Print Friendly, PDF & Email

By: Ted Dabrowski and John Klingner

Moody’s says 23 of the nation’s 25 largest cities are ready for a recession. Two aren’t. They are Detroit and Chicago. Both cities are junk-rated by Moody’s.

Moody’s analyzed four key factors to determine which cities are ready for a recession: fiscal volatility, reserve coverage, financial flexibility and pension risk. The top cities in preparedness were Boston, Charlotte, Denver, San Antonio, San Francisco and Seattle. They scored “stronger” in Moody’s recession preparedness measure, while Chicago and Detroit scored “weaker.” 

Moody’s message should be particularly worrisome given that the city’s firefighter pensions are just 18 percent funded, while the police and municipal funds are less than 25 percent funded. They are among the worst-funded pension plans in the country.

The rating’s agency highlighted Chicago’s poor condition in its report, saying: “…both direct city obligations and those of overlapping units of government – continue to weigh heavily on its credit profile. In this scenario analysis, Chicago’s extraordinarily high fixed costs, coupled with its escalating pension liabilities, make it one of the cities least prepared for a near-term recession.”

Moody’s found Chicago has the highest “fixed” costs – for debt, pensions and retiree health insurance – of any city. Nearly 45 percent of Chicago’s budget is consumed by those costs.

Moody’s added in its report, “Houston, Chicago and Fort Worth stand out as negative outliers in terms of fixed costs, with Chicago and Fort Worth particularly burdened by rising pension contributions.”

At Wirepoints, we’ve highlighted those overlapping retirement debts in our recent report, “Wealthy” Chicago households on the hook for up to $2 million in debt each under progressive approach to pension crisis and in an accompanying video.

Chicagoans’ overlapping state and local retirement debts total over $150 billion based on Moody’s pension calculations. That’s the equivalent of a $400,000 “hidden mortgage” on the Chicago households with the means to pay down that debt over time – those earning more than $75,000 annually.

But if the city and state want to take a “progressive approach” to paying down that $150 billion over the next two to three decades – by targeting only those making over $200,000 annually – then the hidden mortgage on those households totals nearly $2 million.

Which makes it all the more amazing that neither Gov. J.B. Pritzker nor Chicago Mayor Lori Lightfoot will endorse an amendment to the Illinois Constitution’s pension protection clause.

They shouldn’t wait until a recession comes. By then, it might be too late to save Chicago’s city worker pensions. The city’s population is already shrinking and as that hidden mortgage increases, expect more Chicagoans to flee.

Read more about Chicago’s fiscal crisis:

 

newest oldest most voted
Notify of
Poor Taxpayer

The best day of your life is the day you move out of Illinois.
There is no hope, DOA, a goner for ever.
The Greed of the cops, teachers and firemen have destroyed the quality of life for the honest hard working taxpayer. Leave HIGH TAXES, POOR SERVICES AND LOUSY WEATHER.

Phineas T. Grinch

For a discussion of the problems that Detroit faces five years out of bankruptcy, see https://www.freep.com/story/money/business/john-gallagher/2019/12/05/detroit-bankruptcy-broke-book-kirshner/2598962001/ The Detroit bankruptcy involved a major kick of the can. Pension contributions have been suspended for several years. The pension liability was under-stated to get the union votes needed to come out of bankruptcy. Even at the time (2013) people were observing that another bankruptcy would probably be needed in the future. Yes there was a Grand Bargain using assets of charitable foundations to pay a portion of the pensions. (This saved the City-owned art from having to be sold.) Yes a lot of… Read more »

Rick

So Moody’s is identifying what bonds will offer the best yields? Or is it truly trying to warn those same markets? The day Moody’s truly sets their ratings where their mouth is with their whitepapers is the day I’ll believe they are legit. What they say and what they do are consistently inconsidtent! Their next move will now be to offer ratings just good enough for some great yields to be made off taxpayers, they talk a credible talk in these papers but then they go to market with numbers that show little risk, they know we’ve been sold down… Read more »

Astonished

That video explanation is phenomenally good. Sadly, we know from past experience that neither politicians nor news editors will pay the slightest heed to it. This, in my view, is a Sears Tower-sized testament to how infantile is now our political/social system. Truly, the people who are elected and the people who decide what citizens will be shown on the Boob Tube are the literal inversion of statesmen. Through their focus on trivia and lies they reveal the utter poverty of their souls. When a society’s members find themselves in the audience of such clowns, it’s time realize we’re all… Read more »

DantheMan

The good news for Chicago is that it’s looking more likely that Trump will be reelected so that next recession may be aways off. Tough luck liberals. You may control Chicago, and even Illinois, but the country as a whole isn’t yet ready to surrender to your bullying. It’s too bad, because I am looking forward to watching Illinois fall apart when that recession finally does arrive. For me it will be payback, and you know what they say about payback.

Astonished

So what you’re saying is, as long as the right guy occupies the White House, economic contractions will be kept at bay forever?

Presidents don’t cause economic expansions. They don’t cause economic contractions. But it’s popular for our modern shamans to credit or blame them, the same as our ancestors’ shamans blamed rain on the rain god, war on the war god, etc.

DantheMan

Come later next year, if a progressive/socialist has a fair chance of beating Trump, the market will decline. If Trump actually looses, the stock market would take a serious downturn and could trigger a recession. Sure, a recession could also happen under Trump, but it’s almost a sure thing if Trump looses.

debtsor

Presidents may not be able to predict the direction of the wind but they know which direction to set the sails. And progressives set the sails in the wrong direction. All you need to do is look at FDR’s presidency to see what happens when progressive economic policy is enacted during a serious economic depression. The recession of 1937 was entirely avoidable but for FDR’s ridiculous ‘progressive’ new deal policies. It’s widely accepted that the new deal was a complete failure and FDR’s cabinet members even admitted as much. A Warren/Sanders progressive plan during a recession would include debt jubilees,… Read more »

DantheMan

Sadly, I think impeachment will now become rather common, regardless of which party holds the presidency. The Democrats will regret using this tool without adequate justification, especially the next time their man, woman, or gender confused person is in the oval office.

debtsor

Political parties have no regret. They only celebrate fleeting glory as they whistle past the graveyard, so to speak. Obama won two terms at the federal level but lost the house, senate and over 1000 state seats, and literally countless other local seats in the process. Was it a win when at the end of his term all three branches of government were solidly conservative? Fleeting glory for sure. As for impeachment, I heard some partisan on the radio today say that impeachment will tarnish Trump’s legacy, as impeachment will be the first or second thing mentioned about him for… Read more »

Astonished

From: https://www.independent.org/publications/article.asp?id=4725 “Important as they are, our political divisions are the iceberg’s tip. When pollsters ask the American people whether they are likely to vote Republican or Democrat in the next presidential election, Republicans win growing pluralities. But whenever pollsters add the preferences “undecided,” “none of the above,” or “tea party,” these win handily, the Democrats come in second, and the Republicans trail far behind. That is because while most of the voters who call themselves Democrats say that Democratic officials represent them well, only a fourth of the voters who identify themselves as Republicans tell pollsters that Republican officeholders… Read more »

Astonished

Don’t expect Debt Jubilees in a fiat money environment. Today debt IS wealth, so a debt jubilee would literally be a decision to destroy a veritable ocean of WEALTH held on creditors’ balance sheets. Far more frightening is that a Leftist (democrat) admin would actually act on what I once thought was just campaign rhetoric. I now see that these people really are zealots in a cargo cult (quite literally!) and that their main drive is to destroy those they deem apostates in their theology: “the deplorables.” Angelo Codevilla wrote a series of essays on the historical precedents for what… Read more »

Astonished

What will be, will be. I can guarantee you that you cannot predict market ups and downs by presidential election. It’s been tried, there’s zero correlation. That said, if the Left (Deep State) resumes power in 2020, they’ll be so emboldened that I all but guarantee they’ll increase their abuse of those they consider “deplorables” by many multiples. What they think you hold dear will be debased and destroyed, because that’s what the Left loves above all, the naked exercise of power. Gun bans aren’t about reducing crime (they can see Mexico, with almost zero civilian gun ownership, is hardly… Read more »

Kathleen

Problem identified, BUT what can the individual Illinois homeowner do??? Seriously! Feeling voter helplessness and ineffectiveness.

DantheMan

I felt the same way a couple years ago Kathleen. My suggestion, read Wirepoints past articles, give yourself some time to understand the information, and then reflect on what your future will be like in Illinois. Also, be aware that Wirepoints merely reports the facts as they understand them. They will not tell you what to do, however the more you read, the more you will come to the realization that there really is only one solution. You probably already know it and just need a little more time to fully accept it. Whatever you decide, best of luck.

Governor of Alderaan

Your only solution is to leave Illinois

jay

When we left the concentration camp illinois,You feel so free! It is like you have not had a bath in months and when you move it is the mental release of walking out of tax payer jail.

Astonished

Two out of my three kids own houses in IL.
For some of us, leaving is simply not a real option. It’s the same situation as those who look at the national situation and plan to leave the USA if things get FUBAR. Do they imagine that being strangers in a strange land will constitute improvement? Do they have family who they’ll plan to leave behind?
Some of us are stuck on this ride. Rather than abandoning it, our choice is to figure out how to ride out the crash phase (somehow.)

debtsor

Your descendants will most certainly leave Illinois even though you stay. Lots of old folks still here with kids that left the state long ago. It’s a slow decline, one family, one college grad, one job transfer at a time. We are not Syria – there is no mass of refugees leaving the state because civilization has collapsed. In fact, for the ‘rich’ people in the state, it’s like 1770’s France: The King was totally broke but the wealthy and the church had really productive estates and were making money off the peasants. Illinois’s finances are in bad shape but… Read more »

Astonished

We don’t know the future. In the mid-1930’s lots of folks in the UK could read the tea leaves (that a massively destructive war was going to resume after a hiatus) so they packed up and moved to some sleepy islands in the South Pacific…and ended up in Japanese internment camps under horrific conditions.

I don’t know what will happen, I only know that bright people who don’t imbibe the currently fashionable delusions tend to do okay no matter what happens. Me and mine incorporate both of these attributes.

joe blow

why isn’t it an option? it is always an option you are just making excuses because leaving is uncertain and apparently you hate that more than your own or your children’s financial security and quality of life

Willowglen

I think everyone has to make their own decision. If you stay, I think you have to adopt a strategy to deal with the almost certain misery. By way of example, selling a home and investing the proceeds (if taxes haven’t eaten the equity) to pay rent on a small affordable place could make sense. The problem lies with the voters and political machine. There will be no change, and those in Springfield will not permit an insolvency proceeding for the state or bankruptcies for municipalities. In many places, living in Illinois will be dismal, with wholly ineffective police and… Read more »

My view that I don’t hide is that, all other things being equal (a huge assumption) it’s clear rational to flee. Fleeing, however, is not a realistic option for many.

mqyl

Those deciding not to leave and hoping that draconian measures taken to lower pension and health care benefits debt will significantly ease the burden on the taxpayer should consider whether any of the following will change in their lifetimes:

1. Democratic politicians running IL

2. politicians in bed with public unions

3. unreasonably high teacher salaries (compared to private-sector workers working full years)

If they think these things will change, they might roll the dice and stay; otherwise, they should leave.

Astonished

For what it’s worth, I’ve done a fair spectrum of jobs (sales, scientific research, etc.) and I wouldn’t do my wife’s 4th grade teacher job for literally three times what she’s paid. She and her colleagues are largely desperate to get out of their occupation. The problems go far, far deeper than teachers getting paid a 12 month income to work 10. I have to laugh; it takes the same $100k or more to get a teaching degree as it does to get an engineering degree, and when the engineer goes home, he largely leaves work at work. Those who… Read more »

DantheMan

The excuse “but my family all have homes here” is wearing a bit thin. That’s like saying I’ll stay on the sinking ship because those I love are also on the ship. Did you consider that maybe if you get off the doomed ship that they may eventually also follow? Sometimes you lead by example. Astonished, it’s your life. Just be honest with yourself for why you choose to stay. Some of us who decided to leave also had families we left behind. As for me, I am going to position myself so that anyone who chooses to join me… Read more »

Astonished

At least I can grasp that my situation and your situation may yield different conclusions. Wisdom that came with age informs me of the limits of my knowledge. How about you?

I find your comment dripping with assumed superiority (“just be honest with yourself…”) I so tire of folks who think they’re the smartest person in every room they visit.

DantheMan

Astonished, I agree, I could have worded that better. Thanks for pointing it out. For the record, I took my own advice and got out of Illinois. No regrets yet. I am still angry it was necessary. It takes more planning when I want to see family. If that’s a deal breaker for you, who am I to judge?

Astonished

An honorable rejoinder, thanks. Like lots of people, I struggle to remain civil in this impersonal medium. Thankfully I edited my prior reply before it was locked, as it was embarrassingly uncivil. I do have a strategy. My wife will soon resign (and retire), ending our geographic financial dependence. I’m already retired(ish) even though I’m not even eligible yet for early SS benefits. Our life’s savings is mobile; unlike many, we radically limited the proportion of our wealth tied up in something we can’t move (our house.) I carry the “value” of our house on my mental balance sheet at… Read more »

Poor Taxpayer

The best day of your life is the day you move out of Illinois.
There is no hope, DOA, a goner for ever.
The Greed of the cops, teachers and firemen have destroyed the quality of life for the honest hard working taxpayer. Leave HIGH TAXES, POOR SERVICES AND LOUSY WEATHER.

Astonished

Accept. I accept that the nominal value of my house could collapse (and probably will at some point.) But FWIW, I learned the hard way that you have to live in Plan A (the situation as it exists), and if you worry too much about Plan B or Plan C (things change, or things change radically), you’ll miss out on living life in the present. ALL of the dysfunctional conditions existing today existed 20 years ago. Yes, the degree has changed, but the trends back then were identical and a reasonable person could be forgiven for assuming that the acceleration… Read more »

debtsor

If only the IL GOP could change its name to “The IL ‘NOT THE CORRUPT DEMOCRAT PARTY”. And leave the GOP out of it and put (I)’s next to their name. It might trick the populace into voting for a party that tries to change things. But Capitol Fax will whine and moan the the entire way.

But let’s remember that IL GOP could use a couple big changes, too.

debtsor

It needs more than a couple big changes. For all practical purposes, it’s little more than a social club for the dozen or so RINOs left in the state. The main donor to the social club, Rauner, followed everyone’s advice and left the state for FL. The IL GOP has “$88,412 in cash on hand as of June 30”. https://www.chicagotribune.com/politics/ct-without-rauner-illinois-republicans-turn-to-grassroots-fundraising-20191014-uis6mwbrcvc3veh662sfqfofci-story.html They want to do grassroots funding. that’s funny, they want me to spend $10 a month to support them, hahahhahha, hahhah that’s funny. It’s broke, it’s biggest contributor is gone, they aren’t doing anything. They for all practical purposes are… Read more »

You are right. By “a couple” I was just trying to be cute, referring to Brady and Durkin. The rest of your assessment is seems right, though we try to leave party politics to politicians.

debtsor

Ives is the best we’ve got and while I agree w/ her on many things, she comes across as a relic of the past, and fortunately she’s looking at federal office these days. There’s simply no way to compete in Illinois. Trump’s hand picked US attorney is trying to throw as many of the state Democrats in prison as possible, not to help out the Republican, but helping out the IL GOP is certainly a well intended secondary effect of Democrat corruption….but none of it will help even one iota, when the low information, barely voting, suburban women in my… Read more »

Astonished

In another comment you nailed the coming reality. People will be forced to “vote with their feet,” with “Blue States” becoming laboratories for “Blue Policies” and “Red States” becoming labs for theirs. We all know what will happen, of course. The real issue will be keeping the maggots from abandoning the Blue State carcasses after they’ve stripped them clean and moving to the healthy Red States and trying to feast on a new host. It’s not going to be pretty when that time arrives. Illinois will probably have to go almost full Zombie Apocalypse before renewal can begin. Unless “downstate”… Read more »