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. 

Bill Smith is the editor and publisher of Evanston Now.

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2 Comments

  1. Moody’s Downgrade
    Bill, with the seemingly endless testimony relating to the downtown plan, Moody’s report should be considered with great interest by those folks who would like to minimize future development.

    What are the suggestions to resolve the “structural imbalance.” How will revenues be increased? More property taxes? More development? Downsizing?
    As Moody’s quotes, “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.”

    If the City revenue must increase, which way do we do it?
    If expenses are to be reduced, which of the already over burdened City services are to be cut?

    1. City revenue
      Of course the obvious way to increase city revenue is to increase taxes and service fees. That is probably not an immediately politically palatable solution at first. Another way is to scrutinize city services and do a rank order (it used to be called zero based budgeting) and cut or reduce those services that are less essential until you meet a proposed budget number. In the People’s Republic of Evanston that is difficult, the staff and the City Council are loathe to do that. The staff because it may impact their jobs and the Council, well you know.

      So the obvious solution is “DEVELOPMENT” ignoring the distinction between use and economic costs that Mr. Hunter delineated so well. That the Council would hire consultants to develop a plan and immediately violate it with a fictional pipeline, especially after the closed meeting fiasco, indicates a Council adrift and devoid of ideas other than a con job by developers whose “public” benefit is their wallets. The NPV of that monetary resource is a joke. NPV may be a mystery to some on the Council.

      The obvious ultimate solution is higher taxes and service fees, followed by a wringing of hands as why there is so little affordable housing in Evanston and a request for more funding for affordable housing.

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