Recently the City of Chicago, facing ratings downgrades, almost triggered off some swaps payments that would come due if the credit rating was to fall down to a certain low level. Per the article:
Chicago drew closer to a fiscal free fall on Friday with a rating downgrade from Moody's Investors Service that could trigger the immediate termination of four interest-rate swap agreements, costing the city about $58 million and raising the prospect of more broken swaps contracts.The city was able to re-negotiate one of the swap agreements and was in talks with Wells Fargo about the other swaps agreement per this article. Apparently the date of reckoning has been pushed out a little further.
The Chicago Public Schools (CPS) debt is now just one grade above "junk" status per this article.
Note that the budget that Rauner proposed for the state of Illinois had additional cuts for state and local government, at a time when each of them are crying to the state for relief. These cuts are also due to Rauner's choice to let the state income tax surcharge expire rather than renewing it (as Quinn certainly would have done). Per this article
In making the downgrade, Moody’s cited the school district’s reliance on reserve funds for “operating expenditures, particularly pension contributions, which will steadily increase in the coming years.”Moody’s also maintained its “negative outlook” on the district’s debt, again citing the rising pension costs. From 2013 to 2016, annual retirement costs will increase to $688 million from $197 million, Moody’s stated in its rating explanation.
Governor Rauner's office released a statement Wednesday afternoon, saying: "Governor Rauner had to make some hard decisions to balance a $6 billion budget shortfall caused by years of fiscal neglect and bad practices. The amount of money transferred to local governments has ballooned by more than 40 percent in the last decade and the reduction to local governments proposed in the budget puts Illinois in line with neighboring states. In Governor Rauner's budget proposal, Chicago's overall revenues are reduced by less than 2.5 percent. Through the local government task force, Governor Rauner is committed to working with local communities to reduce costs and give them increased flexibility. Additionally, as part of his Turnaround Agenda, the governor proposed empowering local residents with tools to control costs at the local level and get more value for their tax dollars."It will be very interesting to see how this all plays out. Today the various governmental units and branches of our legislature and the governor are circling and eyeing each other to see who blinks first.
Some day hopefully we can move beyond the "funding" discussion into a real discussion of how we can get our state in fiscal order; by encouraging our government to be more productive, by scaling back our obligations to unions, and by unshackling entrepreneurs in the state to create jobs and companies. No one is talking about that yet... except Rauner.
Cross posted at Chicago Boyz