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August 16, 2013

(Reuters) — Moody’s Investors Service on Friday downgraded its general obligation rating for Cook County, Illinois, to A1 from Aa3, citing growing pension liabilities.

The credit ratings agency also kept a negative outlook on the lower rating due to “formidable” challenges facing the county in getting pension reform through the Illinois legislature.

Moody’s said the county’s pension contributions fell short of actuarially required contributions. While Cook County reported an unfunded pension liability of $5.6 billion at the end of 2012, Moody’s said more conservative assumptions would raise that liability to $12.7 billion.

It also noted that the county, the largest in Illinois and the second largest in the United States, shares about half of its tax base with Chicago, “resulting in a significant overlapping long-term liability burden.”

The credit rating agency last month dropped Chicago’s GO rating three notches to A3 with a negative outlook due to the city’s own pension funding problems.

Both Chicago and Cook County need state legislative approval to change their pension systems. Meanwhile, Illinois lawmakers have been unable to come up with a fix for the state’s $100 billion unfunded pension liability.

“The General Assembly’s legislative paralysis to date with respect to enacting its own pension reforms may further delay the county’s attempt to present a reform package, despite having a significantly developed plan,” Moody’s said in a statement.

It added that strong protections for public employee retirement benefits in the Illinois Constitution “may result in a legal challenge that could further delay the implementation of reforms.”

The downgrade affects $3.7 billion of the county’s outstanding debt. Owen Kilmer, a spokesman for Cook County Board President Toni Preckwinkle, said the county will continue to be negatively impacted until the state deals with local pension funds.
“President Preckwinkle is urging the pension conference committee to work swiftly to address the state’s pension systems so the General Assembly can turn its attention to local funds like Cook County that are in need of comprehensive pension reform,” he said, referring to a legislative panel that has been meeting since June on state pension reform.

Fitch Ratings on July 24 affirmed the county’s AA-minus GO rating with a negative outlook.

Copyright 2013 Crain Communication, Inc.

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