One bond rating service issued a warning about Evanston’s debt rating outlook Friday as the city prepared to sell $14.5 million in general obligation bonds on Monday.
The Chicago Tribune reports that Moody’s Investors Service maintained the city’s triple-A bond rating but lowered the outlook from stable to negative — which means the firm believes there’s a greater than 50 percent chance it will have to downgrade the city’s bond rating within three years.
Moody’s said it is worried about the increasing unfunded liability in the city’s police and fire pension funds.
Fitch Ratings maintained the city’s triple-A bond rating and its stable outlook. Fitch noted the unfunded pension liability issue, but also mentioned that the city is considering offering pension obligation bonds next year to address the funding shortfall.
If the rating services were to lower the city’s debt rating, it would raise the interest rate the city would have to pay on future bond issues — effectively forcing an increase in taxes or a reduction in city services.
City Manager Julia Carroll sent aldermen a memo last week suggesting that the city could save money by issuing pension bonds, because the interest rate on the bonds would be lower than the rate at which the pension debt is now increasing.
But she noted that funding all the pension obligations with bonds would add $97.8 million to the city’s bond debt. That would be increase the city’s general obligation debt by almost 50 percent.
She said it’s not yet clear how the rating agencies would view the city’s decision to take on so much additional bond debt.
Ms. Carroll said the city also will consider increasing its cash contributions to the police and fire pension funds and that she expects to have recommendations ready for council action in the first quarter of next year.