Moody’s Investors Service has downgraded Chicago’s credit rating, citing the city’s unfunded pension liabilities.
The agency announced Tuesday it’s lowering the rating on $8.3 billion in debt from A3 to Baa1, putting it only three notches above junk-bond status.
Moody’s Investor Service rated the city’s upcoming $388 million bond issuance at Baa1, down from A3, a level set last year after an unusual triple downgrade.
Chicago will test the bond market for the first time since its bond rating dropped three notches, thanks to $1.9 billion in borrowings added Monday to the mountain of debt piled on Chicago taxpayers.
The lower rating means the city will have to pay high interest rates.
Moody’s concluded Chicago has the highest level of unfunded pension debt “of any rated U.S. local government.”
Chicago is home to one of the most troubled pension systems in the country. In total, the city’s four pension funds — for firefighters, police officers, and two for other city workers — face funding holes of nearly $20 billion.
uesday’s downgrades affect $8.3 billion in city debt, including $7.8 billion in general obligation bonds and $556 million in sales tax bonds. It follows previous downgrades by Moody’s and other ratings agencies.
It also comes as the city prepares to issue hundreds of millions in new bonds, according to Moody’s.
The latest hit to the city’s general obligation and sales tax ratings puts that debt only a few notches away from junk status. Moody’s said its outlook remains negative, which means additional downgrades could come.
Chief Financial Officer Lois Scott was asked Monday how much the downgrade would add to the city’s borrowing costs.
“We haven’t issued debt since then. So, we have no way of knowing,” Scott said before hustling out of the City Council chambers.
Chicago now has the worst credit rating of any major city except Detroit.
Don’t worry, Detroit, Chicago will get there soon. So will large chunks of California and New York City. And then they’ll have to annex the suburbs, seize 401Ks and start selling office furniture on eBay.