April 8 (Bloomberg) — Chicago's effort to stabilize two of its four pensions won approval in the Illinois House of Representatives.
The measure aimed at restoring retirement funds for laborers and municipal workers passed today in Springfield, the capital, by a vote of 73 to 41 and moved to the Senate. The bill was changed after Democratic Governor Pat Quinn said he opposed letting lawmakers raise Chicago property taxes by $750 million over the next five years. In a compromise, the city council would have to endorse the increase.
"To do nothing will put all the participants in the system and retirees at risk of no benefits," said Democratic Representative Elaine Nekritz, who said that, without action, those two systems will be bankrupt within 15 years.
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The bill, if enacted, represents only a partial solution to growing unfunded liabilities in Chicago, which totaled almost $20 billion in 2012. The measure doesn't affect the police, firefighter or Chicago Public School retirement systems, nor does it address the additional $600 million in pension payments due next year.
Modest Improvement
The bill would require the city and its employees to pay more into the pension systems. It would also reduce annual cost- of-living payments. The state would have the right to withhold funding to Chicago in any year that the city fails to make required contributions to the funds.
At least $15 million of taxable Chicago general-obligation bonds traded today at the lowest yield since they were issued March 12, showing that investors are demanding less interest income to hold the debt, data compiled by Bloomberg show. The 6.03 percent yield on the 30-year securities is 2.46 percentage points more than benchmark U.S. Treasuries, the data show.
Moody's Investors Service called the city's proposal "modestly credit positive" in a report issued yesterday. Chicago's general-obligation rating remains at Baa1, three levels above noninvestment grade.
"Even with reform, pensions will continue to weigh heavily on Chicago's credit quality," Moody's said yesterday.
Chicago's general-obligation grade from Moody's is the lowest among the 90 biggest U.S. cities, excluding bankrupt Detroit and Stockton, California, data compiled by Bloomberg show.
House floor debate drew comparisons to Detroit, which filed for bankruptcy in 2012.
"Unless the laws of economics have somehow overturned, Chicago could become a next Detroit," said Republican Representative David Harris. "It could happen in Chicago and they are on that path right now."
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