If you know nothing about Chicago’s fiscal problems, take a moment to understand the chart below from Moody’s Investor Services.
It’s really quite simple. It adds up three items — what Chicago pays each year on bonds for borrowed money, healthcare costs for retirees (called “OPEB”) and how much should be paid into its pensions just to stay even without running up bigger unfunded liabilities (called “pension treadwater”). Then it compares that sum to the total of all Chicago revenues.
Just those three items, the chart shows, are about 45% of all the money the city takes in, the worst of all major American cities. That’s assuming that the city really were paying that treadwater number into its pensions, which it’s failing to do.
Chicago, in other words, has iron ball strapped to its back far bigger than most other cities have to carry. When 45% of the city’s revenue is consumed by just those three items, taxes rise to uncompetitive levels and services become inferior.
Moody’s looked at America’s 25 biggest cities. The chart shows only the worst-off five and the best-off five. Chicago’s bonded debt service is about twice the average of those 25 cities. Chicago is worst of all 25 on the pension treadwater number as well as the total of all three items.
And that huge pension cost crowds out the city’s ability to borrow, runs down its credit rating and increases borrowing costs. That was the point of an article this week titled “Pension obligations eat up cities’ fixed cost” in Pensions & Investments, a major trade publication, which centered on that chart.
You’d think that chart or something like it would be a headline story across Illinois, given how simple and compelling it is. We printed a version of it last week as soon as the Moody’s report came out.
Moody’s is hardly alone with that kind of assessment. In fact, a report by a JP Morgan financial expert, published here and in the Wall Street Journal, is even worse. It concluded that if those same three items were properly measured and Chicago measured and amortized its retiree debts the way it should be doing, they’d consume a stunning 60% of the city’s revenue, by far the worst in the nation.