CHICAGO, Dec 13 (Reuters) - The passage last week of reforms to Illinois' public pension system could signal that the legislature may soon address Chicago's pension funding problem, Moody's Investors Service said in a report released on Friday.
But Chicago's new budget does not do enough to prepare the city for a $590 million state-mandated increase in pension payments in 2015, the credit rating agency added.
Illinois last week enacted long-awaited, comprehensive changes to retirement benefits to tackle a $100 billion unfunded pension liability. After the vote, Senate President John Cullerton said lawmakers should now turn their attention to addressing the pension burden on local governments.
Chicago's large and growing pension liabilities led Moody's in July to drop the city's credit rating three notches to A3 with a negative outlook from Aa3.
"While the General Assembly's recent actions presumably bring the state a few steps closer to addressing Chicago's pension issues, the Chicago City Council's Nov. 26 adoption of the 2014 budget is a negative credit development because it continues the practice of significant pension underfunding," the report stated.
Moody's said the city's budget for the fiscal year that begins Jan. 1 allocates $478 million for pensions, which is well below actuarial requirements. The budget also does not build up resources through revenue growth or spending cuts in anticipation of the 2015 funding increase absent action by the state legislature.
"If Illinois law is amended to allow Chicago to postpone the contribution increase beyond budget year 2015, the city will have averted a near-term budget crisis," the report said. However, if the current course of underfunding continues, actuaries have projected that the systems will begin to reach insolvency as early as 2022."