Update: Moody’s downgrades Chicago debt to ‘junk’ with negative outlook
Moody’s downgraded Chicago’s credit rating down to junk level “Ba1” from “Baa2.”
The announcement, which the ratings agency released Tuesday afternoon, cited a recent Illinois court ruling voiding state pension reforms. Moody’s said it saw a negative outlook for the city’s credit.
Following that May court decision, Moody’s said it believes that “the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably.”
Mayor Rahm Emanuel criticized the downgrade.
“While Chicago’s financial crisis is very real and at our doorsteps, today’s irresponsible decision by Moody’s to downgrade the City’s credit by two steps goes far beyond that reality,” he said. “Their decision was driven solely by the overturning of a state pension bill that did not include Chicago’s pension reform, yet they did not downgrade the State of Illinois.”
Chicago’s finances are already sagging under an unfunded pension liability Moody’s has pegged at $32 billion and that is equal to eight times the city’s operating revenue. The city has a $300 million structural deficit in its $3.53 billion operating budget and is required by an Illinois law to boost the 2016 contribution to its police and fire pension funds by $550 million.
The downgrade and violation of terms on the swaps agreement likely will become an issue in Emanuel’s re-election campaign. The first-term mayor, a former chief of staff to President Barack Obama, failed on Tuesday to win a majority of votes in a primary election, and faces a runoff vote April 7 against a Cook County commissioner, Jesus “Chuy” Garcia.
What if Chuy wins? Garcia is a Teacher’s Creature (hand-selected by CTU President Karen Lewis [I hope you get better Ms. Lewis. Your politics are odious but your life is not.]) The CTU is not ready to embrace the changes needed in pension reforms that the city will have to make. I will guess they would rather have ‘other’ city unions take/make reforms.
Some Chicago debt is trading at worse levels than bonds sold by Illinois, which is paying the biggest yield penalty among states in the U.S. municipal bond market due to its own fiscal woes.
The spread on Friday for Chicago bonds due in 2019 over the market’s benchmark triple-A scale hit 125 basis points, which is 25 basis points over Illinois’ so-called credit spread, according to Municipal Market Data.
Someone go up to
the big house Englewood and ask Rod where the money went.