It didn’t take long after Chicago’s 2014 budget was unleashed for the city’s credit rating to take a good drubbing. The budget underfunds the city’s pensions by millions of dollars and doesn’t enact anywhere near the size of cuts (or tax revenue hikes) necessary for the upcoming 2015 state-mandated $590 million contribution increase. Every member of the human species in the Windy City is carrying nearly $20,000 in pension debt (at least twice the per capita load in Puerto Rico), and that number is still rising. Credit agency Moody’s moved in yesterday with the hammer-blow:
Moody’s Investors Service downgraded Chicago’s credit rating, citing the city’s unfunded pension liabilities. The agency announced Tuesday it was lowering the rating on $8.3 billion in debt to Baa1, from A3, putting it only three notches above junk status. Moody’s gave Chicago a negative outlook, indicating another downgrade could occur if there is no pension fix. Moody’s says the rating “reflects the city’s massive and growing unfunded pension liabilities.” It says those liabilities “threaten the city’s fiscal solvency” unless major revenue and other budgetary adjustments are adopted soon and are sustained for years to come. The lower rating means the city may have to pay higher interest rates. Moody’s said a commitment to raising tax revenue is a factor that could lift the credit rating.
It struck us as a bizarre scene when Illinois lawmakers emerged from their December legislative session, having passed a very modest pension reform, as if they had just weathered the Battle of Britain. Even that bill, passed with much kicking and screaming, now faces a formidable union foe in the courts.Chicago and Illinois are facing a wholesale collapse of the blue model. The city and state’s War on Arithmetic won’t be won with cosmetic fixes. In fact it won’t be won, period. Math always wins in the end.