Fiscal Disaster: A major credit rating agency has just given Chicago, with more general obligation debt per capita than Detroit, its second triple-notch downgrade in six months. Its bonds are perilously close to junk status.
Citing skyrocketing pension costs and a lack of meaningful solutions, Fitch Ratings lowered Chicago's debt to A- from AA- last week, making it the second serious downgrade since July.
The move by Fitch follows a triple downgrade of Chicago's bond rating by Moody's Investors in mid-July.
Moody's cited the city's "very large and growing" pension liabilities and "significant" debt service payments, among other factors.
The steady financial decline of the nation's third-largest city prompted us in early August to say Chicago was well on its way to becoming the next Detroit, a bankrupt monument to the perils of Democratic governance, a one-party Democratic town in arguably the bluest of blue states. And Chicago's mayor, former White House Chief of Staff Rahm Emanuel, learned financial discipline at the feet of the master — President Obama.
Like the president, Emanuel could claim he inherited the city's financial mess from his predecessor, but that would require blaming another Democratic mayor, Richard J. Daley.
Interestingly, Democratic governance is a common thread running through America's urban problems.
As the Chicago Tribune noted in its recent report on the problem, "Broken Bonds," Chicago's outstanding debt on general obligation bonds has quadrupled during the past 18 years, reaching $7.2 billion last year.
With interest, that amount nearly doubles. The city has more general obligation debt per capita than any of the 10 largest U.S. cities except New York.
The Tribune noted that Chicago leaders have routinely used bond proceeds to make interest payments on the bonds themselves, borrowing more than $450 million since 2000 just to pay interest. Some 63% of all property taxes went to debt payments last year.
Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials/111413-679329-chicago-debt-downgrading-raises-risks-of-default.htm#ixzz2kjDBBB5o
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook