SPRINGFIELD, Ill. (Oct. 18, 2018) — S&P Global Ratings has placed a negative outlook on the city of Springfield’s finances, citing growing pension costs. This represents an increased chance of a future downgrade, putting extra pressure on the city to stabilize before it becomes costlier to take on new debt. Springfield is among many Illinois cities including...
SPRINGFIELD, Ill. (Oct. 18, 2018) — S&P Global Ratings has placed a negative outlook on the city of Springfield’s finances, citing growing pension costs. This represents an increased chance of a future downgrade, putting extra pressure on the city to stabilize before it becomes costlier to take on new debt.
Springfield is among many Illinois cities including Rockford, Harvey and Peoria facing budget shortfalls, increasing property taxes and potential cuts to services like safety and schools as pension payments take up more and more of their budgets.
Illinois Policy Institute experts are available to comment on how this event signals the need for lawmakers to tackle retirement debt.
Quote from Adam Schuster, director of budget and tax research:
“This is an indicator of the stress the city is under as financial pressure from pensions continues to grow. It’s a fight all too familiar to Illinois municipalities and unfortunately lawmakers have failed to offer local governments relief.
“Springfield is running out of options. With 100 percent of property-tax dollars going to fund local pensions, the city can only do one of two things: hike taxes or cut services. Local taxpayers can’t afford to keep paying more for less. If nothing changes, Springfield could be in even worse financial shape than it is now.”
- S&P cites the city of Springfield’s credit rating as AA, one notch above Moody’s ranking of A3. Credit rating scores affect how expensive it is for a city to borrow money. A credit downgrade could be triggered if the city continues to delay passing a budget by fighting over how to fill its budget hole.
- Springfield’s firefighter pension fund is 45 percent funded. Springfield’s police pension fund is 54 percent funded.
- Pension funds have the right to petition to the state if they do not receive their full contribution. Harvey, Ill., was the first city to have the state intercept funds to be redirected into pensions. According to the Department of Insurance, in 2016, Springfield’s firefighter pension contributions were $333,000 short of the required amount and police pension contributions were $380,000 short.
- Illinois currently lacks methods for municipalities to manage their growing pension debt. The Institute supports reform that would allow for municipal bankruptcy. It also supports passing a constitutional amendment that would protect earned pension benefits while changing the rate of future benefit increases, capping maximum retirement salary and raising the retirement age.
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