Aarthi Swaminathan Finance Writer
Recession tops list of CEO fears for 2020
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If a recession hits the U.S., Chicago and Detroit are not currently prepared, according to an analysis
by Moody’s Investor Service.
Using four main factors to determine how prepared a city was for a recession — fiscal volatility, reserve coverage, financial flexibility, and pension risk — the researchers found that most of the largest 25 U.S. cities are prepared to handle a recession like the previous one, but the two cities of Chicago and Detroit are not well-positioned for hard times.
Chicago and Detroit are least prepared for a recession. (Graphic: David Foster/Yahoo Finance)“The majority of local governments have used the broad economic expansion of the past 10 years to strengthen their finances while keeping overall leverage and related fixed costs from rising,” the report stated.
According to Moody’s analysis of the cities’ bond ratings, which is a measure of the quality of the creditworthiness of corporate or government-grade bonds, an “investment grade” rating refers to bonds that present a relatively low risk of default: “Aaa” and “Aa1” denote the highest credit quality while “Ba1,” “Ba2,” “Ba3” and others denote medium credit quality and non-investment grade.
Moody’s rated Chicago as Ba1 and Detroit as Ba3 — meaning that both fall under the non-investment grade category.
‘Detroit has taken steps’
Home to the automobile industry, the city of Detroit went bankrupt in 2013 in the largest municipal bankruptcy filing in American history in terms of debt. Since then, the city has made considerable efforts to boost its reserves — but not enough in Moody’s estimation.
“Detroit has taken steps to prepare for a potential downturn: establishing an irrevocable trust to smooth spikes in pension contributions, developing a capital improvement plan that identifies a variety of sources to finance capital investments, and continuing to increase its already strong reserves,” Moody’s researchers stated. “If these trends continue, Detroit’s overall preparedness for a future recession will be more in line with major city peers.”
The skyline of Detroit is seen looking south from the midtown area in Detroit, Michigan in 2013. (Photo: REUTERS/Rebecca Cook).Chicago ‘walked into a staggeringly large deficit’
The city of Chicago, on the other hand, is nearing bankruptcy.
In August 2019, just months after taking office, Chicago Mayor Lori Lightfoot announced that the city was facing a $838 million deficit in its upcoming budget.
“We walked into a staggeringly large deficit for next year and, what was worse, we were not left with any credible plan on how to fix this massive problem,” said Lightfoot at the time.
The Chicago City Council has since approved her $11.65 billion budget plan for 2020 to address the record deficit.
Partial view of the Chicago skyline, photographed from outside the Adler Planetarium in Chicago, Illinois on November 5, 2019. (Photo: Raymond Boyd/Getty Images)Chicago’s “leverage due to debt and unfunded pension liabilities – both direct city obligations and those of overlapping units of government – continue to weigh heavily on its credit profile,” Moody’s stated. “In this scenario analysis, Chicago's extraordinarily high fixed costs, coupled with its escalating pension liabilities, make it one of the cities least prepared for a near-term recession.”
Cities that fared well on the recession preparedness scale were Austin, Boston, Charlotte, Denver, San Antonio, San Francisco, and Seattle.
Aarthi is a reporter for Yahoo Finance. Follow her on Twitter @aarthiswami.
Democratic politicians have ruined the lives of every city resident by their corruption and theft. Think of all the money in taxes we are paying instead of putting that money aside for retirement, and the poor retires are barely making it by, freaking criminal.
ReplyDeletePlenty of money in TIF Districts hello O'Shea why doesn't anyone want to talk about all the money in these funds? Pause funding a few years to fix budgets there is plenty of money!
ReplyDeleteO'Shea won't say a peep,he never does. He's afraid if he at all says something contrary to Lightfoot's agenda she'll strip him of his plum Aviation post. We need to wake up in the 19TH Ward and perhaps set a new tone for the city. It's time we flat out elect a Republican alderman. Yes Matt does a good job,yes Matt is a hard worker, and yes from all outward appearances Matt seems to be a very honest man. However at the end of the day Matt still votes in lock step with our Mayor's, and very rarely pipes up against one. In my opinion Matt should be leading an open opposition with all of the other alderman who are in wards that are bordering either a suburb,another county, or in the 10 Ward's case, another state altogether
DeleteTIFs are criminal, but to pretend that liquefying the funds would solve our debt is nothing but a pipe dream. Sure, it’s a start, but not a real solution.
DeleteAlso explore ending privatization of city services in all departments across city. Lucrative contracts for private companies in the schools, CDOT and Streets and San would go a long way to ensure we are not only keeping employees from living in suburbs, but putting money into their respective pension funds.
A government run for the enrichment of private entities is not a viable solution for a city that continues to borrow for day to day operating costs.
That’s directed to you Richard M. and Rahm.
A government run for the enrichment of its employees is not a viable solution for a city that continues to borrow for day to day operating costs.
DeleteShe has been in office almost 9 months and seems to be involved in everything except this. Whats wrong with her?
ReplyDeleteRight now Im thinking about Rahm chortling about screwing all the retirees out of their medical coverage like it was some great achievement. Sorry for my foul language but that cocksucker needs a throttling.
ReplyDeleteDisaster looms...….
ReplyDeleteThe Tribune, reporting about the reopening of the "Kiss and Ride" lot at Midway says that a parking garage expansion project was cancelled after a cost overrun of about $15 million dollars. So Walsh construction, originally contracted for $115 million for the project instead got $67 million to restore the drop off lot to the same condition it was in before the project started. They also report the AGT train shuttle at O'Hare has been out of commission for more than a year longer than planned. The damn rail cars don't fit on the tracks. There's some brilliant leadership running that department. But don't worry, they've installed those drop your weed boxes for all you passengers who like to fly before you get on the plane.
ReplyDeleteChicago=Disaster
ReplyDeletePrivatize cfd
ReplyDelete