Chicago could face further credit-rating downgrades without comprehensive municipal and laborer pension reform, Standard & Poor’s said in a recent report.
“In S&P Global Ratings’ view, the city’s credit quality could weaken unless it gains both union and legislative support for any changes to its municipal and laborers’ plans, and identifies a solid funding mechanism to address the unfunded liabilities and prevent further destabilization of its budget,” said the ratings agency in a report released Thursday.
In May, city and union officials unveiled a pension deal aimed at raising the funded status of the $1.35 billion Chicago Laborers’ Annuity & Benefit Fund’s to 90%, from the current roughly 45%, by 2057 through increased employer and employee contributions and reduced benefits for new workers. Without some sort of action, the pension fund had been projected to become insolvent in 2029. The city funding would come from revenue received from a 2014 increase in the city’s emergency phone surcharge.
S&P also noted Thursday that any plan for the larger $4.6 billion Chicago Municipal Employees’ Annuity & Benefit Fund should identify revenue sources. A plan could be unveiled in the coming weeks and potential revenues are “not forthcoming at this time,” the report said.
An earlier agreement between the city and union members in the two pension funds was ruled unconstitutional March 24 by the Illinois Supreme Court after active and retired city workers argued the law, which raised employee and employer contributions and reduced retiree cost-of-living adjustments, violated the state’s constitutional clause that pension benefits cannot be reduced or impaired.
S&P maintained Chicago’s BBB+ general obligation bond after the March ruling, but said the court’s decision showed the need for additional reform work.