The Thornton Quarry south of Chicago is now part of the Metropolitan Water Reclamation District of Greater Chicago's "Deep Tunnel" stormwater flood control project.

CHICAGO — Moody's Investors Service punished the highly rated Chicago area water district anew for its shared tax base with the city, county, and schools that are struggling under the weight of big pension burdens.

The Metropolitan Water Reclamation District fared better in Moody's latest assessment than the others, downgraded one notch to Aa2 from Aa1. Its outlook was shifted to stable.

Over the last two months, Moody's stripped Chicago and its public school system of their investment grade ratings and lowered Cook County one notch to A2. All three carry a negative outlook.

The action on the water district late Monday impacts $2.6 billion of general obligation debt. The district carries AAA ratings from both Fitch Ratings and Standard & Poor's and did not ask Moody's to rate its last sale.

While the district has some challenges of its own, the primary motivation for the downgrade stems from pressures on the tax base with about half of the base being highly leveraged by the debt and unfunded pension obligations of the city, county, and schools, Moody's wrote.

"We believe that the revenue demands of these entities could place practical limitations on the district's capacity and willingness to raise revenue sufficient to maintain its currently planned level of pension funding," Moody's wrote.

The district said it disagrees with the reasoning behind the downgrade which officials feel doesn't accurately reflect the district's strengths. "It's a shame when you fulfill every item on the scorecard in terms of financial health and yet we're still downgraded," said MWRD executive director David St. Pierre. "I hope at some point Moody's decides to recognize the financial stability of this organization like the other two rating agencies based on objective financial indicators rather than a subjective analysis."

MWRD entered fiscal 2015 in a stronger financial position since Moody's last review, the statement said.

The rating also factors in the district's high fixed costs and constrained revenue raising flexibility given statutory tax rate caps and annual tax levy limitations, though otherwise its operations are healthy.

Unlike the city, county, and schools, the district has made headway on pension reforms with its 2012 package so far going unchallenged. Chicago won reforms for two of its funds but they are being challenged by unions and the county's proposed reforms have stalled at the state level.

The district board also last year adopted a new funding policy that seeks to beat a 100% funded ratio by 2050. "While a challenge to the reforms may occur, we believe the district is well positioned to maintain its current level of pension funding," Moody's said.

The 125-year-old district has a $2.3 billion capital program. It serves five million residents from 125 communities, treating 1.3 billion gallons of wastewater daily.

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