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updated: 7/18/2013 7:28 AM

Moody's downgrades Chicago's debt rating

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Associated Press

Moody's Investors Service is downgrading its debt rating for Chicago because of the city's "very large and growing" pension liability.

The agency said late Wednesday it's lowering its rating of the nation's third-largest city from Aa3 to A3.

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The ratings for general obligation debt and sales tax debt are still investment grade. But Moody's says the outlook is negative because of "formidable legal and political barriers to pension reform" in Illinois.

The downgrade affects $8.2 billion in debt and means it will cost more for the city to borrow money.

Moody's says Chicago has a $19 billion unfunded pension liability, and will face "tremendous strain" in future operating budgets as city officials try to meet funding requirements and public safety demands.

Illinois has a $97 billion pension shortfall.

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