Moody's Investors Service cut Chicago's bond rating by three notches Thursday, citing continued pension problems and other budget woes.
"The outlook incorporates the likelihood of continued growth in unfunded liabilities in the city's four pension plans given currently suppressed contributions from the city," Moody's explained. "Given this framework, in order for the city to realize any significant alleviation in pension costs, the Illinois General Assembly would need to enact pension reform legislation that ultimately withstands inevitable litigation."
The city's bond rating by Moody's dropped from an A3 to Aa3 as a result of the downgrade, which will impact the city's ability to borrow funds. Moody's warned that additional downgrades could be in the forecast if nothing is done to alleviate the issue of underfunded pensions. The city also saw second lien bonds fall from an A2 to an Aa3 and its water and sewer drop from Aa2 to A1.
In reaction to the news, Chicago Mayor Rahm Emanuel pressed state legislators to act on the issue of penion reform
"This confirms what I have been saying for more than a year," Emanuel said in a statement. "Without comprehensive pension relief from Springfield, municipalities such as Chicago will continue to receive negative reviews from rating agencies."