Moody’s: Chicago’s Path to Higher Credit Rating Is Paved With Pension Contributions

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Moody’s has released a “FAQ”-style report addressing common questions regarding Chicago’s credit rating.

The report addressed the ways in which Chicago can climb out of its “junk” status and improve its credit rating.

It indicates that, no matter how you slice it, there’s only one sure-fire way for the city to pay down its pension debt and improve its credit rating: make its pension contributions, on time and in full.

From Moody’s:

Our future rating actions on Chicago will largely reflect city officials’ actions on pension contributions and, ultimately, the growth of debt and pension leverage on the city’s balance sheet. Chicago’s pension funding requirements are governed by PA 98-0641 (the statute that applies to the Municipal and Laborer plans) and PA 96-1495 (the statute that applies to the Police and Fire plans). Whether or not either statute ultimately stands, we believe that Chicago’s administration will eventually have to increase pension contributions through some combination of operating revenue growth and operating expenditure reduction. The magnitude of those expected budget adjustments will be significant and will force city officials to make difficult decisions for years to come.

[…]

Chicago officials could respond to an adverse ruling on PA 98-0641 by pursuing new state legislation that authorizes the city to increase contributions to the plans. If Chicago’s administration increases pension contributions in the context of balanced operating budgets that do not rely on non-recurring revenue sources, we could move the rating up or revise our rating outlook to stable.

Keeping up with contributions is easier said than done. Annual payments will skyrocket in coming years, as Pension360 has covered.

 

h/t CapitolFax

Photo credit: bitsorf via Flickr CC License

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