Moody’s Investors Service downgraded the city of Chicago’s credit rating to Ba1 from Baa2 as a result of the Illinois Supreme Court’s ruling May 8 that the Illinois pension reform law of 2013 is unconstitutional.

In a news release on Tuesday, Moody’s said the court’s decision to overturn that law gives the city a negative outlook, stating “we believe that the city’s options for curbing growth in its own unfunded pension liabilities have narrowed considerably.”

The state’s overturned pension law reduced cost-of-living adjustments, capped pensionable salaries and raised retirement ages. The Supreme Court ruled the law violated the state’s constitutional clause that pension benefits “shall not be diminished or impaired.”

The junk bond rating reflects a negative outlook that a similar Chicago pension reform law passed in 2014 will ever be enacted. On May 8, Chicago Mayor Rahm Emanuel had maintained the city’s pension reform law is constitutional.

The Chicago pension law passed in June raises employee and employer contributions and reduces retiree cost-of-living adjustments for the $5.1 billion Chicago Municipal Employees’ Annuity & Benefit Fund and $1.4 billion Chicago Laborers’ Annuity & Benefit Fund.

Moody’s said in the news release, “We expect the costs of servicing Chicago’s unfunded liabilities will grow, placing significant strain on the city’s financial operations absent commensurate growth in revenue and/or reductions in other expenditures.”

Mr. Emanuel said in a statement: “This action by Moody’s is not only premature, but it is irresponsible to play politics with Chicago’s financial future by pushing the city to increase taxes on residents without reform. I am committed to focus on both reform and revenue to address Chicago’s fiscal crisis, and we will continue our work in Springfield and with our partners in labor to ensure we will always meet our obligations, protect the retirements of our workforce, continue to deliver vital city services, while protecting our taxpayers.”

Rob Kozlowski writes for Pensions & Investments, a sister publication of Business Insurance.