Chicago Slides Toward Bankruptcy

05/15/2015 04:12 pm ET | Updated May 14, 2016

Many Chicagoans write off the relentless comparisons of their city to bankrupt Detroit.

After all, Chicago isn't a run-down, empty shell of a city. It doesn't rely on just one industry to survive. And it certainly hasn't lost 60 percent of its population like Detroit has.

Unlike the Motor City, Chicago is bustling with record tourism, a growing tech scene and a diverse economy. Michigan Avenue looks nothing like 8 Mile Road.

But to go bankrupt, a city doesn't need to look and feel like Detroit. It just needs the lethal combination of too much debt and a dysfunctional government. And those are two things Chicago has.

The Illinois Supreme Court recently made Chicago's path toward bankruptcy more likely when it ruled that modest reforms to Illinois' state pension plans were unconstitutional. Moody's Investors Service followed the court ruling with a double-notch downgrade of the city's credit rating. Chicago's bonds are now rated "junk" and are the riskiest of all big cities in the nation, apart from Detroit.

The collapse in Chicago's rating is the result of a massive spike in Chicago's debt in the last decade, driven by out-of-control pension obligations, and the city's unwillingness to do anything about it.

Chicago's four city-run pension funds have a combined $20 billion shortfall, nearly six times larger than the city's annual operating budget.

The two weakest funds are dedicated to the city's firefighters and its police officers, with the former having just one quarter of the funding necessary to meet its future obligations. By any measure, it's already bankrupt.

So is the police pension fund. It has just 30 percent of the funds it's supposed to have in its coffers today.

Six other pension funds dedicated to the workers of Chicago's sister governments and Cook County are also in dire straits.

In all, Chicago taxpayers owe nearly $35 billion in pension debt. That's quadruple what they owed a decade ago. Chicago households are on the hook for more than $60,000 each when the city's long-term borrowings are included.

But if the debt load wasn't enough, Chicago's dysfunctional leaders have done a lot to make things worse.

For starters, they purposefully shortchanged the pension funds. In 2010, for example, politicians passed a three-year pension "holiday" that allowed Chicago Public Schools to skip $1.2 billion in contributions to the teacher pension system.

They've also agreed to give generous salary and pension benefits in exchange for union political support, with no regard to whether taxpayers could afford the increased costs. That's driven up city and sister-government costs, despite an overall 14 percent cut in total employment since 2004.

Emanuel let himself get rolled by the unions during a 2012 teachers strike. He caved and signed a major salary increase when the school district was already staring at a $1 billion shortfall.

Can the city stave off bankruptcy for a few years by raising property taxes and fees?


But that was Detroit's "solution" to its problems.

Its tax hikes didn't fix anything, but instead chased even more people out of the city until Detroit finally ran out of taxpayers.

Chicagoans, too, will flee the city when they realize massive property-tax increases will buy them no new benefits - not safer neighborhoods, improved schools or better roads.

Instead, those taxes will pay for services rendered long ago and perpetuate a bankrupt system that's failed everyone from taxpayers to city workers to those most dependent on government services.

Chicago can't tax its way out of this problem.

Its debt is built on a foundation of broken promises. The only way to stop the bleeding is for workers to take back control over their retirements from the politicians who have run the city into the ground.

Detroit's bankruptcy showed workers what happens if they don't.