Moody’s Investors Service earlier this month downgraded Chicago’s $578 million of sales tax-backed bonds to Aa3 from Aa2, due primarily to a lack of legal separation between the pledged sales tax revenues and the city’s general operations.

The agency also assigned a negative outlook. The credit’s structure more closely links the rating to the city’s general obligation rating, which is currently Aa3 with a negative outlook.

Collected revenues are temporarily pooled with general city revenues before being sent to trustee managed debt service accounts.

The actions also reflect volatility in the pledged revenue stream over the past decade to reflect the broader economic climate, the city’s high sales tax rate and the relatively weak debt service reserve, analysts said.

The rating was placed under review for possible downgrade in April based on Moody’s new rating methodology for bonds backed by special tax revenues.

Sales tax receipts are on the mend after several years of declines. Pledged revenues increased by 1% in 2010 and 1% in 2011 after declines of 4% in 2008 and 9% in 2009.

Annual sales tax revenues consistently provide double-digit maximum annual debt service coverage.

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