August 16, 2013
By: David Roeder
The ongoing public pension crisis that has hit the credit ratings of Illinois and Chicago took its toll on Cook County government Friday.
Moody’s Investors Service downgraded the county’s general obligation debt one level, to A1 from Aa3. The action affects $3.7 billion worth of the county’s general obligation debt, although the new rating still implies a low credit risk.
The bond-rating firm cited an unfunded liability in the county’s pension plan as the principal reason for the cut. It had a reported unfunded liability of $5.6 billion as of the end last year, Moody’s said. But Moody’s said that when more conservative assumptions are applied concerning the fund’s investment performance, the liability grows to $12.7 billion.
Improving the situation requires help from the state Legislature because the county contributes the statutory maximum toward its pension plan. Yet the Legislature is where Moody’s said the “political paralysis” lies.
The agency said inaction on the state’s pension problem may delay a solution for the county. “Further, strong constitutional protections for pension benefits may result in a legal challenge that could further delay the implementation of reforms,” Moody’s said.
It retained a negative outlook on the county’s debt, meaning that further rate reductions could come. Lower credit ratings raise the interest rates the county must pay when it issues additional debt.
Copyright 2013 Sun-Times Media, LLC