Chicago’s untenable pension situation

February 18, 2015

The headline certainly sounds dire: Chicago sees fiscal doomsday if court suspends pension changes. The reality might live up to the rhetoric.

The state of Illinois is in nearly untenable financial straits, with an unfunded estimated pension liability of a dizzying $111 billion owing to a long history of failing to fully pay into the pension fund. It sought relief in the form of the state’s Pension Reform Act, which brings cost-of-living payouts into line with inflation rather than a straight 3 percent annual increase. But the bill, which went into effect Jan. 1, was quickly struck down by a Springfield court, and now sits before the Illinois Supreme Court, which is expected to rule on it soon.

Chicago, meanwhile, has a crisis of its own, also due to a historical failure to sufficiently pay into its pension system. As this Reuters graphic shows, Chicago’s 2014 pension contribution was $476 million. In that year the city paid out $1.8 billion in benefits to some 55,000 current and retired city workers. And that’s the good news. Projections for 2015 and beyond are well over $1 billion per year in pension payments.

Detroit famously went into bankruptcy in 2013, emerging from it last November when a judge approved a plan allowing the city to shed $7 billion of its $18 billion mountain of debt. At this point it is difficult not to see Chicago’s situation as worse. In July, 2013, Moody’s cut the city’s credit ratingby four notches to Baa1, and in December the agency cited a $32 billion adjusted net pension liability, a number that is eight times the city’s operating revenue. 

As Charles Chieppo wrote for Governing, “The moral of the story is that when you allow something to get as bad as Chicago’s pension system has, there rarely are any good options for fixing it.”

ChicagoPensions021815

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/