Chicago Downgraded to 'Junk'

Well, not the city, just its bonds.

Moody's downgraded Chicago's credit rating down to junk level "Ba1" from "Baa2." 

The announcement, which the ratings agency released Tuesday afternoon, cited a recent Illinois court ruling voiding state pension reforms. Moody's said it saw a negative outlook for the city's credit. 

Following that May court decision, Moody's said it believes that "the city's options for curbing growth in its own unfunded pension liabilities have narrowed considerably."

That court decision is explained here.

On Friday, the Illinois Supreme Court ruled that pension reform legislation passed in 2013, commonly referred to as Senate Bill 1, violates the pension protection clause of the Illinois Constitution. The Court upheld a previous circuit court ruling that invalidated the law in its entirety. The Court held that the State could not rely on its inherent “police powers” to diminish the benefits of membership in a pension system. 

While I think the decision is disastrous for the state, it also seems to be on solid legal grounds. The section of the Illinois constitution in question reads:

Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.

That seems pretty clear.

It also seems pretty clear that this is going to end badly.

Update: Five Reasons Chicago Is in Worse Shape Than Detroit