Moody, a credit ratings firm downgraded Chicago, which would result in huge financial trouble as this may start termination of four interest rate swap agreements. Moody’s ‘Investors Service’ downgrade report has indicated increasing pension load as a key concern for the city and given BAA 2 status to a city which is just two levels above from the lowest rating.
In 2010, Moody’s rated Chicago bonds on Aa3 level, above five notches than where it is today. Before the downgrade, Chicago was the worst performing city among 30 US cities in terms of rating by Moody’s.
This downgrade will increase borrowing costs by huge margin due to high demand in municipal bonds.
Moody’s report has calculated the pension liability of the city around $32 billion, eight times of the operating revenue. Panicked labor unions and associations of retirees, most affected section of the population by this development have approached the court and challenged the plans of cost cuttings in two pension funds.
Standard & Poor’s, another credit rating agency has also pointed towards Chicago’s credit downgrade. It further added that the increase in tax revenue and cost-cutting measures would help in increasing ratings.
The report talks about Chicago’s $8.3 billion bond debt along with $542 million of sales tax revenue debt and $268 million of motor fuel tax revenue debt.
This announcement has become pressing issue in Chicago’s campaign for the mayor’s office with opponent Jesus Garcia criticizing incumbent Mayor Rahm Emanuel for faulty financial policies. Responding to the allegations made by Garcia, Emanuel’s spokesperson Steve Mayberry said that Chicago should start working on ending debt to increase further. Mayor’s office
Laurence Msall said, “This is an unfortunate wake up call for anyone still asleep over the fiscal cliff facing the city of Chicago.” He is the president of financial watchdog ‘The Civic Federation’ based in Chicago.
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