The state’s troubled finances are now hitting City Hall in a more visible way, as a major agency downgraded Chicago’s credit rating as the city prepares to refinance some debt.
A $181 million bond issue backed with the city’s share of state fuel tax revenues was downgraded to A3 from Aa3. It also was revised to “negative.”
Moody’s Investors Service said the downgrade “is based on the credit quality of the state of Illinois,” which could distribute less money to cities, villages and towns because of its precarious financial condition.
The city rating is “notched from the state’s general obligation bond rating,” according to the Moody’s statement. The state has a backlog of unpaid bills nearing $10 billion, an unfunded pension liability of nearly $97 billion and the worst credit rating in the nation.
The action came just days after the Securities and Exchange Commission accused Illinois of committing securities fraud by misleading bond investors about the fragile condition of its pension finances from 2005-09.
“This downgrade underscore the critical and urgent need for pension reform in Illinois and shows that further delay will only continue to negatively impact Chicago’s plans for future growth and progress,” city spokeswoman Kathleen Strand said in a statement.
In recent weeks, Mayor Rahm Emanuel has decried the budget decisions being forced on the state because of legislative inaction in the pension arena. Absent significant changes to the state retirement system, significant cuts will have to be made in other areas, including education.
“The mayor and his finance team have taken important steps to right the city’s financial ship, including balancing two budgets without raising property, gas or sales taxes, increasing efficiencies in government operations like grid garbage, and increasing funding in our rainy day funds,” the city statement said.
“However, without reform, all of the progress the city has made in order to invest in our communities and our children will end and city services is at risk,” it added. “The mayor will not stand for that and will not rest until we have reformed this broken, unsustainable system.”