Op-Ed: Chicago’s pension-funded ratio rose. Two rating agencies downgraded the city anyway

Chicago’s four city pension funds closed 2025 with $14.20 billion in assets against $50.63 billion in liabilities, a funded ratio of 28.1%, up from 25.4% a year earlier, according to the city’s 2025 Annual Comprehensive Financial Report, released June 30. If that sounds like good news, ask Fitch Ratings and Kroll Bond Rating Agency, which downgraded Chicago’s general obligation bonds five months earlier anyway. I’ve spent 30 years structuring credit exposure for family offices and institutional allocators, including work in distressed situations. A three-point move in a funded ratio tells you almost nothing about repayment capacity on its own. It tells you what a strong investment year did on a thin asset base. The people who price Chicago’s debt for a living looked at the same numbers the city is calling progress and moved in the other direction. Do the arithmetic the city didn’t lead with. Assets rose 14.4%, from $12.42 billion to $14.20 billion, mostly on market returns. Liabilities rose too, from $48.95 billion to $50.63 billion. Net unfunded liability barely moved, from $36.53 billion to $36.43 billion, a rounding error against a $36 billion hole. At a fund holding less than 30 cents on the dollar, that’s not recovery. That’s a system treading water in a year the tide happened to come in. Below 40% funded, standard actuarial convention says compounding returns alone can’t close the gap anymore. Below 60%, plans are “deeply troubled.” Chicago’s four funds sit at 28.1% combined, and police and fire are worse individually: 25.5% and 25.2%, per the same ACFR. Seven of the ten worst-funded local pension plans in the country are Chicago’s, and the city’s unfunded pension debt now exceeds that of 44 individual states, per Equable Institute data. Every business owner paying Chicago’s property tax bill is subsidizing a system that ranks worse than almost anywhere else in the country, and the trend line hasn’t reversed. Then there’s the sweetener nobody’s reconciled. Gov. J.B. Pritzker signed the police and fire pension enhancement in August 2025 over Mayor Brandon Johnson’s objections. City estimates at the time put the long-run cost at $11 billion. The audited 2025 ACFR shows something narrower: the law added $300.4 million to the city’s reported net pension liability this year, $157.9 million to police and $142.5 million to fire. Both numbers can be true at once. One is the first-year GASB recognition; the other is the present value of decades of enhanced benefits. The city hasn’t explained the gap publicly. The rating agencies didn’t wait to find out. S&P moved Chicago’s outlook to negative in November, citing reliance on one-time budget fixes and a reduced advance pension payment. Fitch and KBRA both cut the city’s general obligation rating from A-minus to BBB-plus on February 25, pointing to deteriorating fund balance and a fixed-cost burden that could crowd out other spending. That’s two full-notch downgrades and a negative outlook from three separate agencies inside four months, on a city whose pension-funded ratio was already climbing. Chicago faces a statutory ramp requiring 90% funding by 2055 for two funds and 2058 for the other two, pushing the required pension contribution toward $3 billion by 2027. Meeting that schedule while running structural deficits means every good year buys the city exactly one good year. It doesn’t buy the trend. For anyone doing business in this city, borrowing against it, or lending into it, the number that matters isn’t the funded ratio the mayor’s office will highlight this fall. It’s the one three rating agencies already priced in. Treat the 28.1% as data. The market already told you what it means.