Illinois Gov. J.B. Pritzker this week denounced the idea of consolidating the state’s troubled pensions under a statewide, unified umbrella, on the assertion that the state’s credit rating could be thrust into junk status.
His comments appear to be in response to a report from Crain’s Chicago Business claiming that Chicago Mayor Lori Lightfoot is considering consolidating Chicago’s city pension money with relatively smaller suburban pension funds in a brand new, state-unified retirement system.
Lightfoot’s reported proposal is part of an effort to help the troubled pensions’ unfunded status, which, if continued, will require more than $1 billion of new city tax hikes to be imposed on citizens over the next three years to direct additional funding toward the pensions.
“To be clear, the state is at just above junk status in its credit rating, so there are not liabilities that can be adopted by the state that would not drive us into junk status,” Pritzker said at a news conference to tout his $45 billion infrastructure improvement plan. “So that is not something that we can do.”
Moody’s recently reaffirmed the state’s credit rating at just a grade or two above junk status, after the state released its new budget, and added that “substantial assumption of debt or pension liabilities incurred by local governments” could lead to a downgrade.
Chicago’s recently released 2018 comprehensive annual financial report measured the combined funded status of the city’s retirement systems at 23%, a drop from last year’s 27%.
Pritzker believes, however, that if the pensions pooled their capital for investments, they might have a better shot at resolving their fiduciary issues.
“Because they are very small, many of the downstate pensions are experiencing a much lower rate of return than the benchmark—by 2%,” the governor said. “If you think about how that compounds over years if they’re getting lower returns, if they would consolidate simply the investment dollars they had, let alone other functions or liabilities, just the investment dollars, the improvement there would have a substantial impact on those pension funds,” Pritzker said.
Chicago might be willing to forgo some revenue it now gets from the state in exchange for relinquishing responsibility of the funds, Crain’s reported, attributing the intelligence to anonymous sources. If they don’t fix this issue, the property taxes—which would be obligated under current law—could dislodge the city’s economy and stifle growth.
Pritzker himself launched a task force earlier this year to perform feasibility studies of a statewide consolidation of pension funds to help them out.Representatives from several Chicago city pension funds declined to comment on the situation.
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