August 14, 2015
By: Thomas Corfman
The city of Chicago is the local government most burdened by unfunded retirement plans in the nation, with a pension debt that’s more than eight times annual revenues, according to a new study by Moody’s Investors Service.
The city’s unfunded pension obligations total $29.80 billion, based on a three-year average calculated by Moody’s. That is 15.9 percent of its property tax base, making it the highest in the nation by that measure as well, according to the report, which tracks the 50 largest local governments based on outstanding debt.
Chicago also held the unpleasant distinction of being the local government most burdened by pension debt two years ago, when the New York-based ratings agency initiated its comparative study of local governments, which includes counties and school districts. (Moody’s didn’t do a report last year.)
A spokeswoman for the Emanuel administration declined to comment.
Citing mounting pension debt, Moody’s in May downgraded boththe city and the Chicago Board of Education to junk bond status. The board ranks 14th in unfunded retirement plans nationwide.
The report uses 2013 financial data. Moody’s independently calculates unfunded pension obligations, instead of relying only on figures reported by the local governments. To create accurate comparisons, it also calculates that liability as a percentage of a local government’s operating revenue and tax base.
For example, New York has the highest pension liability, with a three-year average of $86.23 billion. But the city ranks 34th in pension burden because that liability is 122 percent of revenue.
Other cities with heavy pension burdens, compared with revenue, are: Dallas (No. 2), Los Angeles (No. 3) and Jacksonville, Fla. (No. 6).
Among the top 50, the local government with the lightest burden is Washington, D.C. The nation’s capital is followed by Wake and Mecklenburg counties in North Carolina and three school districts in Texas, including one serving Houston.
Illinois has four local governments on the list, and all of them are in the top 15 for pension woes.
The board of ed’s ranking underscores the need for the Illinois General Assembly to increase state aid to the school district’s pension fund, according to spokeswoman Emily Bittner.
“We’ve been encouraged in recent days to see, for the first time, the acknowledgement of our pension inequity, and we will continue to work with our partners in Springfield on a comprehensive, long-term solution,” she said in an email.
Cook County ranks fourth nationwide, with pension debt of $11.16 billion, or nearly 4.8 times revenue, followed by the Metropolitan Water Reclamation District of Chicago, with pension debt of $2.09 billion, or 4.6 times revenue.
In June, Moody’s gave a one-notch reduction to the county, followed by a similar cut in July to the the reclamation district. Both agencies’ credit remains investment grade.
In July, Cook County Board President Toni Preckwinkle supported a one-penny increased in the county sales tax in part to help fund the retirement plan, spokesman Frank Shuftan noted.
“Raising the sales tax rate . . . was a difficult but necessary decision in confronting the pension fund’s shortfall and, when combined with significant expenditure reductions, will put the county on the path to long-term fiscal stability,” he said in an email.
As a result of a 2013 overhaul of the reclamation district’s pensions, the district contributed $18.1 million more than required that year, the best performance nationwide, according to the report. “The district expects this positive trend to continue,” Allison Fore, a spokeswoman, said in an email.