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Moody’s has downgraded the City of Chicago’s status to junk. This is yet another blow to the City’s less than successful Mayor Rahm Emanuel.
The move could force Chicago into an accelerated payment on $2.2 billion of its overall debt. It comes in response to a unanimous decision by the Illinois State Supreme Court which blocked Emanuel’s plans to overhaul the City’s pension system in order to meet budget shortfalls.
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Now Chicago must somehow come up with the funds needed to cover its pension obligations and it will not have such an easy time borrowing the money after Moody’s decision.
Emanuel barely won reelection in April after being forced into a run off. Prominent Democrats like Presidential candidate Senator Bernie Sanders actually campaigned for his opponent.
The ratings agency lowered Chicago’s rating from Baa2 to Ba1 due to the city’s current debt crisis over its pension funds. The City currently holds $8.1 billion in general-obligation debt, $542 million in outstanding sales tax revenue debt and $268 million in outstanding and authorized motor fuel tax revenue.
“Whether or not the current statutes that govern Chicago’s pension plans stand, we expect the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue, ” Matthew Butler, a Moody’s analyst, said in the report.
“Balanced against the city’s many credit challenges are several attributes, the greatest of which is the city’s broad legal authority to tap into its large and diverse tax base for increased revenue, ” added the report.
Mayor Emanuel responded harshly to the news in a statement saying, “This action by Moody’s 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.”
“I am committed to focus on both reform and revenue to address Chicago’s fiscal crisis, and we will continue our work in Springfield and with our partners in labor to ensure we will always meet our obligations, protect the retirements of our workforce continue to deliver vital city services, while protecting our taxpayers, ” he added.
