CHICAGO - The Chicago Park District criticized Moody's Investors Service Monday for its latest downgrade, arguing the rating agency unfairly punishes the district for its links with Chicago city government.
A district official said Moody's doesn't place enough weight on the district's fiscal strengths, including the passage of pension reforms.
Moody's Investors Service late Friday lowered the district's rating on $826 million of general obligation bonds two notches to A3 from A1.
"The Chicago Park District has achieved everything that the rating agency has required and more," chief financial officer Steve Lux said in a statement. "Furthermore, the district is separate and distinct from the city of Chicago both legally and in the manner in which it is governed by our board which takes its fiduciary duties to the District seriously. "
Also on Friday, Moody's downgraded the Chicago Board of Education's rating on $6.3 billion of GOs one notch to Baa1 from A3. Moody's left a negative outlook on both issuers.
The downgrades followed the agency's downgrade of Chicago to Baa1 from A3 earlier in March.
Moody's has stung the schools, park district, and other area issuers that rely the same tax base with downgrades over the last year as the city struggles under the weight of $19 billion of unfunded pension obligation and a looming spike in its contributions.
The park district carries double-A level ratings from Fitch Ratings and Standard & Poor's.
The park district's rating reflects "close governance ties to the city of Chicago," Moody's wrote. "Given the nature of the park district's mission and the extreme pressures facing the city, we believe CPD's financial operations and position could be indirectly affected through city officials' influence on, for example, cost allocations and levy setting."
The rating agency also factors in the high debt and pension burdens of the city and the Chicago Public Schools. "These three entities are coterminous and share a highly leveraged tax base," the agency wrote.
Moody's said its rating incorporates the park district's strengths including "strong financial operations and ample reserves; manageable direct debt burden; and recent reforms to its pension system." A Moody's representative cited the agency's report when asked if the agency had a response to the park district's comment.
The district's board is selected by Mayor Rahm Emanuel and he handpicks its superintendent. Any property tax increase is typically run by city hall before being requested.
While state approval for a pension overhaul has eluded Chicago, state lawmakers did tackle a package for the park district assembled with the city's help after negotiations with impacted workers. It puts the district's fund on course to reach a 90% funded ratio by 2049 and full funding by 2054. The district closed out 2012 with unfunded liabilities of $550 million for a funded ratio of 43.4%.
It raises the retirement age for some, caps pensionable salary and raises employee contributions. The annual cost-of-living increase is suspended in 2015, 2017, and 2019. The district would phase in a hike in its contribution levels and make supplemental payments in 2015, 2016, and again in 2019.
Moody's move on the Chicago Public Schools rating stems also from its close ties to Chicago, but the school district's balance sheet faces its own severe pension and budgetary pressures. Its ability to raise property taxes is capped by state law.
"The negative outlook reflects CPS's budget pressures, particularly those related to funding the district's single employer pension plan," Moody's wrote. CPS dipped deeply into once healthy reserves for $562 million and restructured debt to cover a 2014 budget deficit. The school district had to fund a $400 million spike in its pension contribution in its current budget due to the expiration of a three-year partial payment holiday.
The district has warned it's facing a $900 million deficit heading into fiscal 2015 July 1.
"While we disagree with today's rating issued by Moody's, we agree that a lack of pension reform is severely impacting the financial stability of CPS," Chief Executive Officer Barbara Byrd-Bennett said in a statement."
CPS' teachers' pension fund has $6.8 billion of unfunded liabilities for a funded ratio of 59.9%.
