Moody's Considers Municipal Ratings Changes That Could Push Illinois Into Junk Territory

A few weeks ago, we expressed some level of astonishment that the rating agencies, in their infinite wisdom, decided to bestow an investment grade rating upon a new $3 billion bond issuance by the City of Chicago.  Of course, this wouldn't be such a big deal but for the fact that the state of Illinois is a financial disaster that will undoubtedly be forced into bankruptcy at some point in the future courtesy of a staggering ~$150 billion funding gap on its public pensions, a mountain of debt and $16.4 billion in accrued AP because they can't even afford to pay their bills on a timely basis.  Here are just a couple of our recent posts on these topics:

Alas, as Capitol Fax notes this morning, it seems as though Moody's may finally be waking up to the farce that is their own municipal ratings system and is currently in the process of seeking comments from market participants on proposed changes for states’ general obligation credit ratings, which would include an increased emphasis on debt and pension obligations.  Of course, with their GO rating just one notch above junk, all of those long-only bond funds that have scooped up billions in 'juicy' 4% Illinois paper over the past couple of months should probably take notice.

Under the proposed changes, debt and pension obligations will have a 25% weight on state credit ratings, up from 20% currently. The individual state’s economy, another factor in Moody’s ratings, will also have a 25% weight, up from 20%. Governance will fall to 20% from 30% and finances will be maintained at 30%.

 

The debt and pension factor “is critical because debt and pension obligations are the primary long-term liabilities that states have,” Moody’s said in an announcement on the proposed changes Tuesday. “As these liabilities grow, states face rising expenses to pay debt and pension benefits. High fixed debt service and pension costs can crowd out other budgetary priorities and force states to raise taxes in order to meet them. Debt and pensions can curtail a state’s budgetary flexibility and heighten the risk that it will seek to deleverage through a debt restructuring.”

Illinois

Of course, the proposed changes come just after Fitch put out their 2017 State Pension Update which showed that Illinois’ pension crisis is the worst in the nation with an underfunding of more than $151 billion...or $60 billion more than second worst state: New Jersey.

“Six states have long-term liability burdens that Fitch considers elevated [in excess of 20 percent of personal income],” the report said, “with Illinois carrying the highest liability burden at 28.5 percent of personal income.”

 

Fitch Senior Director Doug Offerman said taxpayers should care because the burden takes up more than 28 percent of all personal income in Illinois, “which is essentially a proxy for the wealth level, the resource base of a given government.”

 

“For the last several years the [pension] increases did grow faster, and I would say do crowd out other spending that might have otherwise taken up organic revenue growth,” [Fitch Ratings Senior Director Karen Krop] said.

Meanwhile, State Senator Dan McConchie (R) noted, as have we on multiple occasions, that people are already fleeing Illinois in droves because of its financial crisis and resulting tax burdens.  “Whether it’s through their property taxes or because of the recent income tax increase, they just can’t afford to [stay here],” McConchie said. “This day of reckoning is fast approaching us. I don’t think we want to wait until the absolute last minute to try and do everything we can to really right the ship.”

Unfortunately, Mr. McConchie, we're afraid your proverbial ship is taking on so much water at this point that it hasn't a hope of surviving the crushing weight of your state's mounting debts...perhaps it's better at this point to simply seek a life raft and follow your constituents to Texas.

Comments

Thisfuckenlife Dec 17, 2017 11:10 PM Permalink

I hope government employees lose their jobs first in this debacle, so they can then turn and lynch their bosses who actually put all of this downturn in motion, even though it was stupidity for the newly unemployed that enabled their spending habits in the first place.That's when we'll see liberals turning to their second admendment rights to protect themselves from their own former colleagues in the mob.

hanekhw Dec 17, 2017 2:30 PM Permalink

Chicago is diverse. Everything 'diverse' ends up just like anything else we consume. Every organism turns 'diversity' into the same thing. Excrement. Democrats are 'natural' and 'care about the environment' and wants us all to end up the same way. It's what they do best. Look at Illinois? The entire state is almost there......just a few more squeezes and the process will be complete.

hanekhw Dec 17, 2017 1:00 PM Permalink

'Push'? That's a laugh. They have what they 'call' a budget but it depends on the Fairy Godmother, the Tooth Fairy and their ability to constantly sprinkle Fairy Dust over the Legislature.

Matchless Dec 17, 2017 10:05 AM Permalink

Daley Jr was teh one to blow it, he sold off assets like the parking maters and tollbridge for a billion dollars which was spent instantly.  Now a private company holds thise assets for the next 75 years, what kind of a moron make s 75 year leasing deal?I'm so glad I left that state this summer, in a much better place, and my only regrets are that my long time friends are there.  It's misreble 8 months of the year, and the condition of the roads and taxation is ridiculous. 

Montana Cowboy Dec 17, 2017 3:25 AM Permalink

Bankruptcy? Bring it on. Let's get an answer to that big question about a state filing bankruptcy. I don't think its permissible for any state to file bankruptcy if they choose not to increase taxes when they have every lawful right to do so. Of course, people and business can just step over the state line and avoid the tax. But real estate cannot be moved out of the tax collector's reach. Its the ultimate cash cow.It has always been my opinion that a state must MAXIMIZE all real estate tax before they can file bankruptcy or they will be deemed voluntarily bankrupt. What does it mean to maximize property tax? The annual tax bill would be about equal to the annual rental value of the property, leaving $0 value to ownership. I believe a bankruptcy judge will throw out the case until that happens. Nobody can simply choose to ignore their account receivables and go bankrupt.It could get even more bizarre. What if the bankruptcy court orders the state to liquidate their future property tax receivables? Who would buy those receivables? Wall Street. All future property tax is then payable to banksters. Don't think for a minute that its impossible. This is exactly what happened to federal income taxes. Go look at the rear of the last check you wrote to the IRS/US Treasury. It wasn't cashed by the US Treasury Department. It was legally intercepted and cashed by their creditor, the Federal Reserve Bank, a private off-shore foreign entity.

Yogizuna Montana Cowboy Dec 17, 2017 10:47 AM Permalink

Just a few little problems with that to point out. Raise taxes to equal rents, and renting costs will increase even more, driving more people out of the state. Raise taxes to equal rents, and even more people will sell their homes at any price just to get the hell out! And of course, this will create an ever increasing downward spiral rapidly spinning out of control. There are really only three solutions. Cut spending to the bone, keep increasing taxes which of course is insanity, or bankruptcy.  

In reply to by Montana Cowboy

Montana Cowboy Yogizuna Dec 17, 2017 11:17 PM Permalink

No doubt it will spiral out of control. My point is that the bankruptcy courts cannot excuse a petitioner from fully exploiting their account receivables on the basis that matters will spiral into a property blight. The creditors have rights that are far superior to the avoidance of this inevitability.I am a licensed real estate broker and expert witness. I was on the ground floor of the Jarvis-Gann Prop 13 in California. I have sat at the table with federal lawyers discussing this subject. Their qualified opinion is that even California is not spared by the requirement to increase property taxes to the point of collapse. Prop 13 has a provision to set it aside with a super-majority of legislators. If they don't set it aside, they will get thrown out of bankruptcy courts.Example: I have a girlfriend living in Westlake, CA. I actually brokered a home on a lake to her and her husband for $240,000 in the late 1970s. Her most recent property tax bill is $5,000 per month. That is not a typo. It is $60K per year.CALPERS is the largest retirement fund in the world. The fund is underfunded in California to the tune of $140,000 per household. Not "per single family home". A 50-unit apartment building in a slum is 50 households. So the actual shortfall is more like $300K to $500K per household that actually has that equity in the property. The spiral into collapse has already happened. The realization of it is being held back - for now.

In reply to by Yogizuna

Jack4952 Montana Cowboy Dec 17, 2017 7:55 AM Permalink

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The Emergency Banking Act of 1933 U.S. Bankruptcy of 1933 (March 9. 1933. 48 Stat. 1. Public Law 89-719) further reading at: http://www.reddit.com/r/CommonLaw/comments/77p2j/on_the_bankruptcy_of_the_us_federal_government/ March 9. 1933. 48 Stat. 1. Public Law 89-719 The Bankruptcy of The United States. United States Congressional Record, March 17, 1993 (note date) Vol. 33, page H-1303  “We are here now in chapter 11… Members of Congress are official trustees presiding over the greatest reorganization of any Bankrupt entity in world history, the U.S. Government. We are setting forth hopefully a blueprint for our future. There are some who say it is a coroner’s report that will lead to our demise. It is an established fact that the United States Federal Government has been dissolved by the Emergency Banking Act, March 9. 1933. 48 Stat. 1. Public Law 89-719: declared by President Roosevelt, being bankrupt and insolvent. HJR 192, 73rd Congressional session, June 5, 1933 – Joint Resolution to Suspend the Gold Standard and Abrogate the Gold Clause dissolved the Sovereign Authority of the United States and the official capacities of all United States Governmental Offices, Officers, and Departments and is further evidence that the United States Federal Government exists today in name only. The receivers of the United States Bankruptcy are the International Bankers, via the United Nations, the World Bank and the International Monetary Fund. All United States Offices, Officials, and Departments are now operating within a de facto status in name only under Emergency War Powers. With the Constitutional Republican form of Government now dissolved, the receivers of the Bankruptcy have adopted a new form of government for the United States. This new form of government is known as a Democracy, being an established Socialist/Communist order under a new governor for America. This act was instituted and established by transferring and/or placing the Office of the Secretary of Treasury to that of the Governor of the International Monetary Fund. Public Law 94-564, page 8, Section H.R. 13955 reads in part: “The U.S. Secretary of Treasury receives no compensation for representing the United States?’ . . . Their lust is for power and control. Since the inception of central banking, they have controlled the fates of nations. . . . The Federal Reserve System is a sovereign power structure separate and distinct from the federal United States government. . Prior to 1913, most Americans owned clear, allodial title to property, free and clear of any liens or mortgages until the Federal Reserve Act (1913) “hypothecated” all property within the federal United States to the Board of Governors of the Federal Reserve, -in which the Trustees (stockholders) held legal title. The U.S. citizen (tenant, franchisee) was registered as a “beneficiary” of the trust via his/her birth certificate. In 1933, the federal United States hypothecated all of the present and future properties, assets and labor of their “subjects,” the 14th Amendment U.S. citizen, to the Federal Reserve System. In return, the Federal Reserve System agreed to extend the federal United States Corporation all the credit “money substitute” it needed. Like any other debtor, the federal United States government had to assign collateral and security to their creditors as a condition of the loan. Since the federal United States didn’t have any assets, they assigned the private property of their “economic slaves”, the U.S. citizens as collateral against the unplayable federal debt. They also pledged the unincorporated federal territories, national parks forests, birth certificates, and nonprofit organizations, as collateral against the federal debt. All has already been transferred as payment to the international bankers. Unwittingly, America has returned to its pre-American Revolution, feudal roots whereby all land is held by a sovereign and the common people had no rights to hold allodia title to property. Once again, We the People are the tenants and sharecroppers renting our own property from a Sovereign in the guise of the Federal Reserve Bank. We the people have exchanged one master for another.In short, the government and people (at least those who cliam to be "U.S. citizens") of the United States own NOTHING. We as all DEBTORS - even our bodies were pledged as collateral to the big banks.You think you are FREE? Regardless of who is President or in Congress, the people can be truly free ONLY AFTER all debts to the Federal Researve and international bankers are repudiated anddeclared nul and void.

In reply to by Montana Cowboy

Montana Cowboy Jack4952 Dec 17, 2017 10:55 PM Permalink

This is all true. Your only way out is to refuse to be a 14th Amendment citizen of the federal government. The US was a country for almost a century without a 14th Amendment. The federal government was never intended to have citizens of its own.There is a series of weekly radio shows dealing with this 14A matter called Agenda31. Corey Ibe actually got up to the US Federal Supreme Court. The show took a 6 month break, then returned last month. Listen at agenda31.org.In California courts, Corey was told that having a SSA# makes him a 14A citizen. Corey attempted to close his account with the Social Security Administration. He was told, in writing, that once your are in, there is no way to get out. That letter is posted at the Agenda31 website.If you have time to listen to the all the radio shows, you will be impressed with how Corey maneuvers his way through the courts. He is now approaching the SCOTUS for the 2nd time.This is not a state sovereign or state citizen approach.

In reply to by Jack4952

Nobodys Home Dec 17, 2017 1:56 AM Permalink

Doesn't Illinois have some bonds to sell? Bonds are safe as can be! Safe as can be, I tell Ya!
Illinois is a no brainer! BTFD! It's not any dippyer than this!

I won the Illinois state lottery 6 years ago and they still promise to pay me! I got a car loan and a mortgage outta it!
Full faith and CREDIT!

MusicIsYou Dec 16, 2017 11:29 PM Permalink

They put most of the focus on pension programs but the fact of the matter is most states are insolvent period and don't even have the funds to continually upkeep on infrastructure.

Stan Smith Dec 16, 2017 10:31 PM Permalink

It's like Moody's is pretending to get a clue... how many years to late?   What a bunch worthless pikers.These are the same people who tried to convince investors that all those packaged mortgage bonds were filled to the rim with "AAA" rated loans... even though maybe 10-20% of them were.Lies and the lying liars who tell them.

you enjoy myself Dec 16, 2017 10:29 PM Permalink

Wait, so under the current metrics of 20% credit ratings, 20% economy, and 30% governance, it's not junk?   Any non-corrupt ratings agency should have rated it junk based on Illinois' governance alone.  In fact, that should be standard operating procedure for any state that's hopelessly blue.

TeethVillage88s Dec 16, 2017 9:18 PM Permalink

- Moody's what the fuck kind of shit is Moody's shop?
- S&P Ratings, what the fuck kind of shit is S&P Shop?
- Fitsch Ratings, WTF kind of Ratings Shop is Fitcsh?

Shall we go on?

What about Independent Auditing Agencies?

- KPMG?
- Arther Anderson
- Butt-Fuck in your hometown!

TeethVillage88s Anarchyteez Dec 16, 2017 9:28 PM Permalink

2006 was ambiguous.

2007 was scary, and bosses refused to listen, they were angry.

2008 ditto

2009 it was cover-up city, you lose career if you spoke out, spoke to the press, wrote a book,... everyone was working to get out of town, sell house, put the data into cold storage/hide everything... and put a cloak over everything

In reply to by Anarchyteez

hooligan2009 Dec 16, 2017 9:09 PM Permalink

rahm borrows the money to spend on his personal gang of freinds, the people living in the state and the city pay taxes to fund his bunga bunga parties and borrows the rest from investors with iq's lower than their shoe sizes.libtard demonRat socialists have turned illinois into a banana state - not even a republic, more of a gulag for those that cant get out.political corruption at its worse, even the socialist republics of eastern europe in the old USSR had more wealth (less debt).why the shitcago mayoris not being prosecuted for racketeering, embezzlement is beyond belief.investors holding state or city or county paper will not be repaid since they are knowingly pruchasing the "odious debt" that is being issued by criminals.

TeethVillage88s Dec 16, 2017 9:06 PM Permalink

** Californication is proceeding at speed **

** New York-ification ** New Yorkification ** NewYorkification **

- Ratings are fake
- Total Debt is not considered
- Leveraging Pensions or borrowing on Pension Funds by States are 'normal'
- Auditing Agencies are in on it
- Banks are Laughing, they get instant fees, create money out of nothing at all, then can discount as they sell on secondary market
- Capitalism? What Capitalism
- Geneva Report, Deflation? What Deflation?

http://cepr.org/content/deleveraging-what-deleveraging-16th-geneva-repo…

(Definitive Report on Global Debt)

red1chief Grandad Grumps Dec 16, 2017 9:12 PM Permalink

Along with Bruce Rauner, who held the state budget hostage to his anti-union agenda. While I don't disagree with many of his goals, his miscalculations have caused great damage to this state. Budget cuts are great, but refusing to sign anything unless not only public but private unions get killed? This guy will get voted out next year, then here in Illinois we will get stuck with Madigan stooge JB. So what did Rauner's crash and burn strategy accomplish?

In reply to by Grandad Grumps

fattail Rich Monk Dec 17, 2017 8:38 AM Permalink

Chris Christie was a republican presidential nominee and he runs the second worst state, new jersey, according to the article. There is no us or them, but one big club, and you and I are not in it.  One consistent, corporate, globalist set of policies ran for the last 40 years for their benefit. Financed by debt, interest rate manipulation, and bail outs.  Legislated by the corporate lobbyists who bought and bribed our congressional representatives, while their consistuents fought over abortion and guns.But, math has no master, and those debts that cannot be repaid Won't.  See Puerto Rico.  All of the debt repayment negotiations of the last two years by the bank's and PR government officials were made null by hurricane Maria.  Those bonds will never be repaid.  Nor will many other corporate, state, county, and municipal bonds with the next bubble pop.  What will be the pin to pop the bubble?    Current plans are for $1 trillion less in central bank liquidity for 2018 than 2017.  That would be my guess.

In reply to by Rich Monk