The word bankruptcy has been hanging over Chicago like a storm cloud about to burst. Mayor Brandon Johnson is the latest leader to attempt to close Chicago’s gaping fiscal gap: He proposed a $300 million property tax increase to partly fill Chicago’s $982 million projected budget deficit, only to be unanimously rejected by the City Council. The City Council narrowly passed a budget on Dec. 16, with far less in tax increases than the mayor had initially demanded.
The Windy City’s woes are the product of decades of fiscal profligacy and a cautionary tale to policymakers in every region and at every level of government: Retirement benefits are like free junk food to politicians — everyone loves them, and the bills don’t arrive until later. They can be ruinous for a city’s long-term fiscal health.
At the heart of Chicago’s deficit are decades of increasingly generous retirement benefits offered by Chicago’s leaders to more than 30,000 public employees, a politically powerful constituency. Today, a city employee retiring after 35 years with a final salary of $75,000 would receive combined pension and retiree health benefits of about $77,000.
The City government has failed to fund those pension promises fully and the bill has come due. Retirement benefits and debt service together made up 43 percent of Chicago’s budget in 2022, the highest rate of any U.S. city. Chicago spends more on debt and pensions than it does on the police and infrastructure, according to an analysis from the Illinois Policy Institute, a libertarian-leaning policy group. In other words, Chicago is paying for the past, not investing for the future.
Chicago’s pension actuary warned in a letter to the plan’s leadership last year that “the Fund is still at risk of potential insolvency if an economic recession or investment market downturn were to occur in the near term.” (He wrote it in boldface to get policymakers to take notice.)
Read the rest here.
Chicago is basically spending money like the Federal Government. This country is drowning in debt at every level of government and that is not sustainable. For most of the last quarter century the spending habits of our political leadership (from both parties) can be summed up as; "If you've got it, spend it. And if you don't have it, spend it anyways." A reckoning is coming, and it's a lot closer than it was ten or fifteen years ago.
Worth noting; the bond market is flashing warning signs. Despite two successive rate cuts by the Federal Reserve, interest rates on bonds, have been rising. Wall Street is getting nervous about all the red ink.
