(Bloomberg) -- Chicago had its credit outlook raised by FitchRatings to stable because of the city’s work to shore up itsretirement system and avert insolvency for the pensions that don’t have enough moneyto pay the benefits promised.

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“The outlook revision to stable from negative reflects therecently enacted material increase in funding to the city’spensions,” Fitch analysts led by Arlene Bohner said in a report.“The chronic underfunding of pensions over many years has resultedin a high and growing long-term liability burden and constrainedexpenditure cutting flexibility.”

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The $34 billion shortfall across the city’s four pension fundsis straining Chicago’s budget and ability to serve its residents.On Aug. 3, Mayor Rahm Emanuel released a plan to keep the municipalworkers’ pension from running out of money within a decadeby raising water and sewer taxes.

The fix, which still needs to approved by the city council,follows his move in May to get the laborers’ pension to 90 percentfunded by 2057. In October, Emanuel pushed through a recordproperty-tax hike to increase funding for the police and firepensions.

Investors have praised that progress. Chicago’s most-activelytraded debt over the last month changed hands at an average priceof 91 cents on the dollar on Tuesday, according to data compiled byBloomberg. That’s up from 87 cents on Aug. 3, the day Emanuelreleased his plan to shore up the municipal workers’ pension. Thesecurities, which mature in 2042, yield 6.2 percent.

More than 35 cents of every dollar of the budget goes to paydebt and pensions, according to Moody’s Investors Service, whichslashed Chicago’s rating to speculative grade last year because ofthe pension crisis. Fitch affirmed its BBB- rating on the city’s$9.2 billion of unlimited-tax-general-obligation bonds and the$536.7 million of sales-tax bonds. That is one step above junk.

“Fitch’s action today is proof positive that Chicago’s financesare moving in the right direction,” Emanuel said in an e-mailedstatement. “We are not going to solve the pension fundingchallenges overnight, but we have made substantial progress tofinally put all four pension plans on a path to solvency.”

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