SPRINGFIELD – A leading credit rating agency has called legislation to overhaul to Chicago's pension funds a "positive development," but said it won't solve all the city's problems – especially if assumptions for annual investment returns fall short.
The analysis by Moody's Investor Service was released Monday, and says the proposal is "modestly credit positive" because it tackles the city's massive and growing underfunded pension liabilities.
"Still, even with reform," the report continues, "pensions will continue to weigh heavily on Chicago's credit quality."
Mayor Rahm Emanuel announced last week that he had an agreement with two city unions covering 57,000 workers and retirees to cut a $20 billion deficit in the municipal workers' and labor workers' pension funds over 40 years. He said half the cost for the pensions would be covered by a five-year, $750 million increase in property taxes.
The state General Assembly must approve the changes. While Chicago City Council members would be the ones voting on a property tax increase, some state lawmakers feel that they're unfairly shouldering the burden of raising taxes by approving legislation nodding to the changes.
The timing isn't the best, either, coming just a week after Gov. Pat Quinn made property-tax relief a cornerstone of his state budget plan. The governor also wants to make permanent what had been planned to be a temporary increase in the state income tax.
If passed by the Legislature, the pension reform law would also need to survive potential court cases arguing that the changes violate the Illinois Constitution's protection of pension benefits. The constitution states that promised benefits shall not be "diminished or impaired."
The Moody's report said that even with reform, pensions will continue to weigh heavily on the city's financial problems. The agency downgraded the city's credit rating last month.