CHICAGO — Debt-ravaged Chicago had its credit rating cut to junk on Tuesday by Moody's Investors Service, just days after the Illinois Supreme Court rejected a plan to overhaul the state's woefully underfunded state pension plan. Mayor Rahm Emanuel criticized Moody's as being "irresponsible" and noted that their dour outlook of Chicago's difficult financial situation is four to six steps out of line with other leading rating agencies.
"While Chicago's financial crisis is very real and at our doorsteps, today's irresponsible decision by Moody's to downgrade the City's credit by two steps goes far beyond that reality," Emanuel said. "Their decision was driven solely by the overturning of a state pension bill that did not include Chicago's pension reform, yet they did not downgrade the State of Illinois."
Moody's said its decision behind the two-level downgrade — which affects $8.1 billion of general obligations — was spurred by the Illinois Supreme Court's May 8 decision.
Moody's is a leading global provider of credit ratings. The negative rating means that the cost of borrowing for Chicago will likely increase.
"We believe that the city's options for curbing growth in its own unfunded pension liabilities have narrowed considerably," Moody's said in a statement. "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."
Last week, the state supreme court struck down a 2013 law that sought to fix the nation's worst government-employee pension crisis, a ruling that forces the state to find another way to overcome a massive budget deficit. The city faces $20 billion in unmet pension obligations.
The law, which impacted four government employee pension programs, was passed with the backing of then Democratic Gov. Pat Quinn, despite warnings from union leaders who predicted it wouldn't pass constitutional muster.
The plan changed how cost of living adjustments are paid out and raised the retirement age for those aged 45 and under.
They mayor's office charged Moody's with pushing for tax increases, while Emanuel has sought spending reforms and finding new streams of revenue to shore up the city's dire financial situation. The mayor, in part, is hoping to solve some of the pension problems by bringing a casino to Chicago.
"This action by Moody's is not only premature, but it is irresponsible to play politics with Chicago's financial future by pushing the city to increase taxes on residents without reform," Emanuel said.
