Emanuel shrugs at possible credit downgrade for Chicago
Chicago Mayor Rahm Emanuel expressed little concern over Moody’s Investors Service’s announcement that it might downgrade Chicago’s already-junk-rated bonds over CPS budget problems.
On July 7, Moody’s Investors Service placed Chicago under review for a possible credit downgrade further into junk territory due to Chicago Public Schools’ fiscal situation. Chicago Mayor Rahm Emanuel responded to the potential downgrade, saying, “I don’t really put much stock in Moody’s,” according to the Chicago Sun-Times.
Despite Emanuel’s apparent lack of concern, a credit downgrade by Moody’s could make it even more expensive for the city to borrow money, as Chicago will have to offer higher interest rates to attract bond buyers.
Chicago taxpayers are already paying more than $70,000 a day in interest on $387 million in short-term loans CPS took out from JPMorgan in June. And CPS borrowed another $500 million through long-term high-interest bonds in July.
CPS has been junk-rated by Standard & Poor’s, Fitch Ratings, and Moody’s since 2015 due to the district’s steep debt and history of borrowing to cover debts. In July, Moody’s placed CPS under review for another downgrade after CPS failed to make a complete payment to the Chicago Teachers’ Pension Fund.
CPS, which has $9 billion in debt, is counting on a bailout from the state of Illinois to cover a significant amount of the district’s expenses.
In announcing its decision to place Chicago’s rating under review, Moody’s noted the close relationship between the city and CPS as a chief concern.
The city of Chicago currently has more than $9.1 billion in debt from outstanding general obligation bonds and more than $23 billion in total debt. The status of a bailout from the state is uncertain, and the heavily indebted city could end up intervening more directly in CPS’ finances.
Rather than shrugging off warnings, both Chicago and CPS should get their finances under control and bring down debt and spending to a level taxpayers can afford.