Chicago's Credit Rating Downgraded Because of Illinois' Financial Problems
Illinois has the worst credit rating of any state in the nation.
By Hal Dardick and Rafael Guerrero
The state's troubled finances are hitting City Hall in a more visible way now that Chicago's own credit rating has been downgraded, a development the Emanuel administration fears could put a dent in its finances.
Moody's Investors Service tied its decision to lower Chicago's rating to the weak financial health of state government as Illinois lawmakers on Thursday took small steps toward reducing the costs of pensions.
The rating service based the city downgrade on the state's "credit quality," saying Illinois' fragile finances could translate into less money for cities, villages and towns. Illinois has the worst credit rating of any state in the nation, an overall pension debt of nearly $97 billion and a backlog of unpaid bills nearing $10 billion.
The downgrade came just days after the Securities and Exchange Commission accused Illinois of committing securities fraud by misleading bond investors about its pension finances from 2005 to 2009.
As the city prepared to refinance some debt, a $181 million bond issue backed by Chicago's share of state fuel taxes was dropped to A3 from Aa3, and also revised to "negative."
"This downgrade underscores the critical and urgent need for pension reform in Illinois and shows that further delay will only continue to negatively impact Chicago's plans for future growth and progress," city spokeswoman Kathleen Strand said in a statement.
In recent weeks, Mayor Rahm Emanuel has decried the budget decisions being forced on the state because of legislative inaction in the pension arena. Absent significant changes to the state retirement system, cuts will have to be made throughout the state, including in education.
"The mayor and his finance team have taken important steps to right the city's financial ship, including balancing two budgets without raising property, gas or sales taxes, increasing efficiencies in government operations like grid garbage, and increasing funding in our rainy day funds," the city statement said.
"However, without reform, all of the progress the city has made in order to invest in our communities and our children will end and city services (are) at risk," it added. "The mayor will not stand for that and will not rest until we have reformed this broken, unsustainable system."
Strand said "appropriate staff-level discussions" have occurred between the state and the city. The Quinn administration declined to elaborate.
In Springfield, a House committee advanced a far-reaching pension package sponsored by Rep. Elaine Nekritz, D-Northbrook, and House Republican leader Tom Cross of Oswego.
The legislation would limit current 3 percent compounded cost-of-living increases to the first $25,000 of a retiree's annual pension. It would require workers to kick in another 2 percent from their paychecks, an increase that would be phased in over two years. The estimated long-term savings for the state's retirement systems would be $160 billion.
The bill also would raise the retirement age by one to five years depending upon a worker's current age, but it would have no impact on workers 45 and older. It would limit to $113,700, plus inflation, the amount of salary a state employee could use for pension purposes, but the limit would not apply to many current workers and retirees.
The bill now moves to the full House.
In separate action, the full House also passed two pension bills that would raise the retirement age and limit the size of a salary that can count toward retirement.
The piecemeal approach prompted Cross to question whether the Democrats planned to approve comprehensive pension reform one element at a time, but Nekritz contended the individual votes would help determine what would win support in a final pension overhaul.
Cross cited the SEC criticism to urge Democrats to take a "holistic, comprehensive approach to solving the pension problem."
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