Chicago's pension problems and unemployment numbers produce credit rating drop.
Fitch Ratings has joined Moody’s in downgrading Chicago’s credit rating due to the city’s continuing public pension problems.
The Fitch rating dropped three notches, from AA- to A- on the city’s $8 billion in general obligation bonds, which are backed by the city’s property taxes. The company also dropped the city’s rating on $497 million in sales tax bonds. Those bonds are paid for by the city’s local sales tax and its share of the state sales tax.
A third downgrade was placed on the city’s $200 million in commercial paper notes. Those are financed by a general obligation pledge to use any available city funds.
Fitch's ratings run from the highest rating possible – AAA – to D, which stands for default. Ratings from AAA to BBB are considered investment grade ratings, meaning the debt is at low risk of default.
In its report issued in mid-November, Fitch cited Chicago’s inability to make progress on the city’s pension situation. At the time, Chicago’s city and fire pension programs had only 30 percent of the funds needed to cover obligations.
“The city has been unsuccessful in its attempts to negotiate a solution with labor unions and lobby the state legislature, which ultimately controls the benefit formula,’’ Fitch said in its statement.
Fitch noted that Chicago has good prospects for long-term economic stability, but its high unemployment figures and the need for the property tax base to recover cause credit concerns.
In an attempt to improve the city’s bottom line, Mayor Rahm Emanuel offered a $6.97 billion budget that includes a 75-cent per pack increase in cigarette taxes and higher parking fines but no increases in gasoline, property or sales taxes. The city also hopes to earn $120 million in fines from its many red-light and speed cameras.
In 2014, the city has a $600 million obligation to its city pension fund.
Moody downgraded Chicago’s credit rating in July, The general obligation and sales tax ratings dropped from A3 to Aa3.
In October, Moody’s Investors Service dropped the Chicago Transit Authority’s credit rating to A1, which moves the transit firm from a stable outlook to a negative one.
“We believe the political will to impose further revenue increases has diminished at a time when state and federal support is likely to dwindle,’’ Moody’s said. The new rating affects $2.9 billion in outstanding bonds backed by sales tax revenue, plus $77 million in authority lease bonds issued by the Chicago Public Building Commission, which was downgraded to A2.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.