Fitch cuts Chicago credit rating in wake of pension ruling
Fitch Ratings on Monday downgraded Chicago’s credit rating closer to “junk,” citing last week’s state Supreme Court ruling that voided a law aimed at boosting funding for two of the city’s pension funds.
Fitch called Thursday’s ruling “among the worst of the possible outcomes for the city’s credit quality,” while warning the rating could be downgraded further in the absence of “a realistic plan that puts the pension funds on an affordable path toward solvency.”
“Not only did (the Illinois Supreme Court) strike down the pension reform legislation in its entirety, but it made clear that the city bears responsibility to fund the promised pension benefits, even if the pension funds become insolvent,” Fitch said in a statement.
The two-notch rating downgrade to BBB-minus, which is one step above “junk,” affects $9.8 billion of the city’s general obligation bonds and $486 million of sales tax revenue bonds. Chicago’s credit rating with Moody’s Investor Service is already in the “junk” level.
Standard & Poor’s lowered its rating to BBB-plus from A-minus in July.
Chicago, the country’s third-biggest city, has been mired in a financial crisis largely fueled by a $20 billion unfunded liability in its four retirement systems.
The Illinois high court rejected Chicago’s assertion that the 2014 state law affecting the city’s municipal and laborers’ retirement systems actually benefited workers and retirees by taking steps to avoid insolvency for the funds.
The law, which was challenged by unions and retirees, required the city and affected workers to increase their pension contributions and replaced automatic 3 percent annual cost-of-living increase for retirees with an adjustment tied to inflation. The adjustment would be skipped in some years.
Without reforms, Chicago warned that the two funds would run out of money within 10 to 13 years.
The ruling made it clear that Chicago bears the ultimate responsibility to pay pensions in full.
“Chicago, the country’s third-biggest city, has been mired in a financial crisis largely fueled by a $20 billion unfunded liability in its four retirement systems.”
this isnt a small city..i would wager most states in the usa have huge liabilities for unfunded retirement systems..is chicago the the new detroit?
these are the sort of ripples that flow through years after the “recession”..