CHICAGO - Cook County, Ill., received its second dose of bad credit news in a week when Fitch Ratings yesterday downgraded its general obligation rating one notch to AA-minus ahead of the county's sale as soon as next week of $507 million of new-money taxable Build America Bonds and tax-exempt refunding debt.
The outlook is stable at the lower rating. Moody's Investors Service last week downgraded the credit to Aa3 from Aa2. The rating actions impact $2.9 billion of outstanding debt in addition to the new money issuance of $251 million.
"The downgrade reflects increased pressure on financial operations, as evidenced by declining general fund balances, growing dependence by the county's massive health system on tax subsidies, and a recent pension payment deferral," analyst Melanie Shaker wrote. "Further compounding diminished financial flexibility is the increased burden of a high-sales-tax environment in the current weakened economy."
The county remains challenged to implement reforms proposed for its massive health system and maintain operating balance amid growing correctional and health care costs and limited ability to raise revenues following the county's controversial 1% sales tax increase last year. The hike pushed the Chicago area's sales tax to the highest in the nation at 10.25%.
County commissioners have failed in recent attempts to repeal the tax. Board President Todd Stroger vetoed their attempt but has suggested that he could support rescinding one-quarter of the tax increase, Fitch wrote. "A further decline in the rate beyond the 1/4% would likely strain financial performance, and without commensurate revenue increases or expenditure reductions, could cause negative rating pressure," analysts wrote.
In a statement last week, Stroger noted that Standard & Poor's was expected to maintain the county's AA rating and that the downgrade provided evidence that an outright sales tax increase repeal would hurt the county's attempts to improve its fiscal profile.
