East Moline got a credit rating just two notches above “trash,” after voting to withdraw more than $ 40 million in bonds, to pay police and firefighter pensions.
EAST MOLINE, Ill. – East Moline received a credit rating just two steps above “trash” after the city voted to approve general obligations for police and firefighters’ pensions.
Moody’s Investors Service said the move involved risks and increased East Moline’s chances of an investment loss, but said the rating had been revised to stable from negative.
On September 7, the city voted for $ 41.2 million in general bonds, at historically low interest rates, to cover unpaid police and firefighter pensions. The idea is to invest the bonds and then hopefully get a 4-7% return on your investment.
Currently, East Moline has nearly $ 18.3 million in unfunded firefighters’ pensions, as well as around $ 22 million for the police. According to the 2011 reforms of the Illinois public workers’ retirement system, city governments must fund 90% of these liabilities by 2040.
RELATED: East Moline Considering $ 40 Million Bonds to Pay Police and Fire Department Pensions
A financial report from Baird found that at its current rate, the city is expected to contribute $ 3,030,100 into the pension fund this year, with that amount increasing each year. By 2039, East Moline would be paying $ 6,772,300 per year just to meet its deadline and the necessary funds.
City administrator Doug Maxeiner argues that with the bonds invested, East Moline will pay a fixed rate of $ 2.8 million per year, without raising taxes. By the 2040 deadline, those numbers show nearly $ 30 million in savings, as opposed to an increase in annual payments.
However, the move comes with risks, which could impact future investments in the city, according to Thread points, an Illinois improvement nonprofit research and commentary group.
âMoody’s gives East Moline a credit rating by saying, hey, that’s two notches from junk. That’s a really bad rating,â said Ted Dabrowski, president of Wirepoints. “This is a very bad signal for a very bad idea.”
Dabrowski argues that municipalities should never contract bonds against taxpayer money to gamble on the stock market.
âIt’s a risk that Moody’s doesn’t like,â he said. “This increases the cost of borrowing for East Moline in the future. If the city were to ever struggle, it could lose its ability to borrow when it needs the money the most.”
He also said it sends a worrying signal to investors.
“They are saying, why do I want to invest in a city which is about to be considered junk and which borrows a lot of money and gambles with taxpayers’ money,” he said. âThink of it like a credit score, the worse your credit score, the more interest you have to pay. The worse your credit score, the less you can borrow in the future. The lower your credit score, the less people trust you – or businesses trust you. ”
Instead, Dabrowski is in favor of cities like East Moline that are working to change the law and push the Illinois government to find a new solution to the state’s retirement problems.
“What you do is fund pensions, but then put taxpayers at the mercy of the $ 40 million,” he said. “If the stock market crashes, guess who will be responsible if it doesn’t work out? Ordinary people in East Moline.”
In a statement, East Moline City Administrator Doug Maxeiner said the city is moving in the right direction, regardless of the credit score report:
“I am disappointed with the downgrade of Moody’s and do not feel it reflects the current state of the financial affairs of the town of East Moline. They based their downgrade on pension charges. and the high costs of the OPEB (other post-employment benefits) The Obligation to Retirement The bonds (POBs) that we are preparing to issue are an effort to stabilize the growing burden of pensions through debt servicing. leveled to address these concerns. help reduce our OPEB liabilities. We are confident that we are moving in the right direction regardless of Moody’s rating decision. In addition, I would like to emphasize that Moody’s position on POBs is neutral, recognizing the effort to stabilize growing pension burdens while also recognizing the risk investment of the strategy. “
Taking out bonds, with the intention of investing, is nothing new to cities and counties.
Rock Island County was considering a similar move earlier this week, as officials debated underwriting $ 30 million in bonds to cover unpaid retirement funds.
RELATED: Rock Island County Board Plans To Borrow $ 30 Million To Help Unfunded Pensions
However, on Thursday morning, Rock Island County Administrator Jim Snider revealed those talks had been tabled. In a statement to News 8, he said:
âOur closer examination of our actuary this week, our unfunded IMRF retirement liability appears to have fallen to around $ 2 million instead of the estimated amount report last Tuesday of $ 23.7 million. This is due to the very Recent strong stock market performance of our estimated IMRF funding level. Obviously, future stock market performance could lead to an increase in this unfunded portion. However, at this point there is no need to further examine the POB.
The county had processed funds through the Illinois Municipal Retirement Fund (IMRF) and said the unfunded portion was deemed negligible. Snider said there was no longer a need to consider a general obligation (POB), due to the outperforming IMRF stocks.
âOur returns on investment have improved dramatically,â he said. “This unfunded level always fluctuates with the stock market. Due to the confirmation of IMRF’s investment level, at this point the market performance has – to date – eliminated this unfunded liability.”
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