Chicago’s Really Bad Week

The past week has been quite a crappy one for Chicago, Illinois, as it concerns their finances and schools. But none of the bad news should surprise regular readers of this blog. From the website of bond credit rating giant Moody’s Investor Service late Wednesday night:

Moody’s Investors Service has downgraded the City of Chicago’s (IL) general obligation (GO) and sales tax ratings to A3 from Aa3; water and sewer senior lien revenue ratings to A1 from Aa2; and water and sewer second lien revenue ratings to A2 from Aa3. Chicago has $7.7 billion of GO debt, $566 million of sales tax debt, $2.0 billion of water revenue debt, and $1.3 billion of sewer revenue debt outstanding. The outlook on all ratings is negative.

It wasn’t long ago that I blogged about Moody’s warning the “Windy City” of a possible credit rating downgrade. From their website on April 17, 2013:

Moody’s has announced its final approach to the way it will analyze and adjust pension liabilities as part of its credit analysis of state and local governments. These changes reflect the rating agency’s view that pension obligations are a significant source of credit pressure for governments and warrant a more conservative view of the potential size of the obligations. As a result of this new approach, Moody’s has also placed the general obligation ratings of the cities of Chicago, Cincinnati, Minneapolis, and Portland, OR, and of 25 other US local governments and school districts on review for possible downgrade. The entities whose ratings have been placed on review have large adjusted net pension liabilities relative to their rating category…

Moody’s rates over 8,000 local governments in the United States. Less than 1% of those with general obligation or equivalent ratings have been placed under review because of the new pension adjustments.

I’ve been pointing out Chicago’s financial woes for some time now- despite City Hall’s claim that “all’s well.” I wrote on July 25, 2012:

There’s good news and bad news out concerning Chicago’s finances.

The good news is that the city has more cash on hand these days due to Mayor Rahm Emanuel’s cost-cutting.

The bad news is that the Windy City is falling deeper into debt.

Fran Spielman wrote on the Chicago Sun-Times website Sunday:

Mayor Rahm Emanuel closed the books on 2011 with $310 million in cash on hand, $167 million more than the year before, but added $465 million to the mountain of debt piled on Chicago taxpayers, year-end audits show…

The new round of borrowing brings Chicago’s total long-term debt to just over $27 billion. That’s $10,000 for every one of the city’s nearly 2.7 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338-per-resident.

(Editor’s note: Italics added for emphasis)

The City of Chicago’s response? From the piece:

“Is it troubling? The answer is, ‘no.’ We still have a very strong bond rating. Our fiscal position is getting better every year and we are aggressively managing our liabilities and obligations,” City Comptroller Amer Ahmad said Friday, the same day that Moody’s Investor’s Service downgraded $6.8 billion in O’Hare Airport bonds.

So much for that “very strong bond rating.”

As for the Chicago public schools? Remember this post from September 13, 2012?:

By now, many of you have probably heard about the teachers strike going on in Chicago. Day 4 and counting. While many Chicago public school teachers are probably worth every red cent of the $71,017 median salary they command- and more- when all things are considered, considering the precarious financial situation of the Chicago Public Schools, a larger crisis looks to be right around the corner. Rosalind Rossi wrote on the Chicago Sun-Times website yesterday:

As school and union leaders wrestled over a new teachers contract Tuesday, a huge, nagging question loomed in the background:

Once they finish, how will Chicago Public Schools pay for any new contract they forge?

There’s no easy give in the budget, because CPS already depleted its rainy day “reserve” fund to help plug a $665 million deficit this school year.

And if officials eke out enough cuts to pay for the cost of teacher raises this school year, a $1 billion deficit — and no “reserve” cushion — awaits them next school year, when a pension relief package expires.

(Editor’s note: Italics added for emphasis)

$1 billion deficit next year and no reserve funds left?

Besides significant cuts, there’s already been talk of massive teacher layoffs, larger class sizes, and higher taxes being required in the near future.

Time will tell how this all plays out.

Time looks to be up. From Noreen S. Ahmed-Ullah and Kim Geiger on the Chicago Tribune website this morning:

Citing a $1 billion budget deficit, Chicago Public Schools will lay off more than 2,000 employees, more than 1,000 of them teachers, the district said Thursday night.

About half of the 1,036 teachers being let go are tenured. The latest layoffs, which also include 1,077 school staff members, are in addition to 855 employees — including 420 teachers — who were laid off last month as a result of the district’s decision to close 49 elementary schools and a high school program.

I love Chicago, and I wish only the best for the neighbors I just recently left behind. But one word comes to mind right now as I look back at everything I’ve just typed:

Devolution.

Here’s hoping next week is a better one for the “City by the Lake.”

You can read the Moody’s downgrade notice on their website here.

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Geiger, Kim and Ahmed-Ullah, Noreen S. “CPS lays off more than 2,000, including 1,000 teachers.” Chicago Tribune. 19 July 2013. (http://www.chicagotribune.com/news/education/ct-met-cps-layoffs-20130719,0,4180625.story). 19 July 2013.

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Survival And Prosperity
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Christopher E. Hill, Editor

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