Fitch Downgrades Chicago Credit After High Court’s Pension Ruling

Fitch this week downgraded Chicago’s debt rating another notch in the wake of a state Supreme Court ruling that overturned the city’s 2014 pension reforms.

The rating now sits at BBB-negative, only one level above junk status.

More on Fitch’s decision, from Crain’s Chicago Business:

The decision “was among the worst of the possible outcomes” for the city, Fitch said in its assessment, since it not only overturned the legislation, but “made clear that the city bears responsibility to fund the promised benefits, even if the pension funds become insolvent.”

Added Fitch: “Since last week’s ruling appears to eliminate the option of reducing the liability, the city will need to rely on its ability to increase revenues and control spending.”

The firm also noted that legislation to allow the city to stretch out payments to its police and fire pension funds, saving it $220 million a year now, has been passed by state lawmakers but not sent to Gov. Bruce Rauner, who has threatened to veto it unless other steps are taken as part of his turnaround agenda.

Fitch lowered its rating on more than $10 billion in city debt from BBB-plus to BBB-negative, with a negative outlook.

“The decision by the Illinois Supreme Court is disappointing, but the city’s ability to pay our debt and meet our current commitment to the pension funds has not changed,” Carole Brown, Chicago’s chief financial officer, said in an e-mailed statement today.

Moody’s, for it’s part, has already assigned a junk rating to the city’s debt.

Photo by bitsorf via Flickr CC License