CHICAGO – Chicago's general obligation rating will remain on shaky ground until its resolves the looming insolvency of its laborers' and municipal employees pension funds, S&P Global Ratings warned Thursday.

The statement came in a commentary published in response to the enactment of Senate Bill 777, which re-amortizes the payment schedule for the city's two other pension funds that cover police and firefighters, trimming $220 million off this year's payment.

The General Assembly Friday overrode Gov. Bruce Rauner's veto to enact the new payment schedule that allows Chicago to more slowly ramp up its payments to meet an actuarially required contribution and gives the city 15 more years to reach a 90% funded ratio. The has $20 billion to $23 billion of unfunded liabilities for the four pension funds.

"Although SB777 and the city's recent property tax hike provide some clarity with respect to the funding source and trajectory of future city contributions, we feel Chicago still faces significant challenges without a comprehensive pension overhaul to its municipal and laborers plans and that the city remains vulnerable to further rating downgrades," wrote analyst Helen Samuelson.

S&P rates the city's GOs BBB-plus with a negative outlook. Other ratings include a junk level Ba1 from Moody's Investors Service, BBB-plus from Kroll Bond Rating Agency, and BBB-minus from Fitch Ratings. All assign a negative outlook.

S&P analysts view positively the city's taxing flexibility due to its home rule status, the increase in contributions to the public safety plans albeit at a slower pace than originally called for under a 2010 state mandate, and the city's use of a reliable revenue source to fund those payments. The city council last fall approved Mayor Rahm Emanuel's record property tax hike that phases in a $543 million annual levy increase to match rising payments tied to the re-amortization.

Credit pressures include a rising tax burden that could be met with political resistance and the municipal and laborers' pension dwindling funded levels as well as the city's need to identify revenues sources for higher contributions and then to win state legislative approval. The current funding requirements, set in state statute, far short of what the two funds need to remain solvent.

"In S&P Global Ratings' view, the city's credit quality could weaken unless it gains both union and legislative support for any changes to its municipal and laborers' plans, and identifies a solid funding mechanism to address the unfunded liabilities and prevent further destabilization of its budget," analysts wrote.

The Emanuel administration last week laid out its proposal negotiated with unions to rescue the laborers' fund after the city's first stab at reforms was tossed by the Illinois Supreme Court last March.

Chicago would raise its contributions to the its laborers' pension fund by at least 30% annually over the next five years using higher contributions from enterprise funds and the emergency telephone surcharge.

Newer employees would also contribute more under the plan Mayor Rahm Emanuel's administration reached with unions.

Investors and rating agencies are still awaiting what will be a more costly fix for the much larger municipal employees' fund with an announcement expected in the coming weeks.

The laborers fund has about 7,000 members represented by two unions while the municipal fund has 71,000 and ties to 32 unions.

"The contributions to this plan are significantly larger, and the city would have to identify a revenue source to fund the future contributions to the municipal plan. Potential revenues to fund municipal plan contributions are not forthcoming at this time," S&P wrote.

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