CHICAGO (Reuters) – Chicago’s preliminary budget gap is expected to fall next year but is on track to nearly triple in 2015 without pension reform, Mayor Rahm Emanuel said on Wednesday.
The city, which faced budget shortfalls topping $600 million in fiscal 2011 and 2012, projects a budget gap of $338.7 million for fiscal 2014, down from $369 million this year. But that gap is projected to widen to nearly $995 million in fiscal 2015 and $1.15 billion in fiscal 2016.
Chicago, the third-largest U.S. city, has to comply starting in 2015 with a state law that requires it to increase pension payments to bring the pension funding level to 90 percent by 2040.
The city’s pension payments are expected to grow from $479.5 million in 2014 to about $1.07 billion in 2015 and $1.11 billion in 2016, according to a financial analysis released by the mayor.
Emanuel has been pushing for the Illinois Legislature to pass a plan to curb the city’s pension costs – a move complicated by a state constitutional provision prohibiting the impairment of public pension benefits.
“As outlined in this report, the need for action on comprehensive pension relief is immediate so that Chicago can continue to make the critical investments needed today while building the economic foundation for tomorrow,” Emanuel said in a statement.
The Democrat-controlled Illinois Legislature has been unable to reach an agreement on reforming the state’s own pension system, which has an unfunded liability of $100 billion and is the worst-funded among U.S. states.
Moody’s Investors Service on July 17 dropped Chicago’s general obligation credit rating three notches to A3, citing the city’s “very large and growing pension liabilities and accelerating budget pressures associated with those liabilities.”
The rating agency also placed a negative outlook on the lower rating due to the upcoming spike in the city’s pension payments.
While Chicago reported a $19 billion unfunded liability for its four pension funds at the end of 2012, Moody’s said it pegged the liability at $36 billion, using more conservative assumptions.
The city projects revenue of $3.02 billion in fiscal 2014, which begins Jan. 1, versus $3.35 billion in spending. Emanuel is scheduled to present his budget to the city council in October.