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.
In the county’s favor, Moody’s said, are its diverse economy, cuts in its operating deficit and a political willingness to tackle pension reform.
Owen Kilmer, spokesman for Cook County Board President Toni Preckwinkle, said, “Today’s downgrade is the direct result of the pension crisis we face and our inability to act without state legislation. Although Moody’s praised many of the steps we have taken to improve the county’s finances, we will continue to be negatively affected by the state’s lack of attention to local pension funds.”
In July, Moody’s hit Chicago with a rare triple-notch downgrade in its rating, bringing it to A3.
Fitch Ratings last month affirmed an AA- rating for the county.
Kilmer said Preckwinkle wants a pension conference committee to swiftly address the state’s unfunded liabilities so the General Assembly can consider reforms for local funds.