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 The fiscal 2015 spending plan, which includes a $3.53 billion
operating budget, allocates $557 million for Chicago's four pension
funds. That payment will top $1 billion in fiscal 2016 under an
Illinois law that mandated higher city contributions to its police
and fire retirement systems.
Pension pressures could lead to further credit downgrades,
triggering payments on swaps, letters of credit and bank notes.
Emanuel, who is facing reelection for a second term, briefly touched
on pensions in his budget address to the city council, touting
reforms to the city's municipal and laborers' retirement systems
that take effect Jan. 1.
"Working with our partners in organized labor, we passed reforms
that will shore up the pension plans serving half of our city's
workforce - making sure that both retirees and taxpayers are
respected," he said.
Those reforms, which are expected to be challenged soon by some
unions, require both the city and affected workers to beef up
pension contributions, while tying cost-of-living increases for
pensions to inflation.
Chicago Budget Director Alexandra Holt said both the mayor and city
council were looking to put cost-saving reforms in place for police
and fire pensions as well.
Laurence Msall, president of Chicago-based Civic Federation, a
government finance watchdog group, said the budget is "fairly
conservative" in addressing the city's $297 million deficit.
"We're concerned that there is no longer-term plan being articulated
for what to do about the police and fire pensions. What's Plan B if
the General Assembly doesn't approve pension reform, or if the
courts should happen to find (reforms) unconstitutional?" he said.
The Illinois Supreme Court will eventually decide whether any public
worker pensions can be reduced, despite state constitutional
protections. Unions and other parties are challenging Illinois'
pension reform law, which also lower retirees' payments.
In previous addresses, Emanuel warned that Chicago was facing a
fiscal tempest due to pensions. A fiscal analysis issued by Chicago
in August said 2016's pension payment jump would inflate the budget
deficit from $297 million in 2015, to as much as $1.2 billion in
2016 and $1.5 billion in 2017.
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But recent Chicago bond documents indicate that the city is
exploring options to shift all or a portion of the increase to
future years, a move that would increase the systems' unfunded
liabilities.
That, in turn, could trigger downgrades in Chicago's credit ratings.
Moody's Investors Service warned in March, when it cut the city's
rating to Baa1 from A-minus, of another possible downgrade if there
is a "continued unwillingness on the part of the city to raise tax
revenue in amounts sufficient to fund annual pension contributions
in line with actuarial standards."
Moody's also said Chicago's rating could drop if the Illinois
Supreme Court voids the state's pension reform law on constitutional
grounds.
In its bond documents, Chicago said further downgrades could
accelerate payments on swaps, letters of credit and bank notes
associated with a commercial paper program, as well as lessen
investor demand for city bonds.
Emanuel said his proposed budget for the fiscal year that begins
Jan. 1 is balanced, without new property, sales or gasoline taxes.
It would eliminate some tax exemptions, taps money from other city
accounts and counts on money from various reforms.
Alderman Bob Fioretti, one of Emanuel's challengers in the February
mayoral election, called the budget "election-year fluff" which does
not represent a "serious proposal."
(Reporting by Karen Pierog; Editing by Richard Chang)
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