CHICAGO – The Chicago Park District’s Standard & Poor's rating won’t change solely because of a new legal challenge launched against its pension reforms.
“While we view the possible striking down of the pension settlement statute by the Illinois Supreme court in this lawsuit as disruptive to the district's plan to dramatically increase the funding of its pension system, we do not view the filing of the lawsuit as likely to cause a pension funding crisis at present,” Standard & Poor’s said in a special bulletin published Oct. 26.
“Therefore, for now there is no change in our long-term and underlying ratings on CPD's GO debt,” the bulletin said.
Standard & Poor’s rates the district’s general obligation debt AA-plus with a stable outlook. The lawsuit challenging the constitutionality of reforms signed into law in early 2014 was filed in mid-October against the park employees’ retirement fund by a union and two retirement fund members.
Standard & Poor’s said the district will continue to honor its obligations under the statute to increase employer contributions as long as the settlement remains the law.
“Given recent state court rulings against similar statutory pension reforms enacted for the state of Illinois and the city of Chicago, management further reports that it anticipates that it will work with all affected parties to improve the pension system's funded level and solvency if the statute is struck down in this action,” analysts said.
The park district reforms were negotiated with the district’s unions but labor turned against the bill after a last-minute amendment was added which changed the cost of living adjustment increase for current retirees. Unions believed those benefits were constitutionally protected because they were already accrued.
The district closed out 2012 with unfunded liabilities of $550 million for a funded ratio of 43.4%. The changes shaved $110 million off the district's unfunded liability and put the fund on track to reach a 90% funded ratio by 2050. It was previously headed toward insolvency in 2023.
Under the plan, the retirement age for some employees rose, pensionable salary was limited, and employee and district contributions are rising. Cost-of-living increases are shifted for retirees who now receive non-compounded annual increases of 3% to the lesser of 3% or one-half the rate of inflation and annual increases are suspended in 2015, 2017, and 2019. The district will also make supplemental payments of $12.5 million each in 2015 and 2016 and then $50 million in 2019.
The park district carries other ratings of AA from Kroll Bond Rating Agency and AA-minus from Fitch Ratings. Moody's Investors Service downgraded the park district to the junk-level rating of Ba1 last May citing its governance ties to the Chicago city government which it dropped to junk due to its own pension strains.