CHICAGO Feb 27 Standard & Poor's Ratings
Services posed the question on Thursday that has been lingering
in the minds of many in Chicago: Will significant budget
pressures put the city on the same path that led Detroit into
The answer, contained in a report by the credit rating
agency, is no.
"We believe that Chicago's growing economy and taxing
flexibility provide it with the resources to avoid a fate
similar to Detroit's should it capitalize on this flexibility
and remain on course," the report concluded.
S&P gave Detroit its lowest credit rating of D after the
city defaulted on its general obligation bonds in October.
Chicago's bond rating remains solidly investment grade at
A-plus, albeit with a negative outlook.
Chicago also has strong and stable management, while
Detroit, which is currently being run by a state-appointed
emergency manager, has suffered from "very weak" management over
the years, according to the report. Illinois' largest city, in
contrast to Michigan's, has a strong economic profile.
Both Midwest cities, however, are weak when it comes to
outstanding debt and pension liabilities. Debt service as a
percentage of total governmental spending was 12 percent in
Chicago and 14 percent in Detroit in 2012, S&P noted.
Detroit's emergency manager has pegged the city's unfunded
pension liability at $3.5 billion and is seeking cuts to
retirement benefits in federal bankruptcy court. Chicago's four
pension systems are only 35 percent funded and the city is
facing a state-mandated $600 million pension payment increase.
How Chicago deals with the higher payment could have an
impact on its debt profile and rating, S&P said.
"If Chicago substantially draws down its reserves in an
effort to increase its pension payments in line with state
mandates rather than raising taxes, it could lead to a
downgrade," the report said.
S&P added that it believes "the magnitude of Chicago's
budgetary issues does not put it in the same league as Detroit."