Report highlights Chicago's pension problem for Illinois

[December 02, 2021]  By Andrew Hensel

(The Center Square) – A new report from S&P Global highlights the pension problem in the city of Chicago compared to other large cities in the country.

The report, from Bobby Otter and Todd Kanaster at S&P Global Surveys, evaluates each city's largest pension plans, which account for most of the total pension liabilities for each municipality.

"When full actuarially based statutory payments reach $2.275 billion in 2022, this amount will be $967 million more than the city's contributions in 2019," the authors wrote in the report. "Despite the strides it has made to incorporate the sharp ramp-up in pension contributions, Chicago's pension funding levels will remain weak for the foreseeable future."

The report shows how the nation's 20 biggest cities have used federal aid money to help alleviate short-term budgetary pressure and stabilize finances.

Even among other large cities, Chicago's debt is distinctive.

"The delay in addressing the problem is exacerbated by pegging the funding pace to the Illinois funding goal of 90% over 40 years, which is significantly less than S&P Global Ratings' guidance to amortize 100% of the obligation in 20 years," the authors wrote in the report. "However, of equal concern in the short run is the city's high combined debt service, pension, and OPEB carrying charges of 36.8%, which crowd out the city's ability to fund other needs."

Cities were not allowed to use federal dollars to help pay off pensions, but CARES and ARP dollars have provided some relief to municipal budgets.

Illinois and specifically, the City of Chicago, have continued to struggle with their budget due largely to their growing pension problem.

Chicago has the worst-funded pension ratio in the country, and it is forcing the city of Chicago to make tough decisions, Otter said.

"The city is now put in a situation where they may have to decide between increasing revenue or cutting costs," Otter said. "If the pension contributions continue to increase, how do they adjust that going forward?"

Ted Dabrowski, president of Wirepoints, a non-profit Illinois economy research group, said that the pension problem is affecting Illinoisans all over the state, not just Chicago residents.

"If you live in Illinois, you are seeing more and more proposals to raise taxes," Dabrowski said. "A lot of that finds its way back to Chicago as they try and bail out their problems."

Illinois's five statewide retirement systems hold more than $144 billion worth of debt. But even without the burden of the state-run pension systems, Chicago stands out compared to other big cities.

"The fixed cost of the city of Chicago is really an outlier compared to the other 19 biggest cities," Otter said. "It is significantly higher than the second city on the list which is San Jose."

The report also showed Chicago's pension funding ratio is at a dismal 22%. Chicago is also struggling with the highest post-employment benefit debt per capita at $13,000 behind only New York City.

As the city's pension problem continues to grow, Dabrowski said that all Illinoisans no matter where they live should be concerned.

"Everybody, whether you live in the city or not should care about Chicago's crisis because everyone else is now being asked to bail it out."