CHICAGO — Chicago's pension woes run so deep they pose a long-term fiscal threat even if the city overcomes the legal and political hurdles to its stabilization efforts, Moody's Investors Service warns in a new report.

Moody's cautioned that a failure to achieve a long-term fix threatens the city's future solvency.

"In our opinion, the pursuit of bankruptcy is not on the near-term horizon for Chicago" if it were made an option through state legislation, Moody's said. "If Chicago's pension funds continue toward insolvency, however, our opinion may change."

The somber assessment came in a report published May 1 that looked at the potential outcome of legal challenges to existing reforms and their impact as well as the political landscape the city faces in tackling further reforms.

Moody's rates Chicago's general obligation debt Baa2, two notches above a speculative grade, and assigns a negative outlook primarily over the burden posed by $19 billion of unfunded liabilities.

"Regardless of the ultimate answers, one outcome is certain: Chicago's unfunded pension liabilities and ongoing pension costs will grow significantly, forcing city officials to make difficult decisions for years to come," Moody's analyst Rachel Cortez wrote.

If current laws stand, Chicago's annual pension contributions will rise by 135% next year, straining the city's operating budget, and then by an average annual rate of 8% between 2017 and 2021 and by an average annual rate of 3% in 2022 through 2026.

The 2016 increase alone equals a significant 15% of the city's 2013 operating revenue. The unfunded liabilities won't begin to decline until 2027 when annual contribution increases should also begin to moderate.

"Without the increased payments that current statutes require of the city, the plans will continue to liquidate assets to pay benefits. As the plans approach insolvency, risks to the city's solvency will grow," Cortez warned.

The legal and political uncertainty stems from several fronts. Pension reforms approved for the city's municipal and laborers funds face a legal challenge. Separately, the city is still seeking reforms for its police and firefighters' funds but negotiations are on hold as all parties await guidance from the Illinois Supreme Court on a challenge to state reforms.

The city wants to include in any public safety reform package the ability to phase in of a $550 million contribution spike required in 2016 under a prior statewide mandate. The city contends it can't afford the spike but any delay in phasing in a shift to an actuarially based contribution without benefit cuts only hastens the funds' deterioration.

"Any reductions to the city's required contributions will position the plans on a fast track toward asset depletion, absent a commensurate reduction in benefit payments that withstands almost certain legal challenges," Moody's warned.

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