CHICAGO, March 28 Chicago's low-investment grade
credit rating could be at risk if the city is unable to boost
funding for two of its pension funds starting this year, S&P
Global Ratings said on Tuesday.
The warning came after Illinois Governor Bruce Rauner vetoed
a bill last week that would have allowed Chicago to ramp up
payments to its municipal and laborers' retirement systems over
five years. The measure, which cannot be subject to a veto
override vote because it was passed in the previous legislative
session, was aimed at preventing the funds from running out of
money within 10 years.
"Timely action on pension funding is crucial to the city's
budgetary stability," S&P said, adding that delaying increased
pension contributions beyond 2017 "could lead to credit
Credit ratings for the nation's third-largest city have been
weakening due largely to an unfunded pension liability that
stood at $33.8 billion at the end of fiscal 2015.
S&P revised the outlook on Chicago's BBB-plus general
obligation bond rating to stable from negative in October,
citing the city's passage of a tax on water and sewer usage to
raise money for its largest pension fund covering municipal
Chicago also increased a telephone surcharge to aid the
laborers' system. Molly Poppe, a city spokeswoman, said on
Monday that the revenue earmarked for pension payments is being
held in an escrow fund as Chicago awaits final action on an
identical bill that passed the Senate in January and is
currently pending before a House committee.
The Republican governor on Monday told reporters that the
city's pension fix lacks fundamental restructuring of retirement
costs and will result in a big balloon payment in 2023.
S&P said the latest bill is likely to receive enough votes
to overturn a subsequent veto based on strong bipartisan support
for the original measure. But it noted that Chicago must still
come up with additional money for pensions in 2023 when larger
contributions will be needed.
"We anticipate that the city will still take tangible steps
to address near-term pension pressures, but in the absence of
additional measures to ensure the affordability of the
contributions and the sustainability of the plan, credit
stability could be short-lived," the credit rating agency said.
(Reporting by Karen Pierog; Editing by Matthew Lewis)