CHICAGO — With a sizable bond issue coming, Fitch Ratings hit Cook County, Ill., with a downgrade to AA-minus from AA and revised its outlook to negative at the lower rating, warning that the nation’s second-largest county faces persistent fiscal challenges.
The action comes ahead of Cook’s first bond sale under a new administration and three months after Moody’s Investors Service cut its rating.
The county plans to enter the market in the first week of October with $626 million of general obligation refunding and new-money bonds.
President Toni Preckwinkle and her new finance team met with rating analysts over the last two weeks for the first time since taking office late last year.
Standard & Poor’s Thursday affirmed its AA rating and stable outlook on the county. Moody’s in June cut Cook County’s rating to Aa3 from Aa2, citing several of the same fiscal pressures noted by Fitch.
In response, the county pointed out that S&P affirmed its rating and said the new administration had “walked in the door” with a $487 million deficit and no plan in place for structural stability.
“We recognize the issues facing the county and we are currently in the process of cleaning up our financial house,” a spokesman said in an emailed statement. “President Preckwinkle is implementing important structural changes to the county operations to place it on a stable fiscal path.”
As an economic engine of the Midwest and home to Chicago, Cook County enjoys one of the largest and most diverse revenue bases in the United States. The credit is strengthened by a home-rule status that gives it sole authority to increase fees and taxes.
However, Fitch noted that Cook already has one of the highest sales tax rates in the country and is in the midst of gradually repealing a deeply unpopular, three-year-old sales tax hike. New tax increases would likely be “politically unpopular and unrealistic,” the agency said in its report.
The sales tax repeal, coupled with a recently disclosed accounting error that inflated general fund revenues by $90 million, will likely aggravate Cook’s fiscal woes, both Moody’s and Fitch warned.
The county last year faced a record-high deficit of $487 million out of a $3 billion budget. It eliminated the deficit through a mix of one-time measures — including the upcoming debt restructuring — and cuts. It now faces a fresh $320 million deficit in 2012, officials said.
Other pressures include a growing unfunded pension liability, diminished reserve levels, and an expected deficit in the county’s massive health care system, which accounts for nearly a third of its overall budget, according to Fitch.
“The negative outlook reflects Fitch’s concern that spending pressures coupled with reliance upon economically sensitive taxes will continue to strain the county’s ability to achieve structural balance and build reserves in the intermediate term,” analyst James Mann wrote in the downgrade report, released Wednesday.
Cook’s forthcoming $626 million deal includes nearly $400 million of GO refunding bonds.
The new-money piece will include $110 million of notes for cash-flow purposes that will come due in December, just a few months after issuance, and $125 million of taxable bonds that will be used to replenish the county’s self-insurance fund. William Blair & Co. is senior underwriter.
Preckwinkle, a former Chicago alderman, won Cook’s top job last year amid promises to bring fiscal responsibility and transparency to a county long viewed as corrupt and inefficient.
