Move over Detroit. The nation’s third largest city could become the next big city to go into Chapter 9 bankruptcy, and would be far worse than the Motor City. Chicago has nearly four times the population of Detroit, but currently has about the same amount of debt. Of course, as unfunded liabilities skyrocket over the next few years, Chicago’s debt will inevitably far surpass that of Detroit’s.
Perhaps the biggest difference between the two cities is that Michigan was able to assist with the city’s finances, while Illinois might not be able to. The State of Lincoln has its own budget crisis as it has the nation’s lowest credit rating and the second highest amount of debt burden. The Washington Times reported earlier this month:
“Meanwhile, the Illinois financial situation is only worsening. Creditors have found the state and its largest city, Chicago, to be on the same path as Detroit. In March Moody’s cut Chicago’s credit rating to Baa1 from A3, giving it the lowest credit rating of any major U.S. city other than Detroit. Illinois has the worst credit rating of any state in the nation.
TRS (teachers’ union) is Illinois’s biggest retirement reserve, making up half the state’s pension funds. For years the state legislature allowed the pension to go underfunded so it could spend money on other things. State educators and union executives used the borrowed cash to hire more teachers, boost salaries and improve local facilities.”
How bad is the fiscal situation in Obama’s hometown?
By the end of 2012, the city’s four pension systems (cops, firefighters, laborers, and municipal workers) had an unfunded liability of nearly $20 billion. The city’s yearly pension payments reached $479 million in 2014 and is projected to balloon to $1.07 billion in 2015.
To avoid default, lawmakers must reform the city’s pension system. Unfortunately, that is unlikely to happen as labor unions funded and ran their campaigns. They will likely raise taxes to help close the gap. After all, Mayor Rahm Emanuel once famously said a few years ago as Obama’s Chief-of-Staff, “you never want a serious crisis to go to waste.”