Next Stop for Chicago: Emergency Financial Control Board

[WestVirginiaRebel]

Bloomberg:

Now that Rahm Emanuel has been reelected mayor of Chicago and that distraction is out of the way, we can all start thinking about the future of the city.

I'm not a betting man. If I were, I'd bet that Chicago is going to be run by an Emergency Financial Control Board, or something like it, within two years, the same as New York City back in 1975 (and until 1986).

The city is now rated Baa2 by Moody's, one step from the basement of investment grade. In cutting the rating ("with a negative outlook'') in February, Moody's said, "The negative outlook reflects our expectation that the city's credit quality could weaken as unfunded pension liabilities grow and exert increased pressure on the city's operating budget.'' Moody's expects "substantial growth in unfunded pension liabilities even if the city's recent pension reforms survive an ongoing legal challenge.''

So a cut to junk may well be in the cards, and with it diminished and eventually lack of access to capital. Chicago has already creatively used, and some would say abused, the municipal market to subsidize city operations, as Kristi Culpepper, the Kentucky official who for many years wrote as "Bond Girl,'' demonstrated in this recent piece, required reading, published on Tumblr.

When the banks no longer want to lend to Chicago is presumably when the state of Illinois would come in, offering cash, loan guarantees, intercession with the federal government and whatever else the city needs in exchange for external management via an Emergency Financial Control Board.

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Happy 2nd term, Rahmbo...