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 Chicago city taxpayers were just hit with $94 million in
property tax increases and $38 million in higher fines and fees, including a
policy for speed cameras to ticket drivers for going just 6 mph over the speed
limit, to help close the city’s budget deficit. City leaders placed much of the
blame on COVID-19’s impact on government revenues, but a recent report from
fiscal watchdog Truth in Accounting shows Chicago’s problems existed long before
the pandemic.
Chicago ranked next-to-last and was labeled a “sinkhole city” in Truth in
Accounting’s latest report, “Financial State of the Cities.” The rankings of the
nation’s 75 largest cities reflect financial data prior to the COVID-19
pandemic, showing how poorly positioned major cities such as Chicago were for a
financial disaster.
The report found Chicago’s net debt – or the amount of money needed to pay its
bills after accounting for everything the city owns – was $36.4 billion. That
represents a per-taxpayer burden of $41,100, meaning each taxpayer would need to
send that amount to the city in order for Chicago to eliminate its debt, earning
the city an F for fiscal health. Chicago’s debt per taxpayer increased by $4,000
from the previous year and is 5.5 times the average burden of $7,355 per
taxpayer across all 75 cities.
Only New York was in worse shape, with a whopping $68,200 taxpayer burden on
$186.7 billion in net debt.
Collectively, the 75 cities had $333.5 billion in debt, a number expected to
worsen without significant financial reforms.
Chicago’s financial woes stem largely from out-of-control pension promises. More
than 68% of the city’s total debt burden stems from unfunded pension liabilities
and nearly 2% comes from unfunded liabilities for retiree health insurance,
meaning fully 70% of the city’s debt is related to retirement benefits.
Just five years ago Chicago passed its largest property tax increase in modern
history, which then-Mayor Rahm Emanuel said would put pension funds on a “path
to solvency.” The tax hike failed to stop rising pension debt.
Chicagoans continue to see their property taxes rise, with the latest $94
million increase containing $42.5 million to cover anticipated shortfalls in
required pension funding. Even with the substantial property tax increases,
Moody’s Investors Service in October changed the outlook for Chicago’s junk bond
rating from stable to negative.
The city’s eight pension funds – including the four funds to which the city
contributes directly and four funds for related entities funded by the same
taxpayers – have accumulated nearly $45 billion in debt, more debt than 44 U.S.
states. Those pensions are only 35% funded overall, meaning they have 35 cents
saved for every $1 in future promises.
The fiscal realities created by those significant shortfalls and further
tightening of available funding because of the pandemic’s impact should make
clear the need for significant and necessary reforms.
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The high cost and unsustainable nature of the
city’s pension obligations has become a source of division among
elected leaders. Chicago Mayor Lori Lightfoot recently opposed
legislation advanced through the Illinois General Assembly which
would double the cost-of-living adjustment for 2,200 city
firefighter pensions from 1.5% to 3%. Lightfoot called the increase,
which is estimated to cost the city $850 million by 2055,
“irresponsible” because it will “pass on a massive, unfunded mandate
to the taxpayers of Chicago.”
Few of Chicago’s leaders have publicly endorsed any specific reforms
to stabilize the pensions and put them on a sustainable path
forward. For her part, Lightfoot has called for change and often
acknowledges the gravity of the pension problem but stops short of
offering a specific reform plan. Near the end of his term, Emanuel
endorsed the prospect of a constitutional amendment to rein in the
pension problems plaguing Chicago and Illinois.
Because of a decision by the Illinois Supreme Court, substantive
public pension reform for Illinois state and local governments are
only possible with a constitutional amendment.
Calls for a pension amendment continue to grow louder in Illinois,
but Gov. J.B. Pritzker has remained silent on the topic since
incorrectly claiming in his budget address last year that an
amendment is prohibited by the contracts clause in the U.S.
Constitution.
Chicagoans should also know the city debt is not their only
liability. Every Illinois taxpayer also owes $52,000to pay all the
State of Illinois’ debts, Truth in Accounting reported in September.
The $41,100 Chicago debt is on top of the state debt.
Pritzker recently said he is “thrilled” by the prospect of a
Democrat-led U.S. Senate, as it points to an increased likelihood of
a federal bailout of state and local governments. The current
proposal would send $7.5 billion to Illinois and $5.7 billion to its
local governments.
Regardless of whether federal aid will arrive to reduce immediate
budget pressures for Illinois and Chicago, a constitutional
amendment for pension reform is the only long-term remedy for
Illinois’ and Chicago’s fiscal crises. The problems existed before
the pandemic, and they will come back even stronger after a one-time
federal bailout is exhausted.
Elected leaders in Chicago and Springfield owe it to taxpayers to
use the time they gain from any windfalls to fix the pension
problems now. Conducting business as usual and squandering bailouts
will just mean pension debt grows, crowding out more public services
and driving debt even higher.
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