Chicago's bond rating is downgraded

August 6, 2010 2:53:16 PM PDT
In another blow to Chicago's economy, two bond rating agencies have downgraded the city's debt, which mean the cost of borrowing money goes up for the city.When the city leased the Skyway, and a few years later, its 36,000-space parking meter system, it amassed a cash reserve just under $3 billion. As the so-called "Great Recession" began in late 2008, its huge savings account made Chicago the envy of cities across America.

But weathering two years of economic downturn has depleted the reserves by at least two-thirds; there are now reportedly just over $900 million left. So, the downgrades issued by bond rating agencies Moody's and Fitch are meant to warn investors that Chicago's savings account built with asset sales has dwindled, and the city no longer raises enough tax money each year to pay its expenses for the same period.

"It's a lot like a consumer whose income stream has been lost or severely cut who starts to sell things in order to pay the bills. That can't last forever," said Lise Valentine of the Chicago Civic Federation.

Yesterday the Fitch Rating Service downgraded Chicago bonds from AA+ to AA, the agency's third highest rating.

Friday, Moody's Investors Service dropped the city's bonds from AA2 to AA3, the agency's fourth highest rating.

Both companies obviously took note when last week, the mayor's budget office projected a $654 million shortfall between planned expenses and revenue during fiscal 2011. Using more of the reserve fund to help balance the budget again might further damage the city's credit rating. So, city employees, many already required to take furlough days, are bracing themselves for new cuts that might include layoffs.

Residents also could face noticeable service reductions.

The mayor would not take questions Friday on the bond rating downgrade or any other subject. But he and the city council must have answers before the end of the year when they are required by law to balance the budget, only weeks before the 2011 city elections.

"The rating agency doesn't say you've got to increase a certain tax or you have to cut a certain department, but they say you've got to show us you've got a plan to get things back in balance," Valentine said.

Politically, the situation in city government is very similar to what's happening at the state level. The mayor and aldermen are reluctant to enact service cuts or new taxes with a city election scheduled early next year.


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