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Recover And Rebuild, From Chicago To Puerto Rico

Nov. 02, 2017 5:01 AM ET
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In this blog we step back to look at the broader context around two separate news stories that have been in the muni bonds spotlight in one form or another this year: Illinois and Puerto Rico.

Does it Matter? Of Illinois, Chicago, Pensions, and Other Fiscal Woes across the Prairie State

Much has been made about the relatively poor fiscal health of Illinois, but what of Chicago, America's third largest city, and economic engine of the state? To recap, back in March1 the Land of Lincoln's credit rating - already the lowest of any state in the country - appeared in serious danger of another downgrade, with the government in Springfield having failed to pass a budget for two years, or seriously address its chronically underfunded pension system, the liabilities of which ran to an eye-popping 450% of annual revenue.2 Even after the state legislature finally passed a "balanced" budget on July 6th - Republicans joined with Democrats to override Governor Rauner's veto by hiking income taxes by approximately 32%, many agree Illinois's budgetary woes are far from over.3 But does Chicago's fiscal health mirror Illinois'?

On the surface, the answer is "Yes;" if anything, Chicago's in even worse financial shape. In July, Moody's confirmed4 Illinois' general obligation (GO) bonds rating of Baa3, the lowest "investment grade" rating, but Chicago's GO bonds are rated a notch below5 even that: Ba1, in speculative territory. Similar to its home state, Chicago recently raised taxes with the goal of balancing its budget and accelerating pension funding, but the city's pension liabilities are so out of control that Moody's deemed even this step "insufficient to arrest growth" in the city's liabilities.

All of this may be true, and yet any casual visitor to Chicago these days could hardly avoid noticing the dozens of construction cranes

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