Cook County bond rating slips a notch

Cook County’s “large and underfunded” pension obligation prompted the S&P Global Ratings to lower the county’s general obligation bond rating one notch on Friday, from AA- to A+.

Because of that downgrade, the rating agency also lowered the county’s sales tax revenue bond rating from AA to AA-, while noting a stable outlook.

The ratings help determine the interest rates at which the county borrows money. The better the credit ratings, the lower the interest rate.

Outlook was also deemed stable for the county’s general obligation bonds, which apply to a debt of roughly $2.8 billion in outstanding principal.

S&P Global Ratings credit analyst Blake Yocom said in a statement posted on the rating service’s website that “although the county has made steps to address its pension funding levels — specifically with a new sales tax revenue stream beginning in fiscal 2016 that significantly increased its annual contributions — its ability to meets its planned additional payments over the long term will remain an ongoing challenge, in our view.”

A spokesman for Cook County Board President Toni Preckwinkle said “while we are disappointed with the decision to downgrade the Cook County’s Sales Tax and General Obligation Bonds, we are pleased to see S&P praise our strong management and financial practices as well as our actions to address legacy debt.”

“We remain committed to building on the progress we have made over the years of passing balanced budgets, addressing our legacy debt, tackling pension obligations and working to secure the County’s financial future,” Preckwinkle’s spokesman said.

Yocom went on to say that even with the additional payments the county has made to its pension liabilities, the contributions “fall well short of both static funding and minimum funding progress, in part because of poor assumptions and methodologies.”

The size of the pension liability, “lack of significant funding progress since the adoption of the new revenue stream, and rising fixed costs make the rating no longer commensurate with the ‘AA’ category,” according to an explanation of the rating.

‘The stable outlook over the two-year horizon reflects our expectation that Cook County will maintain very strong reserves as a result of its budgetary performance,” Yocom wrote.

The downgrade in the sales tax applies to roughly $414 million in existing sales tax revenue bonds, including the series 2012, 2013, 2017, and 2018 bonds.