CHICAGO, Sept 11 Chicago and a Michigan school
district fared the worst among 29 local governments and school
systems reviewed by Moody's Investors Service using a new
approach to measuring public pension obligations.
According to data released by the credit rating agency on
Wednesday, the general obligation ratings of Chicago and the
Carman-Ainsworth Community Schools fell three notches to A3,
just a step above the triple-B category.
The review, which Moody's launched in April, resulted in 18
rating downgrades, with the majority of the ratings falling one
notch. Ratings for Virginia, Minnesota, and Michigan's Fruitport
Community School District were dropped two notches.
The 29 municipal issuers, which collectively have $12.5
billion of debt outstanding, were placed on review for potential
downgrades because they have large pension liabilities relative
to their particular credit ratings, Moody's said.
With $8.2 billion of debt, Chicago was the biggest debt
issuer reviewed by Moody's, which attributed the downgrade
announced July 17 to the city's "very large and growing pension
liabilities and accelerating budget pressures associated with
those liabilities." The rating agency also put a negative
outlook on the lower rating, saying the city faces formidable
legal and political challenges to enacting pension reforms.
Chicago's pension payment is slated to jump by nearly $590
million to a projected $1.07 billion in 2015 under current
Illinois law and the city needs state legislative action to
change pension benefits in order to reduce costs.
Tim Blake, a Moody's analyst, said the action on Chicago's
rating led to downgrades of ratings for Cook County, the Cook
County Forest Preserve District, the Chicago Park District, the
Chicago Public Schools and the Metropolitan Water Reclamation
District partly because they share the same tax base with
"There was the issue of overlapping (pension and debt)
burdens on taxpayers," he said. "We feel the overlapping is
heavier than anywhere else."
Other notable downgrades that resulted from Moody's review
included Minneapolis, which had its triple-A rating sliced to
Aa1 with a stable outlook. Top ratings for Chicago suburbs of
Evanston and Elk Grove also fell a notch to Aa1, while
Cincinnati's rating was downgraded to Aa2 from Aa1. Portland,
Oregon, meanwhile, remained at Aaa.
Moody's has said its new approach adjusts pension data
provided by U.S. state and local governments to create "greater
transparency and comparability." It also said that pension
liabilities have increased over the past 10 years, leading to
rating downgrades and outlook changes.
The rating agency last month proposed changes that would
give greater weight to pensions in its rating system for GO
bonds sold by local governments. If adopted, the changes will
likely cause more rating changes for governments rated by
Moody's, Blake said.