Moody’s has officially downgraded Chicago bonds to the status of junk bonds.
Regular readers might remember that back at the end of February I wrote about how Moody’s downgraded Chicago’s bonds to two steps above junk. Nothing has really changed since then except that Chicago’s insane, corrupt finances are appearing more and more for what they are: beyond hope of recovery.
I was amazed when I wrote that earlier post that an establishment source like Reuters would acknowledge Chicago’s horrible finances. Now, once again, Reuters tells it like it is: “Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status.”
Citing the city’s underfunded pension crisis, Moody’s Investors Service downgraded Chicago’s debt to junk bond status on Tuesday.
The Ba1 rating means that Chicago’s $8.1 billion in debt carries a substantial credit risk. That credit rating is also just a few levels above bonds that are in default.
“The Ba1 rating on Chicago’s debt incorporates expected growth in the city’s highly elevated unfunded pension liabilities,” Moody’s said.
The service cited the state Supreme Court’s recent decision to toss out the state’s pension reform bill as unconstitutional, along with concerns that the city will be able to meet its pension obligations in the future.
“We believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably. Whether or not the current statutes that govern Chicago’s pension plans stand, we expect the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue and/or reductions in other expenditures. ”
The move is not only financially embarrassing for the city; it will also increase the costs for future borrowing.
Moody’s believes Chicago’s credit challenges will continue, both in the near term and in the long term.
Rahm Emanuel condemned the Moody’s downgrade as an act of aggression rather than all too rare rational analysis.
Or did he?
Emanuel’s statement mainly criticizes Moody’s for not being consistent because they downgraded Chicago but didn’t downgrade Illinois. After all, the state Supreme Court decision threw out an attempt to reform the state’s finances, not the city’s.
I never thought I would say it, but Rahm is right. Moody’s should have downgraded the state. Illinois is a hellhole of corruption and debt. No wonder so many state residents wish they could move.