Tuesday, October 29, 2013

CTA protests Moody’s credit downgrade

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The Chicago Transit Authority on Monday, Oct. 28, 2013, objected strongly to a downgrade of its credit rating made last week by Moody's Investors Service.

Moody's on Oct. 25 cut CTA's sales tax revenue bonds one notch from Aa3 to A1, with a negative outlook. Moody's said lack of sufficient political will to raise adequate revenue, exacerbated by decreasing state and federal funding support, all occurring amidst growing CTA capital needs, resulted in the downgrade.

Moody's also observed that CTA's growing pension obligations could impact the agency's operating budget.

CTA counters that the downgrade is not justified in part because its own revenue stream has grown. "There is no justification for downgrading an entity with increasing revenues, stable operations, and manageable pension obligations," CTA said in a statement.

But in its own statement, Moody's said, "A backlog of pledged state matching payments, though recently reduced, will remain a long-term challenge and may be exacerbated by impending state income tax cuts and the state's massive pension deficits."

Moody's noted the difficult situation transcends CTA's own operating sphere, noting it already has cut the state of Illinois' rating last June, the city of Chicago's rating last July, and Cook County, which includes Chicago, last August.

In a related move, a proposal from Regional Transportation Authority Chairman John Gates would relieve CTA of its ability to issue bonds, placing that authority with the RTA instead. RTA said the plan would leverage its own higher Aa3 credit rating. CTA criticized the proposal as a "power grab."

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