June 26, 2013 / 9:56 PM / 7 years ago

UPDATE 1-Fitch puts Chicago ratings on review for possible downgrade

CHICAGO, June 26 (Reuters) - Fitch Ratings on Wednesday put credit ratings on nearly $8.7 billion of outstanding Chicago debt on a watch list for a possible downgrade, citing the city’s growing unfunded public pension liability.

“The unfunded liabilities recorded in the city employees’ pension funds continue to rise without a corresponding increase in funding,” Fitch said in a statement, pointing to a combined funding ratio for the city’s four retirement funds at only 35.2 percent at the end of 2012.

Mayor Rahm Emanuel laid some of the blame with the lack of action by Illinois on reforming both state and local public pensions.

“If Springfield does not make necessary reforms, there will be severe implications for our children, their schools, our economy and our future,” said a statement from Emanuel’s office, referring to the state capital.

“If Chicago and the state of Illinois are to continue moving forward and making progress, legislative leaders must act now.”

State lawmakers have been struggling to find a solution to the state’s own pension funding crisis, leaving local pension reform on the back burner.

Chicago has a collective $19.2 billion unfunded liability for pension funds covering general city workers, laborers, police, and firemen, according to a city web site.

Fitch said that a more conservative 7 percent rate of return for the funds would drop the funding ratio to just under 33 percent. A funding ratio of 80 percent is considered healthy. The rating agency added that it will assess any pension reforms affecting Chicago that emerge over the next six months.

“Lack of meaningful solutions to both the near and long-term problems presented by the poorly funded systems would lead to a downgrade of the ratings,” Fitch said.

Fitch placed Chicago’s AA-minus general obligation and sales tax revenue bond ratings and A-plus commercial paper notes rating on the watch list.

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