MARENGO – Marengo’s bond rating has dropped two notches and could drop more if the city’s cost-cutting maneuvers aren’t enough to address growing police pension expenses.
S&P Global Ratings lowered its rating earlier this month on the city’s general obligation bonds by two notches from A+ to AA with a negative outlook. Marengo’s police pension liability is a major factor behind the change, according to a recent report.
The change could make it more expensive for the city to take out loans in the future.
"The downgrade reflects our view of the city's large and growing unfunded pension liability, in conjunction with a limited ability to raise additional revenues with which to address the liability," S&P Global Ratings credit analyst Scott Nees said.
The report said that costs are likely to increase even more because Marengo’s police pension plan was funded at just 28 percent at the end of fiscal 2016 and the city has “consistently underfunded its actuarially determined contribution for multiple consecutive years.”
There’s a one in three chance Marengo’s credit rating will go down further in the next two years if a plan isn’t put in place to address the pension issue, the report states.
“We could revise the outlook back to stable if the city takes meaningful steps to put its pension funding on a sustainable course, while demonstrating progress in bringing its expenditures, including pension costs, into alignment with its recurring revenues,” Nees said.
Marengo City Administrator Gary Boden said that in the budget proposed last month, a 4 percent cut had been made to the general fund and that money would go to pay for police pensions.
“This is probably the most difficult problem Marengo is facing right now,” Boden said. “We have raised revenue in this budget as much as we can feasibly do. … We don’t have any money. We can just make cuts.”
He added that Marengo is just one of many small municipalities throughout the state that facing the crisis. Other McHenry County communities, such as Woodstock, have recently voiced similar concerns about rising pension costs.
“We need a lot of state legislation,” Boden said. “Cities our size do not have flexibility to deal with pension costs like large cities, particularly those with home rule status.”