Chicago Warned By Moody’s About Pension Liabilities

In early April, Standard & Poor’s warned the City of Chicago:

If the city doesn’t find structural solutions, a downgrade of more than one notch is possible.

In our view, if the city fails to articulate and implement a plan by the end of 2015 to sustainably fund its pension contributions, or if it substantially draws down its reserves to fund the contributions, we will likely lower the rating.

Now Moody’s has fired a shot across the city’s bow in 2015. From their Global Credit Research unit on Friday:

Chicago’s (Baa2 negative) pension plans face an uncertain future. Statutes that govern the city’s pension funding requirements have come under legal and political fire, particularly during the last year, as pensioners, politicians, taxpayers and investors have questioned the laws’ constitutionality and affordability, Moody’s Investors Service says in a new report.

Regardless of the ultimate answers, one outcome is certain: Chicago’s unfunded pension liabilities and ongoing pension costs will grow significantly, forcing city officials to make difficult decisions for years to come.

If current laws stand, Chicago’s annual pension contributions are projected to increase by 135% in 2016; by an average annual rate of 8% in 2017-21; and by an average annual rate of 3% in 2022-26.

The 2016 increase alone equals a significant 15% of the city’s 2013 operating revenue, Moody’s says in “Chicago’s Pension Forecast — Tough Choices Now or Tougher Choices Later.”

(Editor’s note: Bold added for emphasis)

“Touch Choices Now or Tougher Choices Later.” That pretty much sums up the situation not only in the “Windy City,” but in the state of Illinois as well.

Blame Emanuel? Blame Rauner? Whatever. As is if these guys have been around long enough to help put Chicagoans and Illinoisans in their respective financial messes.

You can read the rest of the Moody’s news release on their website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Sunday, May 3rd, 2015 Credit, Debt Crisis, Entitlements, Government
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