Bloomberg graphic shows how Chicago ignored paying pension obligations over last decade
CHICAGO – Ignoring invoices and expanding programs rather than paying bills will get any family, organization or business in serious trouble sooner or later. For the city of Chicago, the writing's on the wall.
After the state Supreme Court stuck down pension reform last week, Chicago's credit rating is now one step about junk bond status. Bloomberg made that development a national story Monday.
"The two-step downgrade on Monday to BBB-, one rank above junk, affected $9.8 billion of general-obligation bonds and $486 million of debt backed by sales taxes," Bloomberg wrote about Fitch's new rating.
The company said the outlook is negative, indicating that the rating could be lowered further.
“Last week’s Illinois Supreme Court ruling striking down pension reform legislation for two of the city of Chicago’s four pension plans was among the worst of the possible outcomes for the city’s credit quality,” Fitch said in an e-mailed statement. “Not only did it 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.”
Bloomberg continues:
Chicago is already the worst-rated major U.S. city after once-bankrupt Detroit, with a rating one step below investment grade from Moody’s Investors Service. It’s facing growing bills to its pensions after years of failing to set aside enough to cover all the benefits that have been promised to workers who will retire in the years ahead.
The need to put more taxpayer money into the pension system spurred officials to last year approve a record property-tax increase. Under the now void law, Chicago’s pension bill due this year was projected to be more than double what it was a decade ago.
The ruling eases some immediate demands as the overturned law had stepped up the city’s required contributions. After the decision, Emanuel vowed to keep working on a plan that protects pensions, is fair to taxpayers and ensures the city’s long-term financial health. Without the restructuring, the unfunded liabilities of the municipal and laborers funds will climb by $900 million a year, making them insolvent by 2026 and 2029.
More at Bloomberg Business. Not only is Mayor Emanuel facing serious budget and debt problems, his police force is facing historical lows in morale as the city's murder rate skyrockets.
