Will Chicago be following in Detroit's Footsteps?

On the eve of Detroit filing the largest municipal bankruptcy in American history, Rahm Emanuel’s Chicago had its bond rating downgraded by Moody’s Investor Services. 

Moody’s summarized the following weaknesses contributing to the city’s downgrade: 

• Extremely underfunded pension plans: actuaries of the city's four pension plans reported a total unfunded actuarial accrued liability (UAAL) of $19 billion as of December 31, 2012; using more conservative assumptions, Moody's calculates an ANPL of $36 billion

• The city's contributions to the pension plans remain well below a rapidly increasing annual required contribution (ARC); in 2012 alone, the city underfunded its ARC by more than $1 billion 

• By 2015, state legislation will require the city to increase contributions to its public safety pension plans; the city projects its pension contributions will increase from $467 million in 2014 to $1.2 billion in 2015, placing tremendous strain on the city's operating budget

• The Illinois Constitution's explicit protection of pension benefits all but ensures that any attempt to reduce the benefits of existing members would face litigation 

• Limited political appetite for tax hikes that would improve pension funding

• Elevated debt levels, even without factoring in pension obligations 

"There's no way to sugarcoat this," said Brian Battle, director at Chicago-based Performance Trust Capital Partners, an investment adviser specializing in fixed-income products. "This is bad for Chicago."

Read the rest HERE.

If you like what you see, please "Like" us on Facebook either here or here.
Please follow us on Twitter here.