Moody's Downgrades Evanston Rating Due to Pension Debt

Rating agency Moody's Investor's Services, Inc., announced Friday that it was downgrading the city of Evanston's general obligation debt rating.

Evanston's rating went from Aaa, the highest possible score, to Aa1, the second highest level. 

The downgrade came in part because of a change in the way Moody's analyzes pension liabilities as part of its analysis of state and local governments, according to a press release from the agency. 

"These changes reflect the rating agency's view that pension obligations are a significant source of credit pressure for governments and warrant a more conservative view of the potential size of the obligations," the release said. 

In April, Moody's placed 29 local governments under review for a possible downgrade due to large levels of pension debt compared to other municipalities in the same ratings category. Besides Evanston, the only other Illinois governments on the list were the city of Chicago and village of Elk Grove. 

In its downgrade report released Friday, June 27, Moody's cited Evanston's higher education and health care sectors, home rule status and "strong management team" as strengths. However, the rating agency listed "sizable" pension debt, an above average debt burden and some reliance on "economically sensitive revenue sources" in the general fund as serious challenges.

In order to move the rating up, Evanston must reduce its pension liabilities and grow its reserves and liquidity, according to the report. 

City officials have met with Moody's rating analysts to discuss the change, according to a release from the city. 

"Prior to the changes in Moody’s evaluation framework, the city had already taken steps to improve the true funding position of the police and firefighter pension funds by lowering future year investment earnings assumptions, using a more conservative actuarial calculation method than that required by the state and updating mortality and other tables to more accurately reflect the future assets and liabilities of each fund," the release said. "According to Lyons, the city, working jointly with both pension boards, will continue to modify these key assumptions to improve the long-term funding of police and firefighter pensions."