Chicago had its credit rating cut to the lowest investment grade by Fitch Ratings after the Illinois Supreme Court tossed out Mayor Rahm Emanuel’s plan for dealing with the mounting debt to its workers’ pension plans, Bloomberg News reported yesterday. The two-step downgrade on Monday to BBB-, one rank above junk, affected $9.8 billion of general-obligation bonds and $486 million of debt backed by sales taxes. The company said that the outlook is negative, indicating that the rating could be lowered further. The step follows the March 24 decision by the state’s top court to strike down Emanuel’s plan, which required the city and employees to boost contributions to the municipal and laborers retirement funds and cut future cost-of-living increases. The court ruled that it violated safeguards to public pensions enshrined in Illinois’s constitution, illustrating the difficulty Chicago faces in reducing a $20 billion shortfall in its retirement funds. Read more.
Can a financially distressed government unit restructure its pension obligations over retiree objections? Prof. Amy Monahan of the University of Minnesota Law School joins ABI Resident Scholar Melissa Jacoby to explore this difficult topic on an ABI Podcast. Listen here.
The impact of public pension debt on the economy will be the focus of a special "Eye on Bankruptcy" panel before a live audience on April 16 at ABI's Annual Spring Meeting in Washington, D.C. Register here.
