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Bonds News

Cook County, Illinois, pension plan could be challenged: Fitch

CHICAGO, Nov 19 (Reuters) - Cook County’s plan to significantly boost payments to its pension fund over the amount required by Illinois law could lead to legal challenges by taxpayers, Fitch Ratings said on Thursday.

Illinois’ biggest county, which is home to Chicago, passed a fiscal 2016 budget on Wednesday that increases its pension payment by $270.5 million over the $195 million required by state law, according to the credit rating agency. Revenue for the bigger payment will come from a 1 percentage point increase in the county’s sales tax that is expected to raise $308 million for the budget.

“The county’s pension strategy is notable, as it includes actuarially determined funding of the pension liability, but appears to ignore the restrictions imposed by the current pension statute, leaving the county vulnerable to potential litigation from taxpayers challenging the increased payments,” Fitch said in a statement.

Cook County, like the state of Illinois, Chicago, and the Chicago Public Schools, has been struggling with a big unfunded pension liability and limited ability to cut costs due to an Illinois constitutional provision protecting public worker retirement benefits from being reduced.

Legislation pushed by the county to change retirement benefits and require actuarial funding stalled in the Illinois Legislature. Pension reform laws enacted for Illinois and Chicago retirement systems were found by state courts to be unconstitutional.

The county’s retirement system was 61.5 percent funded with a $5.25 billion unfunded liability at the end of 2013.

Fitch said its negative outlook on the county’s A-plus credit rating includes concerns over the county’s ability to implement an affordable plan to shore up pension funding.

“This plan, if it survives legal testing, could address those concerns; but if legal challenges invalidate it, the county will again become reliant upon state legislative action to improve pension funding,” the rating agency added.

Frank Shuftan, a spokesman for Cook County Board President Toni Preckwinkle, said the county is “making tough and responsible decisions to stabilize our fiscal structure and not kick the can down the road to future generations.” (Reporting by Karen Pierog; Editing by Matthew Lewis)

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