The unfunded pension liabilities facing Chicago are only the most recent troubles threatening the Windy City, according to the New York Times. The recent credit downgrade of Chicago’s general obligation bonds by Moody’s, Standard and Poor’s, and Fitch just brought the matter to the surface. Crime, corruption, and a shrinking population also are beginning to make Chicago look like an out-sized version of Detroit.
According to the city, the four pension plans for its police, teachers, firefighters, and office staff are dreadfully underfunded to the tune of some $19.5 billion. The Times says the teachers’ pension plan “stands at risk of collapse,” while the others are close behind. At present $500 million of the city’s $3 billion annual budget goes to make partial payments into those funds and to service its debt, but in 2015, under state law, the city will have to double that contribution to $1 billion, a third of total revenues. Even if the city is able to pay that amount, the pension plans won’t become solvent again until 2040.
Mayor Rahm Emanuel, President Obama’s former chief of staff, sees what’s coming: “This is kind of the dark cloud coming ever closer.” But he says that raising taxes on Chicagoans by enough to solve the problem — an increase in property taxes of 150% from present levels — is simply “unacceptable.”
Part of the problem is unwillingness on the part of the mayor and the city’s aldermen to recognize the size of the problem. While the city claims that the unfunded liability is approaching $20 billion, a study released by Pew Charitable Trusts in January this year calculated that Chicago’s real unfunded pension liabilities were closer to $25 billion, and that number was based on 2009 figures. Moody’s, in explaining its three-notch credit downgrade in May, said that Chicago's real liability is rapidly approaching $40 billion and added that the city’s budget is “already burdened by high fixed costs, including unrelenting public safety demands and significant debt service payments.”
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Photo of Chicago skyline as seen from U.S. Cellular Field