Moody's Downgrades Chicago Debt Citing $19 billion in Unfunded Pension Liability; Avalanche of City Downgrades Coming Up
Chicago's credit score is on the way down. The city is getting a small down grade from Aa3 to A3, because of the city's pension problem.
Moody's Investors Service says it's making the move because of "formidable legal and political barriers to pension reform" in the state. The downgrade affects $8.2 billion in debt and means it will cost the city more to borrow money.
According to Moody's Chicago has $19 billion in unfunded pension liability and faces a "tremendous strain" in meeting their budget and paying law enforcement.
Avalanche of City Downgrades Coming Up
With the bankruptcy of Detroit and numerous cities in California, it will not be long before the rating agencies downgrade city debt en masse.
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There is absolutely no way Chicago, Oakland, Baltimore, Philadelphia, LA, Houston, and numerous other cities can meet pension obligations without a major restructuring of promises.
Given that public unions seldom if ever agree on even the smallest of pension concessions, expect many of those haircuts to happen in bankruptcy court.
In the meantime, expect an avalanche of city debt downgrades.
Mike "Mish" Shedlock