May 01--Even as Mayor Rahm Emanuel pledged this week to reverse some of the city's most-criticized borrowing practices, one major ratings agency on Friday highlighted another financial issue: rapidly ballooning employee pension fund payments.
Chicago's pension payments not only will grow by 135 percent to $1.1 billion next year, but also will continue swelling at a significant pace until 2026, when they will reach $1.9 billion -- or four times what the city is paying into those funds this year, according to the report by Moody's Investors Service.
Though the city will put more money into its retirement systems, the total pension debt, now estimated at about $20 billion, will continue to grow until 2027, when the city would finally begin to whittle away at that liability, the report states. But the payments still would continue to increase by up to 3 percent a year until 90 percent of the debt is covered, the report adds.
The police and fire pension funds, which account for most of the payment increases, are not expected to reach 90 percent funding until 2040. That's the schedule set under a state law that also requires that the city pay $550 million more into those two funds next year.
Emanuel is negotiating with police and fire unions to achieve a combination of reduced benefits, larger employee contributions and phased-in city payment increases. Even if he achieves that -- and the courts don't overturn changes he already engineered to municipal workers and laborers funds -- the city still would have to pay significantly more into the funds in the coming years.
But if he can't achieve the changes to police and fire funds and get the state to lower the city's payments and the courts overturn the changes he already engineered for two other city pension funds, all of the funds would be on a trajectory to go broke by 2029 and leave the city in an even greater financial pickle, the Moody's report concluded.
"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," the report stated.
Moody's made no recommendations, but the report highlights the primary concern of market analysts over Chicago's financial condition.
Emanuel tried this week to sooth market concerns in the face of a potential Illinois Supreme Court ruling that could ultimately undo the changes already made to the two city pension funds by pledging to end deals that expose the city to costly risks and to curtail practices that have increased its overall debt burden.
Those changes include paying $200 million to get out of complex derivative contracts known as swaps, converting all variable interest rate debt to fixed-rate borrowing, and phasing out the practice known as scoop and toss, under which debts coming due are paid off with new loans that push payments onto future generations at a higher cost.
There was no immediate response from the Emanuel administration to the Moody's report.
hdardick@tribpub.com
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