FILE - Standard & Poor's, S&P, credit rating

S&P Global Ratings is warning that growing public retirement debt is likely going to continue to eat up public funds that would otherwise go to providing services to taxpayers.

In an annual report on America’s 15 largest cities and their public debt, S&P said major cities like Chicago are going to have to cut services as they shift more money to pay down legacy retirement costs. Analysts also expect cities to continue to raise taxes, with all of that new tax revenue going to pay for pensions.

“As we expect these costs to continue to rise in the near term, we likewise expect to see growing pressure on other priority services such as public safety and public works, absent revenue growth from tax hikes or the identification of new revenue streams,” the report said.

Growing pension costs could even make it more difficult for cities to come up with money for infrastructure projects, such as road improvements.

"Any of the major cities that currently face a backlog of deferred capital will only find it more difficult to keep pace with demand for new infrastructure investment, as mounting legacy costs command an ever greater share of budgets," the report said.

The report describes Chicago as an “outlier” in terms of its 26 percent pension funding levels. The city has raised property taxes multiple times in recent years, most of that money going to pensions. The city is considering borrowing $10 billion to essentially refinance its pension debt using portions of future income as leverage to get better rates.

S&P Analyst Scott Nees expects it to become more pronounced as required contributions increase.

“Those cities that are on the low end of the distribution in terms of pension funding levels will continue to see these costs increase in the future,” he said.

Similar budgetary pressure is apparent in cities across Illinois. The city of Peoria announced more than two dozen layoffs last month. Its annual budget report noted that pension payments are crowding out services. Many more municipalities are raising taxes to pay into the funds.

“I think it ends up being a little bit of a mixture raising new revenue streams and then maybe curbing cost growth that otherwise wouldn’t have emerged if it weren’t for the fact that they didn’t have to cover rising pension costs,” Nees said, adding that Chicago still benefits from its solidly diverse economy.

Local police and fire pension systems in Illinois may now ask the state comptroller to divert state funds directly to them if the city shorts their payments.

Reporter

Cole Lauterbach reports on Illinois government and statewide issues for INN. Lauterbach has managed and produced shows for news/talk radio stations in both Bloomington/Normal and Peoria, and created award-winning programs for Comcast SportsNet Chicago.

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