A Wall Street rating agency that alone gave Chicago a junk bond rating on Friday branded as “credit negative” a bill Gov. J.B. Pritzker signed over Mayor Lori Lightfoot’s objections boosting pensions for thousands of Chicago firefighters.
“The legislation is credit negative for the city of Chicago,” said the advisory from Moody’s Investors Service, “because it will cause the city’s reported unfunded pension liabilities, and thus its annual contribution requirements, to rise.”
With pension contributions consuming 17% of the city’s operating revenue and total liabilities pegged at $46.6 billion in 2019, pensions are the “largest credit challenge facing Chicago,” Moody’s said.
Pritzker signed the bill on Monday, arguing the new law “creates a system that gives all firefighters certainty and fair treatment.” But Lightfoot, who had urged the fellow Democrat not to sign it, blasted it as a “fiscally irresponsible” law typical of Springfield’s “back room deals.”
Moody’s on Friday gave Lightfoot more ammunition.
The Firefighters Annuity and Benefit Fund has “asset/benefit coverage of just three years,” Moody’s wrote. That’s a “point-in-time estimate of the numbers of years of benefit payments pension assets can cover, assuming no further contributions or investment income and no further growth in benefits.”
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“The city must continue to increase its contributions substantially to prevent the insolvency of its deeply underfunded retirement systems and eventually accumulate a more substantial base of pension assets,” Moody’s wrote.
But the rating agency also wrote, “While significant, the roughly $800 million liability increase stemming from House Bill 2451 that the city has forecast is not outsized relative to the scale of the city’s already extremely high liabilities.”
The bill, introduced by state Sen. Robert Martwick, D-Chicago, a Lightfoot political nemesis, passed in the waning hours of the lame duck session.
It removes the “birth date restriction” that prohibits roughly 2,200 active and retired firefighters born after Jan. 1, 1966, from receiving a 3% annual cost of living increase. Instead, they get half that amount, 1.5% and it is not compounded.
Martwick has argued the “birth date restriction” already has been moved five times as a way of masking the true cost to the pension fund.
Lightfoot strongly disagreed. She has argued the bill amounts to ill-timed and unaffordable pension sweetener that would saddle Chicago taxpayers with up $823 million in added costs by 2055 and trigger “another property tax hike for Chicagoans, which would regrettably add to the overwhelming economic duress that so many or our neighbors are facing.”
The mayor’s $12.8 billion budget already includes a $94 million property tax increase, followed by annual increases tied to the Consumer Price Index.
When he signed the bill on Monday, Pritzker argued that “hardworking men and women who have earned their pension shouldn’t pay the price for local or state budget challenges.”
“To make sure that the city can meet its obligations, my administration is working to sell the James R. Thompson Center, which will return to the city’s property tax rolls and is projected to generate $45 million annually for the city and its sister agencies,” the governor wrote in a statement.