* Mark D. Brodsky, the chairman of Aurelius Capital Management, writing in the Bond Buyer…
For the 10 years through 2014, Chicago contributed less than $470 million per year to [its four pension plans, not including the school district’s]. These contributions were insufficient even to maintain the funded ratio, which went from a poor 61% at the end of 2005 to a dangerously low 31% at the end of 2015.
By 2019, the city’s annual pension contribution is expected to be $1.3 billion – an increase of $827 million, or 176%, above the 2014 contribution. Over the three years thereafter, the annual contributions are expected to jump another $741 million, to $2.0 billion in 2022. All of Chicago’s recent and proposed tax increases combined will be insufficient to fund these increases. We estimate the shortfall will be $647 million in 2022 alone.
After 2022, we project contributions will increase every year through 2055. Over that period, the annual contribution will increase by another $1.9 billion, to $4.0 billion in 2055 – 8½ times what the city was paying in 2014.
Do these steep increases provide steady progress toward proper funding? No. In fact, the plans’ funded ratio will actually drop over the next several years – from 31% in 2015 to 26% in 2021 – and their unfunded liabilities will increase until 2033. It will take until 2030 for the funded ratio to return to 31%; until 2050 for the funded ratio to be restored to where it was in 2005 (61%); and until 2057 for the ratio to reach 90%. […]
In our view, Chicago must, at a bare minimum, contribute enough every year, including 2016, to ensure that the plans’ funded ratio not drop below, and that their unfunded liabilities not exceed, 2015 levels. We estimate this would add $1.1 billion to the 2016 contribution. If the city cannot muster the resources and political courage to take this first step now, surely the city will lack the resources and discipline needed to dig out of a far bigger hole down the road. [Emphasis added.]
* The accompanying graph…