Cook County soda tax repeal has S&P's attention
CHICAGO – Cook County, Illinois must move quickly to tackle a $200 million hole left by a repeal of its sweetened beverage or risk damage to its credit profile, S&P Global Ratings warned.
“Depending on the resulting severity of the repeal's effects on the county's budget and, ultimately, its financial position, it could impact credit quality,” S&P analysts Lisa Schroeer and Helen Samuelson wrote in a commentary published after the county board overwhelmingly voted Wednesday to repeal the penny-per-ounce sweetened beverage.
The tax was originally approved in November 2016 and collections in Chicago and its neighboring suburbs began in August after a one-month court imposed delay due to a legal challenge. It will end Nov. 30 ahead of the Dec. 1 start of the county’s fiscal 2018, leaving a $200 million hole in a proposed $5 billion operating budget.
“S&P Global Ratings views the repeal as adding uncertainty to the county's budget, and without expenditure reductions or revenue enhancements, the repeal will weaken the county's financial position,” S&P wrote.
S&P’s concerns echo the alarms board president Toni Preckwinkle has sounded over the board’s decision to withdraw support for the tax that she championed. Preckwinkle has warned that without replacement revenue 11% across the board cuts would be needed.
Board members said during debate over the repeal they would first look to cuts, eliminating vacant positions, consolidating and streamlining services before new revenue was considered. The board was pressured by growing public anger and attacks from the retail industry.
S&P said the county has some cushion in an estimated $138 unassigned fund balance headed into fiscal 2018. That’s up from a 2015 ending unassigned position of $76.7 million. “Swift management action will be necessary to maintain its stronger reserves and in the past few years, management has displayed efforts to balance and improve its ending reserve position,” S&P wrote.
The county's general obligation bonds are rated A2 by Moody's Investors Service, AA-minus by S&P, and A-plus by Fitch Ratings. Ahead of a refunding last year, Moody's and Fitch revised the county's outlook to stable from negative while S&P downgraded it one notch. S&P assigns a stable outlook.