CHICAGO – A Cook County Circuit Court judge denied Chicago’s request to keep its court-voided pension reforms in place pending an appeal.

On July 24, Judge Rita Novak overturned the city’s 2014 legislation that overhauled two of the city’s four pension funds as a violation of the state constitution’s pension clause.

During a hearing July 29, Novak denied Chicago’s request to stay enforcement of her ruling during the appeal process.

Chicago intends to appeal directly to the Illinois Supreme Court.

The city could still ask the state’s high court to put off enforcement. Otherwise, the city and funds must re-work employee and employer contribution levels and annuitant payments, refunding the high employee payments and covering the difference in annuitant checks made since the law took effect Jan. 1.

"I don't see there is much likelihood of success on the merits at all once the case reaches the Supreme Court," Novak said.

Mayor Rahm Emanuel and his administration have in recent days put off questions over whether the city has a “Plan B” to deal with the looming insolvency of the two funds and their growing unfunded liabilities, which have played a large role in dragging down the city’s bond ratings, including its junk-level Ba1 mark from Moody’s Investors Service.

The administration has said it remains hopeful that the high court will reverse Novak’s decision based on the legal arguments.

The municipal and laborers’ funds face insolvency in the next decade absent the overhaul. They account for about half of the city’s unfunded tab of nearly $20 billion. The city’s contributions to its police and firefighters funds will jump by $550 million next year under a separate 2010 state mandate to stabilize local government public safety funds.

The case is being closely followed by investors who view the city as a distressed borrower and in turn demand steep interest rate penalties on general obligation borrowing.



Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.