Fitch Downgrades Chicago, Worse Than Detroit?
Is Chicago worse than Detroit? That might be hard for many to believe, but while Detroit may be well known for its fiscal problems, it might be better off than many of its fellow US cities, like Chicago, according to a new report from Moody’s Investor Service. To boot, Fitch downgraded Chicago on Friday.
The City of Chicago has the most pension debt in the nation, with its liabilities equaling 678 percent of its revenues as of 2011, with Cook County (which contains Chicago and some suburbs) coming in next, with pension liabilities that equal nearly 382 percent of its revenue.
“A lot of the problems that are more on the severe side are driven by governments not making the required payments into the pension plans,” says Tom Aaron, analyst at Moody’s and one of the report’s authors.
This makes sense considering that Friday saw Fitch Ratings cut Chicago’s bond ratings due to the city’s poor economy and its lack of a solution to its union pension obligations.
The credit ratings agency said it downgraded $8 billion in Chicago’s unlimited tax general obligation (ULTGO) bonds to A from AA-.
Fitch also cut $497.3 million sales tax bonds to A- from AA-, and downgraded $200 million commercial paper notes.
“The city has been unsuccessful in its attempts to negotiate a solution with labor unions and lobby the state legislature, which ultimately controls the benefit formula,” Fitch said in a statement.
The company also stated that while the city has good prospects for long-term economic stability, if not growth, but high unemployment and the recovery of its property tax base remain a continuing problem.
“The downgrade reflects the lack of meaningful solutions to both the near- and long-term (pension) burden,” says Fitch. There’s also the poor American economic landscape – “high unemployment persists and property tax base recovery has been elusive.”