Have Chicago’s financial advisors ever shown the mayor and her city council what an extreme national outlier Chicago has become? Do the city’s top officials have any idea just how poorly the Windy City stacks up against the nation’s other major cities? Do they have any clue how much stress Chicagoans live under?
Those are the questions that come to mind when you analyze the pitiful actions the city council came up with to deal with the city’s $1.2 billion budget deficit and, more importantly, its collapsing finances.
The council plugged the 2021 budget hole with hundreds of millions from a scoop and toss refinancing scheme and vague promises of “reductions and efficiencies” – just like in last year’s budget. And adding insult to injury, Lightfoot canceled some small city furloughs but still went ahead with another property tax hike. Her $94 million increase follows Rahm Emanuel’s record property tax hikes during his term.
Not a word of reforms. Nothing on the need for a pension amendment. And nothing on revising labor contracts. Lightfoot’s “most generous contract ever” with the CTU is still in place even though teachers haven’t been in the classroom for almost a year.
The pre-COVID hum of the Loop can’t hide the fact that the city is near its limits. Chicago is already rated junk and CPS fares far worse, four notches deep into junk territory. COVID-19 lockdowns are ravaging businesses. The riots of several months ago and the ongoing crime have done even more damage. As a result, many residents have left temporarily, if not forever.
Below are nine graphics that Mayor Lightfoot and the council should have analyzed in great detail before making any decisions on finances. You’d like to think that they would have at least pushEd for the one thing that has any hope of saving the city: an amendment to the Illinois Constitution’s pension protection clause.
1. The city of Chicago’s fixed costs as a percentage of revenues are at 44%, the highest of any major city in the country. That’s based on a Moody’s analysis that takes into account debt service and the pension contributions required to prevent pension debts from growing.
2. A separate but similar analysis shows that the city of Chicago’s retirement and debt costs would jump to 62% of revenues if the city were to pay its true actuarial pension costs. That’s by far the highest of any major city in the nation. That analysis was done by JP Morgan’s Michael Cembalest.
4. The problem is systemic. Chicago’s other local governments have total debts as a percentage of annual revenues that range from 543% to 746%. No other metro area is as indebted as Chicago is. That’s based on a Moody’s analysis of the 50 biggest local governments in the nation.
5. Much of Chicago’s pension crisis stems from overpromised benefits. Career government workers are, on average, retiring today at age 60 with starting pensions of just over $70,000. Those career workers can expect to average about $2.1 million in lifetime retirement benefits.
That’s far higher than anything the average worker in Chicago’s private sector can expect to receive in retirement. It’s also far more than they can afford to pay for.
6. The city of Chicago is the only major city besides Detroit to be junk-rated. Chicago Public Schools is already rated four notches into junk, according to Moody’s.
7. It’s important to remember that Chicago households are on the hook not just for city retirement debts, but also for those of the city’s sister governments (CPS and the Park District), as well their share of Cook County and state retirement debts.
Add up all the overlapping debt Chicagoans are on the hook for according to Moody’s and it totals $141 billion. Divide that total by the one-million-plus households in Chicago and the per household burden is $135,000 each. (Many households are too poor to contribute to the burden, meaning Chicago’s remaining households will have to pick up the slack.)
8. Chicago has the worst home price growth of any of the 10 cities listed on the Case-Shiller Index – a leading measure of U.S. home prices. In fact, Windy City homes have actually lost value when inflation is taken into account. Since 2000, Chicago’s home prices have grown 49 percent, slightly less than inflation (up 51 percent).
9. The Chicago metropolitan area has lost population five years in a row. No other major metro is shrinking like Chicago. Since 2010, it has lost 12,000 people, while even struggling New York managed to gain 130,000 in population. That’s based on U.S. Census data.
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