Chicago could lose its A+ credit rating if the city does not implement a plan to “substantially” fund its pension plans this year, Standard & Poor's Ratings Services said in a news release Thursday.
“If the city fails to articulate and implement a plan by the end of 2015 to substantially fund its pension contributions, or if it substantially draws down its reserves to fund the contributions, we will likely lower the rating. This is regardless of whatever relief the state Legislature may or may not provide,” the news release said.
S&P's announcement comes on the heels of Chicago Mayor Rahm Emanuel's re-election.
“Following Tuesday's vote, in order to maintain its current rating, we expect the administration to address the pension and budget challenges head on by providing solutions that will support the city's credit strengths in the near and far term,” said Helen Samuelson, S&P credit analyst, in the release.
A spokeswoman for Mr. Emanuel could not immediately be reached for comment.
Chicago faces roughly $20 billion in unfunded pension liabilities across its four funds: the $5.1 billion Municipal Employees' Annuity & Benefit Fund, $1.4 billion Laborers' Annuity & Benefit Fund, $3.3 billion Chicago Policemen's Annuity & Benefit Fund and $1 billion Chicago Firemen's Annuity & Benefit Fund.
In February, lawsuits challenging the constitutionality of a 2014 pension reform law aimed at reducing the $9.4 billion in unfunded liabilities across the Municipal and Laborers funds were put on hold pending an Illinois Supreme Court ruling on state pension reforms.
The Chicago reform law, which took effect in January, raised employee and employer contributions and reduced retiree cost-of-living adjustments for participants in the two pension funds. A status hearing on the Chicago lawsuits is scheduled for April 22.
Excluded from the 2014 law were the city's police and fire pension funds. The city projects its required pension contributions will increase to $1.1 billion total (collected in 2016) from $478.3 million the previous year, $550 million of which is attributable to the city's police and fire funds, said Linda Schulte, spokeswoman for the Civic Federation in an e-mail.
The Civic Federation is an independent government research organization in Chicago.
S&P's outlook on Chicago's debt is negative. In February, the ratings agency said its negative outlook reflects the view that the large, upcoming payments for the fire and police pension funds could become “a source of budget stress.”
Moody's Investors Service, another ratings agency, downgraded Chicago's credit rating to Baa2 in February over concerns about the city's “highly elevated” unfunded pension liabilities.