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Chicago debt rating lowered because of poor state credit

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Illinois

* Illinois’ bad credit rating is now hurting Chicago’s rating. Moody’s just lowered the rating on the city’s motor fuel tax borrowing and assigned it a negative outlook…

“Debt service on the motor fuel tax bonds of the city of Chicago is secured by a senor lien pledge of a portion of the city’s allocation of state motor fuel tax revenues,” Moody’s said in a statement. “With legislative approval, the state has the authority to reduce pledged revenues by reducing . . . motor fuel tax revenues to the city.”

The “risk of non-appropriation” of the state money to Chicago exists as the state struggles to raise cash for its own needs, Moody’s added, implying that the risk that the state will keep the money rather than pass it along to Chicago actually is growing.

Moody’s also cited the state’s declining credit rating and reduced revenues from per-gallon state taxes on gasoline, which have dropped as the price of gas has risen. […]

“Assignment of the negative outlook (on the motor fuel debt) is in keeping with the negative outlook assigned to the state’s general obligation debt,” Moody’s concluded.

Oof.

posted by Rich Miller
Friday, Mar 15, 13 @ 1:24 pm

Comments

“With legislative approval, the state has the authority to reduce pledged revenues by reducing . . . motor fuel tax revenues to the city.”

Tough to picture a scenario in which that would happen.

If the GOP were to win both houses and the Governorship, it would be due to an unforeseen ability to get support out of the city.

Comment by Kasich Walker, Jr. Friday, Mar 15, 13 @ 1:46 pm
Yeah, the hits keep coming.

There was something out of whack with that motor fuel tax bond rating. At Aa3, it was two steps higher than the state’s GO bond rating.

That doesn’t make any sense if the bonds are secured by annual appropriation of motor fuel tax revenues.

GO bonds have very strict statutory protection; they get paid first. There’s no way bonds subject to annual appropriation should be rated higher.

Seems like a correction.

Comment by wordslinger Friday, Mar 15, 13 @ 1:47 pm
“Please send maintenance up to the 5th floor to replace the Mayor’s phone, it just melted.”

Comment by The Captain Friday, Mar 15, 13 @ 2:02 pm
Looks like Moody’s is sending a message to Springfield via Chicago. Does Moody’s rationale extend to other bond issues by local government pledging state money? I don’t follow munis and wonder if such pledges are common.

Comment by Cook County Commoner Friday, Mar 15, 13 @ 2:19 pm
CCC, the state backstops Navy Pier and McCormick Place bonds, plus, I believe, some downstate convention centers, with the state sales tax, but that’s statutory as well.

That’s what confused me about these motor fuel tax bonds. I find it very strange that they had such a high rating, Aa3, if debt service was tied to annual appropriations that could be cut off.

Comment by wordslinger Friday, Mar 15, 13 @ 2:25 pm
This is all about Wall Street making more money. If the state (and city) won’t put more money into Wall Street through the pension funds, they’ll get it through higher rates on bonds.

Comment by Pot calling kettle Friday, Mar 15, 13 @ 2:50 pm
“Pat, it’s Rahm. What happened to your brother this week’s gonna look like a kiss on the cheek compared to what you’re gonna get if this isn’t resolved pronto!”

Comment by Boone Logan Square Friday, Mar 15, 13 @ 2:53 pm
@ Pot

====This is all about Wall Street making more money. If the state (and city) won’t put more money into Wall Street through the pension funds, they’ll get it through higher rates on bonds. ====

Thats not how that works. Sorry.

Comment by Really? Friday, Mar 15, 13 @ 3:06 pm
word, my guess is its probably about the numeric coverage. I haven’t checked lately, but the state’s Build Illinois bonds were always rated higher than the GO bond-pure silliness.

Comment by steve schnorf Friday, Mar 15, 13 @ 3:15 pm
Schnorf, I suspect your right, but it’s pure silliness if it’s subject to annual appropriation.

If I recall on Build Illinois, it was a coverage issue as well — X in dedicated revenue streams covering X in bonds.

It was still silly to be rated higher than a GO. I suspect back in the day it was something of a “new customer” discount for bringing a new product — and the fees involved — to the market.

Comment by wordslinger Friday, Mar 15, 13 @ 3:32 pm