Kroll Sees Pluses and Minuses in Chicago Budget Plan

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CHICAGO – The Kroll Bond Rating Agency has weighed in on Chicago’s 2016 budget, praising the spending plan for a key property tax increase but warning of unresolved challenges and one-shot revenue boosts.

Mayor Rahm Emanuel’s proposed spending plan, with a $543 million annual property tax levy increase at its heart, marks “clear progress in confronting the challenges of unfunded pension liabilities,” Kroll said in the Oct. 6 comment.

Kroll maintains an A-minus rating on the city’s general obligation bonds, the highest among the four ratings agencies and the only one with a stable outlook.

Under Emanuel’s plan, the tax increase would go to help pay off a rising police and fire pension liability.

The 2016 budget also includes other savings, efficiencies and revenue increases, analysts said. The plan “demonstrates the city’s political will to craft an effective and sustainable solution,” the report said.

But significant obstacles remain.

“While KBRA looks favorably on this action, we continue to recognize there are still numerous unresolved issues, which could potentially undermine budgetary goals,” analysts said.

The City Council still needs to approve the property tax; the state General Assembly needs to sign off on a property tax exemption, a key part of Emanuel’s proposal; and the property tax hike assumes that state lawmakers approve, and Gov. Bruce Rauner signs, changes to pension and fire pension amortization schedule. The city also needs to win a challenge to benefit changes in its laborers’ and municipal pension funds that will be heard by the state Supreme Court this fall.

“In the event Senate Bill 1922 is found unconstitutional, KBRA would expect the city and its bargaining groups and/or Illinois General Assembly to formulate a funding solution that will pass judicial muster,” analysts said.

Fitch in a special commentary two weeks ago labeled the proposed budget and tax plan a positive credit development if approved. Standard & Poor’s offered a commentary a few days later more focused on the city’s long-term pension and structural budget ills than on the plan’s aims and warned of further credit deterioration without positive strides.

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