CHICAGO, July 17 Moody's Investors Service
lowered on Wednesday Chicago's general obligation and sales tax
ratings to A3 from Aa3 due to the city's large and growing
pension liabilities and budget pressures related to them.
The move affects $8.2 billion of Chicago's general
obligation and sales tax debt, Moody's said in a statement,
adding that its outlook is negative.
"The current administration has made efforts to reduce costs
and achieve operational efficiencies, but the magnitude of the
city's pension obligations has precluded any meaningful
financial improvements," Moody's said.
The credit rating agency added that its negative outlook is
based on the "dramatic spike in annual pension payments
scheduled to take effect in the 2015 budget year."
Moody's said it expects the payments "will place material
strain on the city's operating budget."
"The outlook incorporates the likelihood of continued growth
in unfunded liabilities in the city's four pension plans given
currently suppressed contributions from the city," Moody's
added, noting its outlook also takes into account Illinois'
constitutional protection of pension benefits.
"Given this framework, in order for the city to realize any
significant alleviation in pension costs, the Illinois General
Assembly would need to enact pension reform legislation that
ultimately withstands inevitable litigation," Moody's said.
Illinois lawmakers are struggling to solve the state's own
$100 billion unfunded pension crisis, forcing local pension
problems to the sidelines.
Continued failure to enact pension reform has helped push
Illinois' credit ratings to the lowest level among U.S. states.
Moody's also lowered its rating on Chicago's water and sewer
senior lien bonds to A1 from Aa2 and its rating on the city's
second lien bonds to A2 from Aa3, which affects $3.3 billion of
debt. The rating agency's outlook on the debt is negative.
"This confirms what I have been saying for more than a
year," Chicago Mayor Rahm Emanuel said in a statement. "Without
comprehensive pension relief from Springfield, municipalities
such as Chicago will continue to receive negative reviews from
"Since I became Mayor, I have used every tool available to
tackle and reform government, strengthen our financial position,
and invest in our City's future," he added. "The pension crisis
that is nearing our doorstep puts all of those investments at