Another Illinois municipal rating cut citing pension burden
CHICAGO – The southern Chicago suburb of Chicago Heights saw its rating cut one notch to the lowest investment grade over the same pension woes straining many local governments across the state.
Moody’s Investors Service downgraded the city to Baa3 and assigned a stable outlook ahead of its planned sale of $10.4 million of taxable general obligation bonds and $2.3 million of general obligation refunding bonds. The action impacts $56.8 million of debt.
Proceeds will generate funds for working cash reserves and refund and extend the maturities of a portion of the city's 2009 and 2011 bonds.
The downgrade reflects the city's high unfunded pension liabilities and fixed cost burden.
“The city's narrow financial operating reserves will be further pressured by growing pension contributions and its weak economic profile with below average property tax collection rates,” Moody’s wrote.
The credit profile benefits from the city’s broad legal authority to raise revenue, resident access to diverse employment opportunities in the Chicago metropolitan area, and adequate operating fund liquidity that will be enhanced with proceeds from the bond sale.
A further narrowing of reserves and liquidity, significant growth of its pension burden, and tax base contraction could drive a cut to junk.
Chicago Heights is about 25 miles south of downtown Chicago and has a population of 29,901.
The suburb is the latest in a series of more than 30 local governments downgraded by Moody’s this year in which pension struggles were a primary driver. Moody’s has cut at least five by multiple levels.
The pension strains of local governments have received heightened political, market, and rating agency scrutiny since the Illinois comptroller’s office put in place this year — as required under a 2011 law — a procedure allowing local public safety pension funds to intercept state collected revenues to cover shortfalls in pension contributions.
Reports have found that hundreds of municipalities are behind on contributions and their funds could move to use the intercept. So far only a handful of fund have acted to intercept funds.