Fitch: Chicago Budget Plan, Geared Toward Paying Down Pensions, Is A Good Start

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Chicago, whose bonds are already rated as junk by Moody’s, got some rare praise from a credit rating agency this week.

Fitch weighed in on the city’s new budget proposal, which calls for a $543 million property tax hike to help pay for future pension contributions.

The agency called the budget a “positive” – but the budget still needs to pass, and the city risks a downgrade if that doesn’t happen.

From Reuters via Newsmax:

The fiscal 2016 budget unveiled by Chicago Mayor Rahm Emanuel on Tuesday would be a positive credit development for the fiscally troubled city if adopted by the city council, Fitch Ratings said on Wednesday.

But the credit rating agency said Chicago still risks a downgrade of its BBB-plus general obligation bond rating if it fails to adequately address pension funding or raids budget reserves.

[…]

While the plan assumes the enactment of an Illinois law lowering the city’s upcoming contribution to its police and fire pension funds to $318 million, Fitch said if that does not happen, Chicago would have to come up with $540 million mandated under a 2010 law.

“If they don’t get (the bill) passed, we’ll be waiting to see how that gap is filled,” said Fitch analyst Arlene Bohner, adding that the use of recurring or non-recurring revenue will be an important determinant of Chicago’s credit quality.

Fitch warned the city’s rating is likely to be downgraded unless it “implements solutions that move all of the pension plans on a clear path toward adequate, actuarially based funding, while also making progress toward a balanced budget.”

Fitch currently rates Chicago bonds as BBB+, which is two steps above junk.

 

Photo by Pete Souza

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