Cook County Board President Toni Preckwinkle championed the one-cent sales tax increase as a way to pay off the county’s pensions amid legislative inaction.

CHICAGO - Cook County, Ill. won rare praise from a ratings agency Thursday when Moody's Investors Service said a new sales tax increase to pay off pensions is a credit positive.

"[P]assage of the sales tax rate increase signals political will among county leadership to address its pension challenges with additional revenue," Moody's analyst David Levett wrote in a brief comment.

The county, home of Chicago, has suffered from a series of downgrades over the last three years, most related to its unfunded pension debt. Moody's most recently downgraded the county in early June, dropping it one notch to A1, and keeping the outlook negative.

Unlike Chicago, Cook has managed to hang on to investment-grade ratings.

The 17-member county board narrowly approved the sales tax increase on July 15, boosting its rate to 1.75% from 0.75% and putting Chicago's tax rate at 10.25%, the highest among all major cities in the U.S.

Board President Toni Preckwinkle proposed the tax increase despite winning the executive seat five years ago by campaigning against a one-cent sales tax increase imposed by then-President Todd Stroger.

The new tax is expected to generate $474 million a year, the bulk of which will go to help pay off the county's $6.5 billion unfunded pension obligation.

"Raising the sales tax rate by 1% was an admittedly difficult but necessary step in confronting the pension fund's shortfall, and when combined with significant expenditure reductions will put the county on the path to long-term fiscal stability," Preckwinkle spokesman Frank Shuftan said in a statement. "That Moody's recognizes this as a positive development affirms our decision."

In its comment, Moody's said the tax hike is positive for the county despite legal questions surrounding the government's ability to use the money for its pensions. State law currently restricts Cook to tapping property tax revenue for its pensions and restricts it to contributing more than 1.54 times of the employee contribution made two years earlier.

"Despite that legal uncertainty, the sales tax increase is a significant step in the county's efforts to address its pension liabilities," Levett wrote.

By raising the city's tax rate to the highest in the nation, Preckwinkle's move also limits Chicago's own revenue-raising options, Moody's added.

"Although this increase is credit positive for Cook County, it is our opinion that it effectively removes a sales tax increase as a politically palatable revenue options for other overlapping units of local government, namely Chicago, which will need to make substantial budgetary adjustments to address its pension challenges," said Levett.

Cook has $3.6 billion of bond debt. Fitch Ratings rates it A-plus with a negative outlook and Standard & Poor's rates it AA with a stable outlook.



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