CHICAGO — Cook County, Ill., officials pushed back at Moody's Investors Service Friday after the ratings firm hit the county with a downgrade.
The language was less aggressive than Chicago Mayor Rahm Emanuel's after Moody's cut the city several notches to a junk Ba1 rating on May 12.
But the county made its displeasure plain.
"Moody's has clearly signaled a far more bearish tone on the Chicago area than the other ratings agencies, and we're disappointed in it," said Cook's Chief Financial Officer Ivan Samstein, a former Moody's analyst who covered the county among other credits.
Moody's Friday dropped the county, home to Chicago, one notch to A2 from A1, largely due to the county's unfunded pension liabilities. The outlook remains negative at the lower rating.
Samstein described as "somewhat simplistic" Moody's decision to downgrade the county — as well as Chicago, Chicago Public Schools, and the Chicago Park District — due to the Illinois Supreme Court's rejection of the state of Illinois' own pension reform plan.
"We are concerned that without consulting legal experts or constitutional law analyses in Illinois, that such decisions would be made, not recognizing that each pension system has a very distinct fact of circumstances and article of law," Samstein said. "It's somewhat simplistic not to understand that dynamic."
In addition to the retirement obligations, Moody's warned that the county faces pressure from the debt and unfunded pension liabilities of county seat Chicago and the Chicago Public Schools. About half of the county's tax base is "highly leveraged" due to the debt of those governments, Moody's said.
"We believe the revenue demands of these entities could place practical limitations on the county's ability and willingness to increase revenue to fund its pension costs," Moody's analyst David Levett wrote.
As with the pensions, county officials disagreed with Moody's methodology, saying analysts put too much emphasis on the county's underlying local governments.
"The challenges in this part of the country are very real, and we are all a shared family," said Samstein. "But at the end of the day, we're all separate and distinct jurisdictions with different underlying creditors, taxpayers and dynamics."
The nation's second-most populous county has $3.6 billion of general obligation bonds.
"We disagree with Moody's decision today and their tying the fiscal issues of other governmental bodies to Cook County's current financial position," County President Toni Preckwinkle said in an emailed statement. "While we dispute the downgrade, we do find common ground with Moody's on the need for meaningful Cook County pension reform."
The downgrade comes just a week after the Illinois General Assembly ended its formal spring session without approving Preckwinkle's plan to address unfunded pensions. County attorneys argue that its pension proposal is sufficiently different from the state reform that failed its court test for the county to withstand its own legal challenge.
"Based on the Illinois Supreme Court's May 8 overruling of the State of Illinois' pension reforms, we perceive increased risk that the county's options for reducing unfunded pension liabilities have narrowed considerably," Levett says in the downgrade report. "As it currently stands, Cook County — despite its home-rule status — has little direct control over its single largest liability."
Fitch Ratings rates the county A-plus, with a negative outlook. Fitch downgraded the county last July citing its underfunded pension obligations. Standard & Poor's rates it AA with a stable outlook.
In a previous interview, Samstein said the county would consider refinancing $625 million of variable-rate bonds if it's downgraded to A3 or below. On Friday, he emphasized that the county is not in danger of immediate acceleration on any of its bank-supported debt. A BBB or equivalent rating from any ratings agency could trigger an increased interest rate under the variable-rate direct placement bonds and accelerated repayment of its demand bonds, according to Moody's.
"We will continue to watch what our credit spreads do in the market and what the ratings agencies do," he said. "If we were to fix out the floaters, we want to do that from a position of strength."
The county's main pension fund has a funded status of 54%, with a $6.8 billion liability. That includes health care obligations.
Preckwinkle said the county would continue to work with Gov. Bruce Rauner and lawmakers over the summer to try to pass "meaningful pension reform."
