Greg Hinz On Politics

Did Moody's unfairly lump Chicago's finances in with Detroit's?

The hard-nosed ratings agency City Hall loves to hate is taking a glass-half-empty approach to how well the Windy City could survive a recession.

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79彩票注册网址Woodward Avenue in Detroit


Ask the typical Chicago home or business owner if they're doing enough to help the city cope with huge pension debts, and you'll get a horse laugh—if not a dirty look. Hundreds of millions of dollars in property tax hikes have been levied in recent years to help bail out retirement systems serving police, firefighters and teachers, and everyone in town fears more are on the way.

But that apparently doesn't mean much to the good folks at Moody's Investors Service, the hard-nosed bond ratings agency that continues to have the rockiest of relationships with City Hall.

79彩票注册网址In a report that made national news, the New York-based firm a couple of days ago said Chicago is the worst-prepared of the nation's 25 largest cities to survive the next recession, tied for last place with Detroit—which recently emerged from bankruptcy. All those nasty headlines——did not exactly make Mayor Lori Lightfoot's day.

The dour placement is based largely on the city's tens of billions of dollars of pension debt. But after talking to the folks at Moody's, the fiscal reality in some ways is different than what Moody's appeared to suggest.

To start with, the use of the words "stronger" and "weaker" suggest a relative comparison. As the Moody's report stated, "According to our scenario analysis, which looks at how cities fared during the recession of a decade ago, recession preparedness is stronger for six cities, weaker for two (Chicago and Detroit) and moderate for the rest."

But the comparison isn't to how Chicago is doing relative to where it was a decade ago but how it's doing compared to the other 24 cities, Moody's makes clear in an interview.

79彩票注册网址In other words, Chicago may be doing a better job than it was of putting its fiscal house in order, but not as good a job as the other cities.

79彩票注册网址In fact, the Moody's report—and another report on Chicago specifically—indicate the city has built its financial reserves, its fund balance, from roughly 9 percent of expenditures to 13 percent from 2014 to 2018. Compared to the other cities, Chicago is in the moderate zone in expanding its reserves, better than New York, Philadelphia and Dallas, among others, though still below average. Figures from 2019 were not available.

By another measure in the new Moody’s report, Chicago actually ranks slightly above average. That’s how much those fund balances—essentially available cash—dropped in the last recession as a share of revenues. In other words, it’s more recession-resistant than some of the other largest 25 cities.

79彩票注册网址Where Chicago clearly has a problem is on net pension liability, where the city is a couple of years and perhaps $800 million in tax hikes away from contributing to its pension funds the annual amount actuaries say is required to achieve long-term balance.

The city says big progress has been made and points to a big reduction in the gap between what the city should be and actually is contributing, something Moody's also concedes.

79彩票注册网址But Moody's says that doesn't matter because the total amount of unfunded liability will continue to increase until 2033, though by a significantly smaller amount each year. "They will get credit for it when and if the contributions are made," one Moody’s official told me. That means that if a recession hits, the city today, as opposed to 10 or 20 years from now, really will have to scramble to either make the required contributions, which command a rising share of overall city spending, or let the pension funds sink into insolvency, Moody's says.

79彩票注册网址City Hall declined to formally respond to that. But officials make it clear they think Lightfoot (and predecessor Rahm Emanuel) deserve some credit for making tough political decisions so far to raise taxes and begin climbing that financial ramp to actuarial funding.

79彩票注册网址One other point here: Moody’s says the report was not an official review of its rating of the city, which remains Ba1 (a junk level) with a "stable" outlook. The last official report earlier this month concluded, "Outsized leverage will keep Chicago's fixed cost burden high and limit the city's operating flexibility."

79彩票注册网址Other rating agencies have been somewhat friendlier in their take than Moody's, which Emanuel famously fired. After the new report, I wouldn't look for Lightfoot to rehire them anytime soon.

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