Avalanche of City Debt Downgrades and Eventual Bankruptcies Coming Up; Numerous Cities Bankrupt Over Pension Promises

Yesterday Moody's downgrades Chicago's credit rating, pension debt to blame.

Chicago's credit score is on the way down. The city is getting a small down grade from Aa3 to A3, because of the city's pension problem.

Moody's Investors Service says it's making the move because of "formidable legal and political barriers to pension reform" in the state. The downgrade affects $8.2 billion in debt and means it will cost the city more to borrow money.

According to Moody's Chicago has $19 billion in unfunded pension liability and faces a "tremendous strain" in meeting their budget and paying law enforcement.

Avalanche of City Downgrades Coming Up

With the bankruptcy of Detroit and numerous cities in California, it will not be long before the rating agencies downgrade city debt en masse.

Zombified Cities

• Philadelphia: 5th Largest City in US is Effectively Bankrupt; Mayor Holds Closed Meeting With Wall Street to Discuss Asset Sales
• Houston: CPAs state Houston is Bankrupt
• LA: Mayor of Los Angeles Says "Bankruptcy is Not an Option" (Of Course It Is)
• New York Cities: Public Pension Ponzi Scheme - New York Cities Borrow From Pension Plan to Make Contributions
• Baltimore: Time for Baltimore to "Pull a Vallejo" and Declare Bankruptcy
• Miami: Miami Commissioner Says Bankruptcy is City's Best Hope; Chris Christie Says New Jersey Careens Towards Becoming Greece
• Chicago: Chicago's Mayor Daley Discusses Bankruptcy For City Pensions 
• Scranton: Scranton Mayor Slashes All Public Worker Wages to $7.25 per Hour, Including Police, Fire, His Own; City Effectively Bankrupt
• Harrisburg: Pennsylvania State Capital Files for Bankruptcy
• Zombified Cities Roundup: Detroit Becomes Dumping Ground for the Dead; Financial Urgency in Miami; Oakland Pension Time Bomb; How Pensions Crashed Stockton and San Bernardino

There is absolutely no way Chicago, Oakland, Baltimore, Philadelphia, LA, Houston, and numerous other cities can meet pension obligations without a major restructuring of promises.

Given that public unions seldom if ever agree on even the smallest of pension concessions, expect many of those haircuts to happen in bankruptcy court.

This article regarding the bankruptcy of Stockton, California shows why bankruptcy is inevitable: Federal Bankruptcy Court Lets Stockton, California Cut Retiree Health Care Benefits

The bankruptcies in California cities and Detroit provide a backdrop of what's about to happen. In the meantime, expect an avalanche of city debt downgrades.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com