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| Chicago Mayor Lori Lightfoot |
In an earlier piece on Chicago I noted that the Chicago Police Department (CPD) had ticketed a friend of ours just the other day for putting a “FOR SALE” sign in her car on the street.
And those problems are beginning to overwhelm the city.
They have a budget deficit running at almost billion dollars a year.
The bonds they issue to raise money are now rated at junk status or just below. Like their parent state of Illinois they got many warnings over the years from ratings agencies, telling them that the city’s ongoing fiscal problems were going to make borrowing money more difficult with downgrades of the city’s credit, and hence the bonds. But no real changes were made.
They’ve had numerous, extremely costly tort judgments made against them. Some of these are under court-ordered wraps, so nobody is sure how much money is involved, but even conservative estimates based on what is public, put it at billions of dollars.
Their public pension liabilities – the difference between what they have to pay out over the next couple of decades to police, fire, school and general city employees vs. the cash coming in and the return on invested funds – has blown out to an astonishing $42 billion.
Their tax base is shrinking as people already feeling the pressure of taxes, “fees”, regulations and crime depart for better-run cities in the South and West. Cities typically run either by the Republicans or by old-fashioned Democrats who know how to count pennies.
The pension systems are the overwhelming driver of this disaster, and their weight is increasing. As in California and New York, the systems have also been rorted for years by people working massive overtime in the last year before they retire, their pension being calculated on that final working-year income. It’s legal and everybody does it. The system makes you a fool not to. These and other “tweaks” mean that each year the city has to take money from the operational spending of Police, Fire and Education to top up the pension funds for those sectors. The result is fewer cops, patrols, books, fire-fighting resources and classroom aids, as well as pressure on wages and salaries. As with all Ponzi schemes the most recent entrants are the ones who get screwed the most.
Yet most attempts at changing these systems – for example by boosting workers contributions now and reducing those future unfunded debts – have failed. The Police, Fire and Education sectors, backed by the Courts, refuse to compromise. And why should they? They worked with Democrat politicians for decades to set up these juicy schemes: the politicians made the changes, got huge public union support, and handsome voting majorities.
The latest example of this system is the Chicago Public Teachers Union voting to go on strike over new contract demands. This is the second time in four years:
asking [for a wage increase] of 15% over three years — union leaders have also stressed demands related to staffing, class sizes and prep time. They want nurses, social workers and librarians in every school, and more special education classroom assistants and case managers, and they want it all in the contract.
CPS’ history of mismanagement and poor financial decisions has led to excessive borrowing and a “junk” credit rating. Its debt has quadrupled since 1998, with current debt at over $8 billion.
The district is also forced to allocate hundreds of millions of dollars each year to the Chicago Teachers Pension Fund after multiple years of making inadequate contributions.
Incredible. They just don’t get it. But then their history shows why. This has always worked before. The money exists somewhere and it’s just a matter of grabbing it.
The shrinking tax base is the killer; it turns all the other problems into a death spiral. Lightfoot can no longer raise taxes or other fees, otherwise that will just boost the numbers fleeing Chicago, already running at about 60,000 every year..
Lightfoot is the first Chicago mayor in decades who is not a product of The Machine, but I can’t see her getting past the powers that be, who are just too entrenched. Politicians, bloodsucking businessmen, organized crime, and now street gangs get a cut of the action. This is the way the “City that works” has worked for almost a hundred years.
And the city can expect no help from the State of Illinois because it’s facing almost the exact same set of horrors.
Illinois has $14.5 billion in overdue bills, $130 billion in unfunded pension obligations, and no budget. “We can’t manage our money,” says Rauner. “We’re like a banana republic.
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And for exactly the same reasons. Rauner, a Republican Governor who got nothing done in the face of total Democrat control of the Illinois Senate and House, got booted for a Democrat in 2018. But nothing else has changed. In an echo of Chicago Democrat control, the Speaker of the Illinois House, Michael Madigan, has been in that role since 1983, with only a two year break when the GOP held the House from ’95-’97. He’s more powerful than any Governor.
It’s no surprise that there is now a movement afoot to make Chicago the 51st State of the Union, separating it from Illinois. It won’t happen because it would need the Illinois government to agree, and too many of them are rooted in Chicago.
For the same reason it’s unlikely that Chicago could use bankruptcy law to escape this growing disaster. The State has to approve such an application. Still, the intractability of these problems has led to increased talk of Chapter 10 bankruptcy (the more well-known Chapter 11 deals with private firms):
A bankruptcy restructuring is in Chicago’s future; it’s immoral to wait until empty buildings fill the downtown instead of cranes, and property values for “remainers” fall further toward zero.
If bankruptcy comes it will have court-appointed auditors and financial advisors, plus a judge who will make the decisions the city’s politicians have not been able to make, including heavy spending cuts, layoffs and changes to the pension schemes to increase employee contributions and perhaps even cutting benefits.
Contemplating all of these unthinkable events, I went back to Chicago Tribune reporter Kass’s little talk with a couple of gangbangers about a mob forcing two cops to release a suspect – at gunpoint:
…this is the hood, man,” said John. “This shit happens in the hood.”
“Not this shit”, I said.
“It do now,” he said.
I can see a future bankruptcy judge uttering the same words across the bench.
No Minister 