Moody’s Investors Services downgraded Chicago’s credit rating to junk status, citing the city’s ever-growing unfunded pension liabilities.
Following the Illinois Supreme Court’s rejection of a statewide pension overhaul program on May 8, Moody’s dropped Chicago’s debt from Baa2 to Ba1.
“[The downgrade] incorporates expected growth in the city’s highly elevated unfunded pension liabilities,” the credit rating agency said. “We believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably.”
The ratings change could prompt up to $2.2 billion in accelerated fees and payments, Moody’s added.
“We believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably.” —Moody’sThe agency’s report said it “expects the costs of servicing Chicago’s unfunded liabilities to grow, placing significant strain on the city’s financial operations,” regardless of the current statutes governing the city’s pension plans.
To trigger a ratings hike, Moody’s suggested Chicago or the State of Illinois put a stop to the growth of pension liabilities or see enough revenue increase to accommodate increased pension costs into annual operating budgets.
Chicago’s four pensions have more than $20 billion in unfunded liabilities, and the city has to pay an additional $550 million to police and fire retirement funds next year.
Mayor Rahm Emanuel said the downgrade is “not only premature, but it is irresponsible to play politics with Chicago’s financial future by pushing the city to increase taxes on residents without reform.”
Moody’s has cut Chicago’s ratings seven levels since July 2013, leaving Detroit as the only US city with a lower credit standing.
Other ratings agencies have maintained a more positive outlook on Chicago. Standard & Poor’s ranks the city at A+ and Fitch Ratings at A-.
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