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Chicago lays out alternatives to ease looming pension payment

CHICAGO (Reuters) – Chicago could reduce a looming $550 million hike in contributions to its police and fire retirement systems due next year by extending the deadline for reaching a 90-percent funded level, the city disclosed in bond documents on Thursday.

The city laid out options for dealing with the payment in documents relating to its plan to convert about $805 million of variable-rate debt into fixed-rate bonds to avoid accelerated debt payments and termination fees to banks.

The latter were triggered by a recent downgrading of Chicago’s credit rating to junk bond status by Moody’s Investors Service due to the city’s lagging tax revenue and unfunded pension liability.

The city’s pension woes, which include a $20 billion unfunded liability, could worsen if a 2014 Illinois law aimed at boosting funding for its municipal and laborers’ retirement systems fails a court challenge brought by city unions and retirees last December.

Under a 2010 Illinois law, Chicago’s annual contributions must be in an amount that would enable the retirement systems to be 90 percent funded by 2040. The city said it was in talks with unions to amend the law to extend the 2040 deadline and create a phase-in period to reduce contributions in initial years.

Chicago has projected that contributions to all four of its retirement systems will climb to $1.1 billion next year from about $478 million this year.

The Democrat-controlled Illinois Legislature would have to approve any change in the 2010 law, which would then have to be signed off by Republican Governor Bruce Rauner.

Chicago said the legislature could also consider other sources for the city’s future pension payments, including the creation of a city-owned casino.

Spokesmen for Chicago’s main police and fire unions were not immediately available to comment.

Chicago’s city council will consider pension funding options, “including improvements in operating efficiencies and incremental revenues,” according to the documents.

In the absence of payment relief from the legislature, Chicago may have to increase its property tax levy by Dec. 29 to accommodate the full $550 million police and fire contribution, the documents added.

A Cook County Circuit Court judge has scheduled a July 9 hearing on motions to void the law on state constitutional grounds.

The Illinois Supreme Court this month tossed out a 2013 pension reform law for state retirement systems because it violated a constitutional provision protecting public worker retirement benefits from being diminished.

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