CHICAGO -- The Metropolitan Water Reclamation District of Greater Chicago lost one of its triple-A ratings because of the collective pension and debt burden of Chicago and the other local governments that share the same tax base.
The S&P Global Ratings downgrade Friday, to AA-plus from AAA, still leaves Met Water in high-grade territory but represents a blow to a district that once carried three gilt-edged ratings and took a leading role among Illinois governments in tackling retirement reforms.
"The rating action reflects our view of the potential impacts of the combined pension liabilities and debt of the overlapping governmental entities on the district's tax base," said S&P analyst Jennifer Boyd.
Moody's Investors Service rates the district Aa2, although the district does not ask it to rate new deals. Fitch Ratings this week affirmed the district's AAA rating and stable outlook.
The review came ahead of the district's planned $400 million deal for new money and to refund of unlimited tax, limited tax, and alternate revenue source general obligation bonds, which is expected to price the week of June 6.
The new money, which includes several series of designated green bonds, will fund various ongoing and new projects and for the acquisition and installation of energy conservation projects.
The sale will raise about $104 million, said district treasurer Mary Ann Boyle, who estimates savings on the refunding piece, based upon current market conditions, of more than $100 million in aggregate debt service or 22% on a net present value basis.
The district sought to highlight its improved fiscal position since S&P's last review and said it believes the downgrade "is not a reflection on the MWRD's financial operations," according to a statement from the district.
"MWRD has acted responsibly and proactively to address significant costs and strengthen its financial foundation in order to maintain its low cost to provide wastewater treatment and stormwater management services for years to come," the statement said.
The district benefits from the local economy and its own strong fiscal performance supported by high reserve levels.
Fitch said the AAA rating "reflects the district's superior budgetary flexibility which underpins its stable financial performance and low long-term liabilities. Conservative management of both operational and capital mandates suggests continued strong financial performance throughout the economic cycle."
The district undertook pension reforms in 2013.
The package raised employee and employer contributions but did not cut benefits to reduce liabilities. Chicago's pension cuts were tossed this year by the courts. The district plan has not been challenged but still could be, rating agencies and the Chicago Civic Federation have warned.
The funded ratio remains low, but is improved at 55.2%. It was at 50.4% before the reforms took effect.
The district has $1.1 billion of net pension liabilities. Its plan puts it on a path to achieve 100% funding by 2050.
The district also has been contributing to a trust to fund other post-employment benefits. It's now 52% funded with unfunded liabilities of $137 million.
The district's available general fund reserves totaled $220.4 million, or 65% of expenditures, last year. The district's general corporate fund held $236.8 million of cash and investments at year end.
Property taxes account for 66% of general corporate fund revenues with user charges for corporate and industrial customers following at 13%. The district's debt and pension liabilities are low at 9% of county-wide personal income.
The overlapping tax burden of Chicago, Cook County, public schools, the Chicago Park District, and others drives ratios up.
The Chicago Civic Federation reported the overlapping debt for Chicagoans of eight local governments was up to $20.4 billion in 2013 with debt per capita up to $7,514. Total unfunded pension debt was $35 billion and pension debt per capita was at $12,889.
The deal is being senior managed by Bank of America Merrill Lynch.
It includes about $286 million ULTGO refunding bonds, $42 million LTGO refunding bonds, $30 million of ULTGO green bonds, $20 million of limited tax green bonds, $50 million of ULTGO alternate revenue source green bonds, and $4 million LTGO qualified energy conservation and designated green bonds.
The district has $900 million of outstanding ULTGO bonds and $1.2 billion outstanding LTGO bonds.
The 125-year-old district has a $2.3 billion capital program.
It serves five million residents from 125 communities, treating 1.3 billion gallons of wastewater daily.
