Moody’s credit downgrades: Illinois, Chicago area, take beating

The recent string of credit downgrades by Moody’s Investors Service should leave little doubt what the rating agency thinks of Illinois’ worsening fiscal crisis. For the past few years the state’s five state-run pension funds have garnered most of the negative attention in Illinois. Moody’s has already designated Illinois’ debt as the riskiest of any...

The recent string of credit downgrades by Moody’s Investors Service should leave little doubt what the rating agency thinks of Illinois’ worsening fiscal crisis.

For the past few years the state’s five state-run pension funds have garnered most of the negative attention in Illinois. Moody’s has already designated Illinois’ debt as the riskiest of any state in the nation. But with the Detroit bankruptcy, Moody’s attention seems to have shifted to the greater Chicago area and its many budget and pension crises.

In just the last three months, the ratings agency has lowered the credit ratings of the state of Illinois, the city of Chicago and its sister governments, Cook County, seven of the state’s eight public universities and other municipalities in the greater Chicago area.

That agency’s multiple downgrades come as Moody’s tries to keep up with Illinois’ escalating pension liabilities, billions in unpaid bills and a state government incapable of structural pension reform.

Just last week the ratings agency downgraded Cook County’s debt due to rising pension costs. The agency’s new methodology for calculating unfunded pension liabilities puts the county’s total at $12.7 billion, more than two times the county’s official number of $5.6 billion.

Cook County’s downgrade came on the heels of downgrades to seven of the state’s eight public universities. Moody’s concern? Rising pension costs.

But the downgrade that caught the most attention was Moody’s rare, triple-notch downgrade of city of Chicago’s credit. In one fell swoop, that downgrade put the city on par with the state of Illinois’ rating, at just four levels above junk bond status.

Moody’s cited the city of Chicago’s pension underfunding as a major driver of the downgrade. The agency’s new methodology puts the underfunding at $36 billion, nearly double what the city says it is.

The Chicago Public Schools system (its official pension underfunding of $8 billion is expected to double under Moody’s new methodology) and the Chicago Park District were also downgraded in July.

Illinois is now weakened from top to bottom. Without major, structural pension reform, taxpayers better start watching their wallet.