. Chicago is one of the cities with the most unionized charter schools in the U.S., at about 25% of total charters. We acknowledge that the potential for striking and subsequent temporary school closures pose a credit risk to operations and financial flexibility, although conversely, unionization could result in better wages, benefits, and working conditions for teachers, which might increase teacher retention and satisfaction at participating schools. Chicago Teachers Union have announced they are considering a potential strike, which could start as soon as early October 2019; at this point we do not anticipate any charter school involvement.

Increased regulations.  Illinois has recently changed from a historically charter-friendly state to a less charter-friendly state, in our view. The governor of Illinois has taken a stand against new charter school growth, in our view, by approving the decommission of the Illinois State Charter School Commission; and the renewal of existing charter schools will become more difficult through a more restrictive appeals process. Over the next few months, we will continue to monitor the state for merit based non-renewals of charters and potential school closures. In our opinion, there is potential for more anti-charter action that could negatively impact future charter school growth and could pose a threat to existing charter schools.

This report does not constitute a rating action.

Primary Credit Analysts:Natalie L Fakelmann, Chicago (1) 312-233-7074;
Shivani Singh, New York (1) 212-438-3120;
Secondary Contacts:Jessica L Wood, Chicago (1) 312-233-7004;
Peter V Murphy, New York (1) 212-438-2065;

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