Chicago became the latest U.S. city to see its financial prospects dragged down by its pension obligations when Standard & Poor's changed its outlook to negative from stable, while affirming its A-plus bond rating.
"The outlook change reflects our view of the risks involved in how the city will address its upcoming, large pension payments," Standard & Poor's credit analyst Helen Samuelson, said in a statement.
While the city scored high by some measures – strong cash levels to pay debt, budgetary flexibility and a broad and diverse economy – S&P noted that Chicago's unfunded pension liabilities had grown from $11.9 billion in 2011 to $19.4 billion a year later. The city's annual pension payment is projected to hit over $1 billion in 2015, nearly double the current amount.
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In July, Moody's had cut the city's rating for its general obligation bonds three notches, from A3 to Aa3. Moody's cited pension liabilities and the state's constitutional protection of public pension benefits as negatives.
The city's troubles with future pension liabilities come against a backdrop of similar circumstances across the country. In Illinois, the state's legislators have been trying to work out a deal for more than a year to reduce pension liabilities of $100 billion.
In California, Gov. Jerry Brown pushed through legislation last year to reform the state's public pension system, including CalPERS, the largest public fund in the nation. Unions have been fighting the changes on the grounds that their collective bargaining rights have been usurped.
In New York state, Moody's dropped the outlook of the town of Huntington to negative because it had deferred $43 million in payments it owed to the state pension fund. About 200 New York municipalities have deferred payments since 2010 under a program designed to ease budgetary pressure.
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