Moody’s says 23 of the nation’s 25 largest cities are ready for a recession. Two aren’t. They are Detroit and Chicago. Both cities are junk-rated by Moody’s.
Moody’s analyzed four key factors to determine which cities are ready for a recession: fiscal volatility, reserve coverage, financial flexibility and pension risk. The top cities in preparedness were Boston, Charlotte, Denver, San Antonio, San Francisco and Seattle. They scored “stronger” in Moody’s recession preparedness measure, while Chicago and Detroit scored “weaker.”
Moody’s message should be particularly worrisome given that the city’s firefighter pensions are just 18 percent funded, while the police and municipal funds are less than 25 percent funded. They are among the worst-funded pension plans in the country.
The rating’s agency highlighted Chicago’s poor condition in its report, saying:
“…both direct city obligations and those of overlapping units of government – continue to weigh heavily on its credit profile. In this scenario analysis, Chicago’s extraordinarily high fixed costs, coupled with its escalating pension liabilities, make it one of the cities least prepared for a near-term recession.”
At Wirepoints, we’ve highlighted those overlapping debts in our recent report, “Wealthy” Chicago households on the hook for up to $2 million in debt each under progressive approach to pension crisis and in an accompanying video.
Chicagoans’ overlapping state and local retirement debts total over $150 billion based on Moody’s pension calculations. That’s the equivalent of a $400,000 “hidden mortgage” on the Chicago households with the means to pay down that debt over time – those earning more than $75,000 annually.
But if the city and state want to take a “progressive approach” to paying down that $150 billion over the next two to three decades – by targeting only those making over $200,000 annually – then the hidden mortgage on those households totals nearly $2 million.
Moody’s added in its report, “Houston, Chicago and Fort Worth stand out as negative outliers in terms of fixed costs, with Chicago and Fort Worth particularly burdened by rising pension contributions.”
They shouldn’t wait until a recession comes. By then, it might be too late to save Chicago’s city worker pensions. The city’s population is already shrinking and as that hidden mortgage increases, expect more Chicagoans to flee.
Read more about Chicago’s fiscal crisis: