Moody’s Investor Services, Inc.Thursday downgrated the City of Evanston's general obligation debt rating from Aaa, the highest rating possible, to the next highest level, Aa1.
Moody’s currently has 17 Aaa rated and 22 Aa1 communities in Illinois, with the remaining communities being rated at Aa2 or lower.
Based on calculations by the city's actuaries, Evanston has $170.6 million in unfunded pension liabilities, But a new, more conservative calulation by Moody's pegs them at $259.9 million.
That's 2.65 times the city's annualized 2011 fiscal year operating revenue, compared to what Moody's says is an average of 1.0 for all local governments.
City officials have met with Moody’s ratings analysts and discussed this ratings change, which is almost solely due to the city’s outstanding pension liabilities. These pension liabilities are now being evaluated in a new framework that is more conservatively calculated.
Evanston's chief financial officer, Marty Lyons, says the evaluation change reduces projected revenue from the city’s current assets in trust, thereby increasing the unfunded liability of the police and firefighter pension funds.
Prior to the changes in Moody’s evaluation framework, the city had already taken steps to improve the true funding position of the police and firefighter pension funds by lowering future year investment earnings assumptions, using a more conservative actuarial calculation method than that required by the state and updating mortality and other tables to more accurately reflect the future assets and liabilities of each fund.
Lyons says the city, working with both pension boards, will continue to modify these key assumptions to improve the long-term funding of police and firefighter pensions.
Moody’s reaffirmed their opinion of Evanston as a strong community due to strong property values, higher than average per-capita income, stable city operating revenues, reduced operating expenses and manageable non-pension related debt.
Moody's also issued a report Thursday saying the nation's states are under-estimating their pension obligations.