Chicago’s “outsized pension pressures,” unemployment and foreclosure backlog prompted Moody’s Investors Service to assign a negative outlook today to the third-largest U.S. city’s general-obligation debt.
Citing Chicago’s “persistent economic challenges,” Moody’s affirmed the Aa3 rating on $7.78 billion of debt while changing the outlook from stable.
While the ratings company said Mayor Rahm Emanuel’s administration has addressed infrastructure needs and reduced reliance on cash reserves, it “has yet to unveil a detailed strategy for improving pension funding levels.”
Unresolved pension funding shortfalls are the primary reason for the outlook change, Moody’s said.
“Should the pension pressures continue to escalate absent a specific plan of reform, the city’s credit quality will likely weaken,” the opinion said.
The rating applies to general-obligation bond sales expected May 14. The city is scheduled to sell $540.9 million, according to Moody’s.
Lois Scott, Chicago’s chief financial officer, said the Emanuel administration agrees with Moody’s pension concerns. The burden rests with state lawmakers who “must work together and fix this funding problem,” Scott said in an e-mailed statement.