CHICAGO -- Kroll Bond Rating Agency followed Fitch Ratings in dropping Chicago's bond rating in the wake of an Illinois Supreme Court decision against the city.
Kroll downgraded Chicago to BBB-plus from A-minus Monday, and maintained the negative outlook it first assigned in January.
The downgrade put Kroll's rating on par with Standard & Poor's.
Fitch Ratings downgraded Chicago two notches last week to BBB-minus, the lowest investment grade level. Moody's Investors Service rates the city junk. All assign a negative outlook.
The state's high court rejected state legislation to overhaul two of Chicago's four employee pension funds.
The decision "is based upon the limited options now available to the city in addressing the large unfunded liabilities of two of its pension funds, the absence of a specific plan or time frame for action, as well as increased uncertainty as to the eventual outcome of such a plan," the rating agency said.
Kroll said the court's ruling declaring the reforms unconstitutional wiped out progress Chicago had made toward addressing the pension funding issues of its municipal employees' and laborers' pension funds, which together make up about half of the city's massive $20 billion unfunded pension tab.
The plan called for benefit cuts and higher employee and city contributions as it shifted the funding scheme to an actuarially based one from the statutory method based on a percentage of payroll, which falls short of keeping the funds healthy.
The funds are headed toward insolvency in the next decade based on the older funding scheme, which Kroll calls "unsustainable."
"Longer term options will require a combination of revenue enhancement which will further burden taxpayers and/or expenditures reductions that may impact service delivery," Kroll said.
While the court left open the possibility that the city could try new reforms if it strikes an agreement with its unions and offers some benefit in exchange, Kroll noted the difficult road ahead. Any plan would require a labor consensus with all bargaining groups and then win General Assembly and Gov. Bruce Rauner's approval. It also potentially faces another legal test.
"In KBRA's opinion, the clarity of the Supreme Court decision significantly strengthens the negotiating position of these bargaining groups. In addition, with most labor agreements in place through calendar year 2017, KBRA does not expect any discernable progress in the near-term," analysts wrote.