Fitch downgrades Chicago bonds

Friday, October 29, 2010

Chicago's bond rating has suffered another hit, this one from Fitch Ratings.

The New York-based firm on Thursday lowered its rating on $7 billion in outstanding general-obligation city debt to AA- from AA, particularly citing the city's increasing reliance on one-time revenues to fix its budget.

"While the economy remains broad and diverse, the city's financial position has weakened," Fitch wrote. Revenues have been hurt by high unemployment and above-average home foreclosures, while the city has reduced reserves from around $2 billion a couple of years ago to a projected $790 million by December.

Fitch applauded layoffs and other payroll trims implemented by outgoing Mayor Richard M. Daley, but added, "The ability to make further expenditure cuts to personnel is extremely limited" due to union contracts.

"Rising costs for public safety and the continued slow economic recovery will severely limit the city's ability to achieve structural balance without working (politically difficult) structural solutions," it said.

The reduced bond rating still allows the city to borrow, but at a higher interest rate.

The city's budget office had no immediate response to the news.

The cut follows reductions in August by Fitch and Moody’s. Fitch dropped the city's general-obligation bond rating to AA from AA+; Moody's cut it to Aa3 from Aa2.

* * * 5 p.m. update. City has a reponse: "Chicago's bond ratings remain strong, and are at higher levels than they were in 2005, before the recession began."

Of course, 2005 is before the city spent most of the take from the Chicago Skyway Lease -- and just about all that it netted from turning over its parking-meter system to a privarte operator.