Moody’s Investors Service today downgraded the City of Evanston’s general obligation debt because of the expected cost of dealing with its under-funded public safety pensions.
The rating reduction from top-ranked "Aaa" to "Aa1" is likely to increase the cost of future borrowing by the city.
On the plus side, the rating service changed its outlook for Evanston’s debt to "stable" from "negative," suggesting Moody’s doesn’t anticipate a further worsening of the city’s creditworthiness.
Moody’s said the city already has a debt burden that is three times the national average for "Aaa" rated communities and the plan the city is considering to issue bonds to cover the pension funding shortfall could raise that debt burden to more than four times the average.
However, Moody’s called the higher debt burden "manageable," given that the city is rapidly retiring its current debt obligations.
The rating service praised the city’s "diverse, stable and affluent tax base" and "strong management team dedicated to maintaining healthy financial operations."
It said the city could regain its top rating by reducing its debt levels and long-term liabilities. But it warned that failure to increase revenue or reduce expenses to solve the structural imbalance in its operating funds or a significant weakening of the city’s employment or tax bases could lead to a further rating reduction.
Read the full Moody’s downgrade report here.