Statement from President Preckwinkle on Rating Agencies’ Response to Cook County’s 2012 Sales Tax Revenue Bonds

“The Cook County Board approved an ordinance on July 24, 2012 to introduce a new credit structure and capital funding source for County highway projects. The Bonds will be secured by sales tax revenues, as the County and its finance team recognized the value investors would place on such a broad-based tax revenue pledge. The new bond offering is estimated to yield $7 million in savings over the 25 year life of the financing compared to a Motor Fuel Tax Bond, and $4 million in savings compared to the traditional funding source of a General Obligation Bond. “In rolling out the new bond offering, Standard & Poor’s Bond rating agency assigned an initial AAA rating with a stable outlook on the bond issue, which will assist the County in marketing the bond offering. These are the first bonds the County has sold that will carry a AAA rating from one of the major rating agencies. We are grateful for the vote of confidence S&P has given the County in assigning an initial AAA rating to its new sales tax bond funding source, and will continue our work on adopting timely budgets, audited financial reports and other hallmarks of fiscal responsibility. “While the Sales Tax Bonds will carry the coveted AAA rating, and will be the first County bond offering in history to carry such a rating, both Moody’s and Fitch Ratings affirmed the County’s high-grade Aa3 General Obligation bond rating, and Moody’s Investors Service has assigned a negative outlook to the County’s outstanding Aa3 General Obligation rating. While we’re disappointed in Moody’s forecast, we share their concern over the fiscal pressure caused by the County’s unfunded pension liability. “Indeed, what has been most striking in the County’s conversations with rating agencies is that S&P, Moody’s and Fitch all cited the County’s under-funded pension system as a key driver of the County’s credit rating, and was the primary factor associated with Moody’s negative outlook assignment. The Pension Fund closed 2011 with only 62.5% of the assets on hand to pay for promised pension benefits for county workers and retirees, and only 57.5% of the assets required to provide both pension benefits and retiree healthcare costs, though the County notes that such retiree healthcare costs are neither contractually nor statutorily guaranteed. The focus of the bond rating agencies on the fiscal pressures of the County retirement system is yet another clear sign of the impact that inaction on pension reform has on local governments throughout the State of Illinois. I urge all parties involved in this process to return to the negotiating table to produce a comprehensive pension reform solution.”


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