Friday, February 27, 2015

Chicago's debt is now two notches above junk: Moody's

Crain's Chicago Business reports:
In a blow to Mayor Rahm Emanuel, one of the major bond-rating services today downgraded Chicago's credit to just two levels above junk, saying the city has not been able to adequately control the soaring cost of worker pensions.

In a statement, Moody's Investors Service moved city debt to Baa2 from Baa1, and kept the city on a negative outlook. The latter means that there is a likelihood, though not a certainty, that its credit will be further downgraded in coming months.

In response, Emanuel's office today noted that two other ratings services, Fitch and S&P, have affirmed the city's credit rating, and characterized the Moody's view as an outlier "out of step with the other rating agencies, (and) ignoring the progress that has been achieved."

But the action adds another element of uncertainty for the city and Emanuel just days after the mayor was forced into an April 7 runoff election for a new term.

Moody's, which also lowered its rating on some sales-tax and water debt, said it acted because of "expected growth in Chicago's already highly elevated unfunded pension liabilities and continued growth in costs to service those liabilities."

Those pressures will grow even if reforms in two of the city's four pension funds pushed through by Emanuel survive legal challenges, Moody's said, apparently referring to a huge $550 million boost in payments to police and firefighter retirement funds the city faces in 2016.

"Regardless of the outcome of the legal challengers to pension reforms, we expect Chicago's unfunded pension liabilities—and the costs of servicing those liabilities—to continue to grow, placing significant strain on the city's financial operations absent commensurate growth in revenue and/or reductions in other expenditures," Moody's said.

Moody's last cut the city's credit rating in March.
This isn't the first time Rahm Emanuel has been associated with financial failure: remember Freddie Mac scandals began during Emanuel's watch. The cost of Chicago corruption is large.