The world’s two largest ratings firms are divided in their view of Chicago’s fiscal health as the city grapples with a $20 billion pension hole, a potential preview of battles expected to break out around the U.S. as retirement obligations mount, The Wall Street Journal reported yesterday. Moody’s Investors Service lowered Chicago’s bonds to junk status last week while rival Standard & Poor’s Ratings Services settled on an investment-grade A-minus rating. As recently as five years ago, both firms gave Chicago the same grade of double-A-minus. Chicago represents the most prominent example yet of how diverging views of bulging pension obligations can have huge ramifications for financially strapped cities. The split views are befuddling investors and the bearish grades could lead to higher borrowing costs, difficulties refinancing debt and new doubts about navigating the $3.7 trillion municipal-debt market. Other cities with big pension problems, such as Atlanta and Pittsburgh, have yet to show sizable grading disparities, but the frequency of ratings rifts could accelerate in coming years as cities wrestle with how to solve a collective $1.2 trillion pension funding shortfall.
