On May 12, Moody's Investor Service downgraded the credit rating of Chicago city, leaving the city's municipal bounds at 'junk' status.

Moody's Investors Service is the bond credit rating business of Moody's Corporation, which provides international financial research on bonds issued by commercial and government entities. The company ranks the creditworthiness of borrowers using a ratings scale that measures expected investor loss in the event of default. In the present case, the agency has relegated the rating of the City of Chicago, the city's school system and the park district.

The analysts opined that they found that Chicago had unmet pension liabilities to the tune of $60,000 per household. This meant a shortfall nearly equal to six times the annual budget for the city. Despite the great economic assets the city had, the pension debt figures were the highest among other US local governments.

The reason that prompted the downgrade was the Illinois Supreme Court decision earlier this month, striking down state employee pension changes as unconstitutional. Getting a junk rating from Moody's entails additional payments of about $2.2 billion to bankers, worsening an already difficult fiscal situation.

The action by Moody's has drawn flak from all quarters, across the city. Mayor Rahm Emanuel, who was re-elected few months back, was highly critical of the downgrades. He hoped that his administration could contain the situation by the proposed pension reforms.

However, Rachel Cortez, vice president and senior analyst in Moody's Chicago office, defended the firm's independent analysis, as she attended a luncheon organized by Chicago City Club. She maintained that Moody's was 'just one voice' that provides an objective assessment based on basic mathematics and it, in no way tries to dictate public policy.

However, it's clear that the city cannot bear losses by reducing pension benefits now or bringing in tax hikes, as people would device ways to get even with the administration.