SPRINGFIELD -- A leading credit rating agency 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 released Monday by Moody's Investor Service had called the original proposal "modestly credit positive" because it would tackle 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 had 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.
Later Monday, however, Illinois House Speaker Michael Madigan added an amendment to the legislation removing a property tax hike that would have accounted for about half the cost of the plan. He did not offer an alternate source of funding the pension reform, though the Chicago City Council can still raise property taxes on its own. The state General Assembly, though, must approve the plan. While city council members would be the ones ultimately voting on a property tax increase, some state lawmakers felt that they would have been unfairly shouldering the blame for 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 state Constitution's protection of pension benefits. The constitution states that promised benefits shall not be "diminished or impaired."
The Moody's report says 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.