Moody’s Investor Services cut Chicago’s bond rating from Baa2 to Ba1; Standard & Poor’s lowered the City’s rating from A+ to A-; and Fitch Ratings cut Chicago’s ratings from A- to BBB+. Crain’s says that the City has the worst pension reform situation in the nation.
Chicago has six pension plans. The city sponsors four. Two others are sponsored by the Chicago Board of Education and the Chicago Park District. Two years ago, these six plans were 40 percent funded and owed a total $30 billion (see table courtesy of MarketWatch).
MarketWatch suggests that the reason why Chicago has this problem is because up until 2015, rules for Chicago’s pension funds were set by Illinois state laws. In 2014, Chicago passed legislation that would raise employer and employee contributions and the employer ended up paying far less than other states would have required. In fact, contributions fell hugely short of actuarial required amounts.
In the beginning of 2015, the State changed this state of affairs with all employers, except for Park Employees, paying the actuarial calculated amount. Their hopes were that the plans would be 90 percent funded by 2055 (2040 for the Police and Fire Funds).
Chicago legislated – and is still discussing legislation – for its four plans. No reforms have been proposed for the two sponsored by Education and the Park.
In 2013, MarketWatch studied the burden on pension on 173 states and concluded that none were as bothered by its burden as Illinois was. On average, each has to contribute an annual amount that comes to 7.9 percent of city revenues. Chicago, on the other hand, has to contribute an amount that approximates 17.0 percent of revenues.
The options seem dim. Chicago is left with a $30 billion debt which can be paid off in one of two ways. Either by cutting government spending to the bone. Or by raising taxes.
Article by: Leah Zitter, dbfchicago.com Writer