From Moody’s municipal credit analyst Rachel Cortez:
Help me understand why Chicago is different than Puerto Rico?
The Wall Street Journal, “Chicago Isn’t Moody’s Kind of Town,” 6/19/15
Ms. Cortez asked her question during a February 2014 meeting attended by Chicago Mayor Rahm Emanuel. Ratings agencies have traditionally accepted municipalities’ rates-of-return assumptions on their pension funds in evaluating the unfunded liabilities of those funds. The returns assumed for many funds, including Chicago’s, are unavailable for safe investments in today’s markets, and in fact are high by a wide margin. By using more realistic return assumptions, Moody’s increased its estimate of Chicago’s unfunded liability and downgraded the city’s debt to below investment grade, or junk. Pensions are the hair in the hot dog of municipal debt. They have crippled or bankrupted several municipalities and will do so to scores more. Moody’s concern is justified, especially after it and the other ratings agencies failed to see the housing debacle coming until way after it arrived. What has Moody’s gotten for its new-found probity? Chicago has dropped it from rating its bond deals, and other municipalities are considering doing the same.
