Not just Chicago

Moody’s has just released a warning of sorts to governments with the worst-funded public pension plans, especially those relying on riskier-than-usual strategies to meet their investment targets. In “Market volatility underscores risk of high pension investment return targets,” Moody’s worries that major stock market drops, like the kind seen late last year, will damage what little liquidity those funds have, and eventually, the credit rating of their sponsor governments.Chicagoans will want to heed Moody’s pension warning. The city is already junk-rated by Moody’s and the situation in the Chicago Public Schools is far more dire: the district is five notches deep into junk territory (see chart in the appendix). Any major stock market drop that creates a cash crunch for the city will send politicians scrambling to plug the pension plans with billions in additional taxpayer dollars.

Chicago is getting hit badly with Chicago cops pension at 24% funded.

In California, low returns are a serious nag to all the municipal budgets, county and city.  And that aggregates up to a serious state liability, the big swing. A GDP growth rate near 1% in California starts the big swing rolling, and it is hard to stop. We get both, sudden increase in sales taxes, and municipal employment stops. Unresolved issues like the LAUSD contract become more difficult. If interest charges rise, the more the swing as the counties went on a synchronous borrowing spree years ago.