Move Over Detroit, Pension Debt In Obama’s Chicago Is Coming Through

Detroit may have dominated headlines for its fiscal irresponsibility, but as for pension debt, it is in far better shape than many others, including the former stomping ground of President Obama. Chicago, Cook County, and Denver are the three worst local governments, with even bigger pension problems than Detroit, according to a new report from Moody’s Investor Service.

Out of the 50 local governments with the most debt, the City of Chicago ranks dead last for its pension liabilities as a percentage of revenue. The city’s pension liabilities were equal to 678 percent of its revenues as of 2011, and Cook County (which contains Chicago and some of its suburbs) comes in second, with pension liabilities almost 382 percent of its revenue.

A whole 30 of the 50 largest government issuers of debt have ratios over 100 percent, which according to the Moody’s report, is enough to cause “material financial strain” for many governments. Tom Aaron, analyst at Moody’s and one of the report’s authors, said “a lot of the problems that are more on the severe side are driven by governments not making the required payments into the pension plans.

Below are the 10 local governments with the largest pension liabilities as a share of revenues.

Ranking For Pension Liabilities (Debt) As A Percentage Of Revenue

1. Chicago – 678.2 percent

2. Cook County (IL) 381.6 – percent

3. Denver County School District 1 – 341.6 percent

4. Jacksonville, FL. – 326.9 percent

5. Los Angeles – 324.5 percent

6. Metro. Water Reclamation District of Chicago – 323.4 percent

7. Houston – 312.4 percent

8. Dallas – 292.5 percent

9. Clark County (Nev.) School District – 259.1 percent

10. Phoenix – 240.2 percent

Note: Some school districts, as well as Chicago’s water reclamation district, issue their own debt, so they are listed separately from their cities.

Pensions have become a larger part of the national dialogue with the recent rash of local government bankruptcies, including Detroit’s July debacle, which made it the largest local bankruptcy in U.S. history. Pensions rightfully received scrutiny when the city’s bankruptcy filing included a plan to reduce pension payouts.

That city’s pension liabilities represent 157.3 percent of its revenues, and the Detroit Public School District is in even worse shape, at nearly 180 percent.

Political implications have not yet born out, but it is undeniable that Democrat-controlled governments are overwhelmingly the sponsors of pension debt. Even in red states, such as Texas, it is the Democrat-controlled urban centers plagued with pension debt.

It is unclear whether Chicago, Jacksonville, and other financially troubled cities are headed the way of Detroit, says Aaron. He cites Detroit’s many other economic problems, which is further spiraled by a long and deep population decline resulting from their economic policies. He says,”pensions are one of many factors that go into our bond ratings, and that go into the fiscal health of a community or city.

Detroit’s bond rating from Moody’s is now at Caa3, meaning it has a relatively high credit risk, as in junk status. Detroit’s public school district has a similarly garbage rating of B2, meaning those bonds are also junk. Of the 50 local governments that have issued the most debt, only three have ratings in the B or C categories. Moody’s rating scale ranges from C on the low end to Aaa, with Aaa having the lowest degree of risk.

“Detroit’s not the only distressed city in the country,” Aaron says. “In general we view the pool of local governments in distress as growing.”

Moody’s recently cut Chicago’s bond rating from Aa3 to A3, which is optimistic, and cut Cook County from Aa3 to A1, likewise. In both cases, the ratings agency cited pension liabilities, according to Bloomberg.

A low credit rating will make it harder for a government to borrow money, not to mention more expensive, as it often brings with it higher interest rates as investors try to avoid risk. For many local governments, more financial troubles – and, potentially, more downgrades – could be on the way.