Chicago downgraded
Friday, Feb 27, 2015 - Posted by Rich Miller
* Greg Hinz…
In a blow to Mayor Rahm Emanuel, one of the major bond-rating services today downgraded Chicago’s credit to just two levels above junk, saying the city has not been able to adequately control the soaring cost of worker pensions.
In a statement, Moody’s Investors Service moved city debt to Baa2 from Baa1, and kept the city on a negative outlook. The latter means that there is a likelihood, though not a certainty, that its credit will be further downgraded in coming months.
In response, Emanuel’s office today noted that two other ratings services, Fitch and S&P, have affirmed the city’s credit rating, and characterized the Moody’s view as an outlier “out of step with the other rating agencies, (and) ignoring the progress that has been achieved.”
But the action adds another element of uncertainty for the city and Emanuel just days after the mayor was forced into an April 7 runoff election for a new term.
Moody’s, which also lowered its rating on some sales-tax and water debt, said it acted because of “expected growth in Chicago’s already highly elevated unfunded pension liabilities and continued growth in costs to service those liabilities.”
* Tribune…
Even if recent state pension changes survive a court challenge, the ratings statement said, “we expect Chicago’s unfunded pension liabilities — and the costs of servicing those liabilities — to continue to grow, placing significant strain on the city’s financial operations.”
The drop, to a rating of Baa2, could drive up borrowing costs for the city and cause problems with some of Chicago’s current interest-rate swap contracts.
Those problems with the swap contracts could be severe.
* To the Moody’s report…
WHAT COULD MAKE THE RATINGS GO DOWN
• Determination by the IL Supreme Court that the State of Illinois’s pension reform package is unconstitutional, which, depending on the court’s rationale, could increase the risk that the city’s own pension reform would be overturned
• Determination by a court of law that the city’s reform of its Municipal and Laborer plans is unconstitutional
• Continued growth in the city’s unfunded pension liabilities
• Growth in direct and overlapping debt
• Narrowing of the city’s financial reserves
Those first three are very likely. That last one is likely, too, if the state takes Chicago’s income tax revenue sharing cash.
Budget proposals have consequences, folks.
- Anonymous - Friday, Feb 27, 15 @ 12:20 pm:
But since the expiration of the state income tax increase, both Rahm’s and Rauner’s personal credit rating went up. That’s what really matters, right?
- RNUG - Friday, Feb 27, 15 @ 12:26 pm:
Not really surprised. As anyone who has been paying attention knows, Chicago’s pension problems are actually worse than the State’s.
And I’m still wondering about that one line of Cullerton’s a while back really meant … at this point in time I don’t see the State being able to bail out Chicago. Wonder if the eventual state tax hike / revenue deal will include a slice for Chicago / Cook?
- Norseman - Friday, Feb 27, 15 @ 12:26 pm:
That whistling sound is the city’s rating going down again.
- Anonymous - Friday, Feb 27, 15 @ 12:29 pm:
Rahm looked terrible on Chicago Tonight last night. Not humble, exactly, but the usual swagger was gone.
- Lil Squeezy - Friday, Feb 27, 15 @ 12:31 pm:
But Rahm has done such a good job managing the city! Rahm should have thrown Daley under the bus.
Their pension crisis has been obvious for many years now. You have to actuarially fund those plans.
- Precinct Captain - Friday, Feb 27, 15 @ 12:32 pm:
But I thought it was Rahm who was swooping in and saving Chicago’s finances? That’s what TribLand tells me.
I also agree with 12:29 Anon, Rahm was a disaster last night on WTTW. A total refusal to admit that anything about his hard-charging style is bad, when if he is lackeys in the council say he could get more out of them if he toned it down a bit (i.e. Carrie Austin).
- 47th Ward - Friday, Feb 27, 15 @ 12:37 pm:
Chicago’s pension problems are bad, but they are compounded by the state’s inaction and the folly that was SB1. Maybe once the courts kick that thing to the curb, the folks in Springfield will finally enact a legal solution to the problem, along the lines of Cullerton’s bill plus a cost shift to school districts and universities (plus lots of new revenue).
Bottom line: property taxes are going to go up, not just in Chicago, but pretty much everywhere in Illinois. And that’s just to pay the pensions. If Chuy Garcia wants to hire 1000 more cops and re-open 50 closed schools, the property taxes in Chicago will double.
What we have here is a big —- sandwich and we’re all gonna have to take a bite.
- Judgment Day - Friday, Feb 27, 15 @ 12:39 pm:
Everybody’s talkin (note: no ‘g’) down that bill introduced allowing units of local government to file for bankruptcy.
Wouldn’t be doing that quite so quickly.
Everybody’s thinking that this could be a big fight down in Springfield - It could be a much bigger fight in both the City of Chicago and Cook County.
Moody’s just said “Game On”. This is going to get to be FUN. The Chicago/Cook County retirement funding situations could literally overshadow the entire state of Illinois financial mess.
- JGG - Friday, Feb 27, 15 @ 12:43 pm:
Cullertons bill would have been found unconstitutional. It would have violated the pension clause as a diminishment.
- Amalia - Friday, Feb 27, 15 @ 12:47 pm:
not that I get exactly how Rahm will save things, though things do seem better despite the downgrade. but Chuy’s math to hire all those police officers, and not open a runway at O’Hare (which affects money to the City) is pretty fuzzy. the welfare of the City affects all of us who live here, especially in the surrounding suburbs. feel good proposal to screaming constituencies won’t cut the financial mustard. both candidates will have to be quite specific.
- MrJM - Friday, Feb 27, 15 @ 12:49 pm:
Buh… buh… but all of those journalists who live in the suburbs & write for Chicago papers say that Rahm is just what the doctor ordered!
– MrJM
- anon - Friday, Feb 27, 15 @ 12:52 pm:
Ans of course the greedy public employees are to blame and not the money being siphoned off in TIFs and other corporate welfare.
- Rod - Friday, Feb 27, 15 @ 12:52 pm:
Neither Commissioner Gracia nor Mayor Emanuel can address the fiscal situation appropriately prior to the election. There is no way around property taxes going up to at least the Cook County average to help pay for pensions and debt. The cost sharing cut by Rauner actually adds to this problem as Rich point out with his comment about the consequences of the Rauner budget proposal.
We have a very sad dynamic in this election in terms of any honest discussion of the fiscal situation of my city, Garcia is looking to close corporate loopholes, stop TIFs, etc to fill the gap and Mayor Emanuel is saying don’t worry sound fiscal management of the city under his leadership will make everything good.
- Lil Squeezy - Friday, Feb 27, 15 @ 12:53 pm:
“Chicago’s pension problems are bad, but they are compounded by the state’s inaction and the folly that was SB1.”
Not exactly. They are bad because they bc Chicago Muni & Chicago Laborer funding is based on a non-actuarially determined property tax multiplier. CTPF is bad bc CPS was not required to contribute 1995-2005. Chicago Police & Fire are finally changing from a multiplier funding formula to an actuarial funding formula this year. That is what made the situation bad, it is only the State’s fault bc they did not force the City to properly fund their plans.
- Oswego Willy - Friday, Feb 27, 15 @ 12:54 pm:
Does that mean Ann-Margret isn’t coming - 47th Ward -?
To the Post,
It’s coming down to a realization that more revenue is going to be needed at many levels of government. Throw in, collectively, the first three points, there are few avenues to get things “better” and they all must have revenue somewhere in that cake.
- chi - Friday, Feb 27, 15 @ 12:56 pm:
What would Chuy do differently to address the pension liability? Anyone? Clem? Any Balanoff?
- anon - Friday, Feb 27, 15 @ 12:59 pm:
So the Dems have destroyed Chicago and the past 12 years, the state of IL. Great!
- Lil Squeezy - Friday, Feb 27, 15 @ 1:01 pm:
chi,
Probably the same thing Rahm did…..nothing. Which is also the same thing Daley did. Police and Fire funding was forced on him, lets not give him credit for that.
Snark intended bc whoever is serving the next term will have to raise revenue.
- Formerly Known As... - Friday, Feb 27, 15 @ 1:08 pm:
==property taxes are going to go up==
Lots of money in those TIFs every year as well.
- Con Law 401 - Friday, Feb 27, 15 @ 1:10 pm:
This ain’t Con Law 101, but still . . .
A bill that allows local governments to file bankruptcy and thereby evade pension liabilities while paying their bondholders in full could very well be as unconstitutional as SB1.
Federal bankruptcy law might not prohibit that result but the Illinois Constitution might prohibit the state from giving local governments the authority to do that.
Also, what would happen to Chicago’s bond rating if legislation were passed allowing Chicago to file Chapter 9 and discharge the City’s obligation to repay its outstanding bonds?
- Carhartt Representative - Friday, Feb 27, 15 @ 1:20 pm:
=So the Dems have destroyed Chicago and the past 12 years, the state of IL. Great!=
Where’s that great George Ryan leadership when we need it?
- blankster - Friday, Feb 27, 15 @ 1:25 pm:
Years back a couple of small municipalities in Illinois did file bankruptsy in federal court and that court allowed it to proceed. The Federal court stated that federal law trumps state law.
- anon - Friday, Feb 27, 15 @ 1:26 pm:
The property tax rate is 50% higher in some Cook ‘burbs than in the City, where residents enjoy the lowest property taxes in Illinois. City finances would be much healthier if Chicago property owners paid what their counterparts in, say, Schaumburg pay.
- Rich Miller - Friday, Feb 27, 15 @ 1:26 pm:
blankster, you’re dead wrong.
- Formerly Known As... - Friday, Feb 27, 15 @ 1:27 pm:
Still no word on whether CPS will administer the PARCC test district wide. That’s another 400mill to 1.4bill in lost $.
Maybe Ed Burke has some suggestions for cleaning up this mess. He has been helping create this problem since 1969. No more parking meters to lease, either.
- Judgment Day - Friday, Feb 27, 15 @ 1:37 pm:
“Federal bankruptcy law might not prohibit that result but the Illinois Constitution might prohibit the state from giving local governments the authority to do that.
Also, what would happen to Chicago’s bond rating if legislation were passed allowing Chicago to file Chapter 9 and discharge the City’s obligation to repay its outstanding bonds?”
—————-
First off, IF the state provides units of local government with the ability to file for bankruptcy, the Federal Supremacy clause kicks in
Link: http://en.wikipedia.org/wiki/Supremacy_Clause
Secondly, IF a unit of local government files for bankruptcy, than all the assets and liabilities of that local government are subject to reorganization, which would certainly have to include all bonded indebtedness.
Which means ALL those bond issues (including all TIF bonded indebtedness) and other liabilities go under the microscope. And that’s when things get really interesting. And the federal bankruptcy court can order literally anything.
Everybody thinks it’s all about retirement benefits. It’s not. One of the more interesting much under reported stories about the Detroit bankruptcy filings and different reorganization plans is all about the non retirement benefits aspects of the bankruptcy - and what was discovered.
Verrryyyy Interesting.
A couple of Detroit’s bond issues took some big time haircuts. And deservedly so. Does anybody think that a Chicago bankruptcy would really be any different?
Oh, would we find out stuff……
- Under Further Review - Friday, Feb 27, 15 @ 1:37 pm:
Man up, Rahm! Channel your inner Charlton Heston and go Holy Moses on Chicago. Break into the Temple Granaries (TIFs) and start paying down some debts and make a few pension payments. TIFs ought not to be mayoral play money.
- Anonymous - Friday, Feb 27, 15 @ 1:38 pm:
The timing of this downgrade isn’t good. Garcia has a real issue here. Why should anyone believe Rahm Emanuel is capable of financial leadership? Remember as the Chicago Tribune said:
Freddie Mac scandals began during Emanuel’s watch
http://www.chicagotribune.com/news/chi-rahm-emanuelmar26-story.html#page=1
Corruption does cost money.
http://www.newgeography.com/content/004859-corrupt-illinois-not-a-few-bad-apples
- Carhartt Representative - Friday, Feb 27, 15 @ 1:38 pm:
CPS will administer it. They sent the test out to the schools already. The Feds haven’t held back funding from California or anywhere else that refused to administer it, so I figure that’s pretty safe.
- Judgment Day - Friday, Feb 27, 15 @ 1:39 pm:
“Years back a couple of small municipalities in Illinois did file bankruptsy in federal court and that court allowed it to proceed. The Federal court stated that federal law trumps state law.”
—————–
That’s incorrect. Washington Park (down in St. Clair County) tried to file, didn’t go forward. The State of Illinois has to pass enabling legislation for unit of local government to file for federal bankruptcy.
That’s why the state legislation is out there.
- Sunshine - Friday, Feb 27, 15 @ 1:42 pm:
Both the State and Chicago are now trying to make the proverbial ‘Silk Purse out of a Sow’s Ear’.
Too many years of blissfully ignoring the inevitable, and now desperately trying to avoid what it will actually take to resolve the problem; very hard sacrifices and lots of new taxes. The piper is standing with both hands out.
Those with a personal interest, unions, will do whatever it takes to protect their gains, and the citizens will realize too late, that they have been had and there is nothing they can do about it. The payoffs were made to politicians long retired and the benefits are locked in by the State Constitution.
This is the result of voter complacency, and apathy. The unions were paying attention and gainfully gamed the political system. Bend over folks…. bend over. Signed: Ben Dover and Armanda Legg
- Formerly Known As... - Friday, Feb 27, 15 @ 1:42 pm:
blankster this https://capitolfax.com/2014/12/08/two-towns-fell-through-the-cracks/ might clear things up. It was not about federal law ==trumping== state law.
- TGS - Friday, Feb 27, 15 @ 1:44 pm:
Rich - blankster is at least in part correct. it was Alorton and Brooklyn. I think they may have got through because no one objected. Both are downstate towns in Illinois.
Washington Park is currently in de facto bankruptcy because they had legal trouble with their efforts.
- Con Law 401 - Friday, Feb 27, 15 @ 1:44 pm:
First off, IF the state provides units of local government with the ability to file for bankruptcy, the Federal Supremacy clause kicks in
If the authorizing legislation violates the Illinois Constitution, the legislation authorizing Chapter 9 bankruptcy could be struck down. If the state legislation authorizing Chapter 9 bankruptcy is struck down on state law grounds, the federal courts no longer have jurisdiction as in the Washington Park situation
- CapnCrunch - Friday, Feb 27, 15 @ 1:45 pm:
Who is opposed to allowing local governments to file for bankruptcy and why?
- chi - Friday, Feb 27, 15 @ 1:51 pm:
Lacking the “intestinal fortitude” to raise property taxes does not equal bankrupt. Besides, does anyone doubt that property taxes in Chicago will go up soon no matter who wins on April 7.
And for those saying that Garcia can take advantage of this issue, how? What will he do differently? He supposedly wouldn’t have closed 50 schools. And he doesn’t want a Presidential Library in the parks. Has he stated a single difference between he and the Mayor as far as financial management?
He was in favor of the County pension reform, which was very similar to the City reform. Where is the daylight between he and Rahm?
- blankster - Friday, Feb 27, 15 @ 1:53 pm:
A pair of downstate towns successfully reorganized in the last decade, even though the municipalities didn’t receive the required authorization from the state.
The Village of Brooklyn, a town of 750 people across the Mississippi River from St. Louis, filed in 2003, in part to help restructure payments related to lawsuits alleging police misconduct and financial mismanagement.
Two years later, in 2005, the nearby Village of Alorton, population 1,960, filed for bankruptcy, around the time a police-shooting victim obtained a $978,000 judgment against one of the town’s officers. The victim was one of Alorton’s largest creditors, court filings show.
Both were allowed to proceed
- Steve - Friday, Feb 27, 15 @ 1:59 pm:
Rich put up the facts a while back. In the state of Illinois, municipalities with a population over 25,000 aren’t allowed to file Chapter 9 bankruptcy. Michigan and California have different state laws concerning this. I’ve not heard any talk of the Illinois legislature changing the current bankruptcy law.
- Judgment Day - Friday, Feb 27, 15 @ 1:59 pm:
“If the authorizing legislation violates the Illinois Constitution, the legislation authorizing Chapter 9 bankruptcy could be struck down. If the state legislation authorizing Chapter 9 bankruptcy is struck down on state law grounds, the federal courts no longer have jurisdiction as in the Washington Park situation”
————-
Sounds a little like a last ditch defense to me. Good luck with that.
- Rich Miller - Friday, Feb 27, 15 @ 2:00 pm:
===Both were allowed to proceed ===
Because the state didn’t notice what was going on. There was no “ruling” about federal supremacy, as your earlier post claimed.
- Ghost - Friday, Feb 27, 15 @ 2:01 pm:
one of the biggest expenses pension wise for cities is the alternative formula mandated by State law for firefighters and police. Generalizing here, but under that formula they get 80% of their last day pay after only working 20 years.
By comparison the normal city retirement formula works out to something m ore like 50% of your average pay over multiple years after 30 years of service.
They need to get rid of the alternative formula going forward for new hires, and just put police and fireman on the same retirement plan as everyone else. The regular retirement formula is sustainable with the employee and employer contributions, if the city makes their kick in.
- Snucka - Friday, Feb 27, 15 @ 2:10 pm:
Agreed that the mayor didn’t look great last night. Chuy needs to be aggressive in the debates, especially on the education/school closing issue. You could see in the mayor’s eyes that he’s vulnerable there and takes it very personally. Chuy must display a killer instinct, waiting for that opening and then striking like a cobra.
- illlinifan - Friday, Feb 27, 15 @ 2:10 pm:
Changing the formula for police and fire may be one part of the puzzle. Possibly change Rule of 85 as well as other ways pensions are calculated, but based on the constitution that could only affect new hires. The elephant in the room are all the baby boomers retiring. Once we die off as RNUG pointed out in another post, the problem resolves itself. I am not suggesting a Soylent Green moment, but I almost feel Moody’s or someone else will.
- Ahoy! - Friday, Feb 27, 15 @ 2:24 pm:
There is no mention of the governor’s budget proposal in report. The report mentioned that the last item is due to the city’s operating budget shrinking due to pension payments, not the governor’s budget proposal.
- Tsavo - Friday, Feb 27, 15 @ 2:25 pm:
Steve@1:59
HB0298
Judiciary - Civil Committee Hearing Mar 4 2015 8:30AM Stratton Building Room D-1 Springfield, IL
Last Action
Date Chamber Action
2/13/2015 House Assigned to Judiciary - Civil Committee
Statutes Amended In Order of Appearance
65 ILCS 5/8-1-19 new
Synopsis As Introduced
Amends the Illinois Municipal Code. In provisions concerning finance, provides that a municipality may file a petition and exercise powers pursuant to applicable federal bankruptcy law. Effective immediately.
Actions
Date Chamber Action
1/26/2015 House Filed with the Clerk by Rep. Ron Sandack
1/27/2015 House First Reading
1/27/2015 House Referred to Rules Committee
1/29/2015 House Added Chief Co-Sponsor Rep. Jeanne M Ives
2/13/2015 House Assigned to Judiciary - Civil Committee
- Roland the Headless Thompson Gunner - Friday, Feb 27, 15 @ 2:28 pm:
blankster also can’t spell. “bankruptcy,” dude, not “bankruptsy.’
- A guy - Friday, Feb 27, 15 @ 2:32 pm:
Rahm’s famous quote “never waste a crisis” might prove helpful for the city and the state.
- Shemp - Friday, Feb 27, 15 @ 2:33 pm:
Consequences of past local budget proposals put the City more in a bind than the current state budget proposal to be fair about it. Not that the Gov’s proposal wouldn’t be rubbing salt in the wound.
- Arizona Bob - Friday, Feb 27, 15 @ 2:44 pm:
@OW
= there are few avenues to get things “better” and they all must have revenue somewhere in that cake=
Spoken like a true public pensioner, OW.
I find it interesting that there’s not a single poster here(or pol in Springfield of which I’m aware)calling for a constitutional amendment to modify the “diminish nor impair” provision in the constitution.
Even someone with “diminished and impaired” mentality understands that’s a necessary first step in any useful and necessary pension reform. The people have seen the consequences of the pension debacle in this year’s painful budget. Given the choice between a the massive broad based tax increase needed to keep feeding and growing that pension monster, a massive reduction in state services and state revenue redistribution to schools and municipalities, and passing the amendment to “right size” public pensions for which benefits have not yet been earned, you can bet the amendment will pass.
It’s all smoke and mirrors from Springfield until they get serious about making this sensible change to the constitution.
- Angry Chicagoan - Friday, Feb 27, 15 @ 2:56 pm:
We haven’t had a good governor in Illinois since Jim Thompson. And we haven’t had a good mayor in Chicago since Harold Washington. That’s a long time, folks. Plenty of time for things to go really spectacularly wrong. And everyone’s still sort of in denial.
- CapnCrunch - Friday, Feb 27, 15 @ 3:14 pm:
- Tsavo -
Do you know if HB0298 is likely to become law?
- Oswego Willy - Friday, Feb 27, 15 @ 3:26 pm:
- Arizona Bob -,
I’m not a pensioner, I will not get a pension from the state.
Making it about me isn’t making an argument.
===I find it interesting that there’s not a single poster here(or pol in Springfield of which I’m aware)calling for a constitutional amendment to modify the “diminish nor impair” provision in the constitution.===
Maybe because we need a fix now, that also works for the long term, and modifying the Constitution this late won’t work with this budget. Dope.
- Tsavo - Friday, Feb 27, 15 @ 3:30 pm:
http://www.chicagotribune.com/news/local/politics/ct-bruce-rauner-municipality-bankruptcy-met-20150204-story.html
CapnCrunch,
I have no idea if it will become law but check out this Tribune article.
- Demoralized - Friday, Feb 27, 15 @ 3:40 pm:
Bob:
I’ll give up my pension when you give up yours. Deal?
I get so sick and tired of folks like you want to take benefits away. It’s moronic to say earned vs. not earned. It’s ALL been earned. It ALL became earned as soon as a person became part of the pension system.
Here’s a thought. Pay was is owed. There’s going to have to be cuts AND revenue. There’s no other way around. Only those that are idiots in math don’t understand that.
So, again, Bob. You give up your pension and I’ll give up mine. I await your “sacrifice.” I’m sure you’ll happily give it up.
- Demoralized - Friday, Feb 27, 15 @ 3:41 pm:
==Spoken like a true public pensioner==
Like Congressman Schock said. Haters are gonna hate. That’s you Bob.
- Snucka - Friday, Feb 27, 15 @ 3:56 pm:
A new WAA poll has Emanuel at 49-38 with 13% undecided. Factor in “leaners” and you get 51.5-40, with 9% truly undecided.
The big question: who is a “likely voter” in this race? It is the first mayoral runoff ever in Chicago, which could make this race very hard to poll. It’s just not clear what the turnout numbers will be.
- CapnCrunch - Friday, Feb 27, 15 @ 4:24 pm:
- Tsavo -
I read the story and it seems to me that assuming the ISC strikes down the pension reform law and municipalities are not allowed to restructure their debts, bankruptcy will be the end result. I can’t see them raising property taxes in most places.
- Arsenal - Friday, Feb 27, 15 @ 4:25 pm:
“And for those saying that Garcia can take advantage of this issue, how?”
By saying, “Rahm Emmanuel let our credit rating drop, you can’t trust him with city finances.”
“What will he do differently?”
Bring the rating back up!
This isn’t hard, politicians attack their opponents for failures without concrete fixes all the time.
- Anonymous - Friday, Feb 27, 15 @ 4:30 pm:
“…I find it interesting that there’s not a single poster here(or pol in Springfield of which I’m aware)calling for a constitutional amendment to modify the “diminish nor impair” provision in the constitution.”
State Constitution’s contract clause that reads: “No ex post facto law, or law impairing the obligation of contracts or making an irrevocable grant of special privileges or immunities, shall be passed.”