Updated: December 13, 2013 6:12AM
Fitch Ratings has downgraded the creditworthiness of Chicago’s bond debt because of its public pension problems.
Fitch dropped the rating from AA- to A- on $8 billion in general obligation bonds, backed by property taxes.
It also dropped the rating on $497 million in sales tax bonds — paid for by both the city’s local sales tax and its share of the state sales tax. And the rating was downgraded on $200 million in commercial paper notes, financed by a general obligation pledge from any available city fund.
Friday’s downgrade stems from “the lack of meaningful solutions” to the city’s pension situation. City and fire pension programs have no more than 30 percent of the money needed to cover obligations.
The downgrade makes it more expensive to borrow.
The move by Fitch follows a triple-downgrade of Chicago’s bond rating by Moody’s Investors in mid-July. Moody’s cited the city’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes that has continued under Mayor Rahm Emanuel.
In 2015, the city is required by state law to make a $600 million contribution to stabilize police and fire pension funds that now have assets to cover just 30.5 and 25 percent of their respective liabilities.
In a statement, Emanuel appealed once again to Springfield: “Reform has been deferred and delayed for decades, and Springfield’s inaction has a direct impact on how credit ratings view the city and state’s financial stability. The pension crisis in Illinois is not solved until relief is brought to Chicago and all of the other local governments across our state that are standing on the brink of a fiscal cliff because of our pension liabilities.”
The mayor’s calls for help have taken a backseat while state lawmakers spin their wheels on finding a fix for the state’s five underwater pension systems. But last week the Legislature did approve a pension bill for the Chicago Park District that would boost the retirement age from 50 to 58 and hike employee pension contributions from 9 percent of their salaries to 12 percent.
AP, with Fran Spielman and Art Golab