It takes a long time to kill a city, and the bigger the city, the longer it takes. But Chicago’s “public servants” have done a fine job speeding up the process.
The Windy City was forced this week to put off a planned sale of $292 million in tax-exempt municipal bonds, part of an $800 million debt-service package. Authorities blamed volatility caused by the Iran war, but other bonds were priced without incident.
The truth is it’s never a good time to float the kind of debt Chicago wants. The city seeks to structure bonds to make no payments at all — not even interest — for the first couple years. That obviously raises the overall cost of borrowing.
The city has played this same old game for decades. Keep public-sector unions happy by punting obligations onto future taxpayers. Cover the snowballing costs with more borrowing and short-term fixes, such as the city’s 2008 decision to sell off 75 years worth of parking meter revenue for a one-time, $1.15 billion payment.
Pension payments and debt service now consume almost 40 percent of the city’s operating budget. Seven of the country’s 10 worst-funded pensions are in Chicago. The best of those, the Chicago Transit pension, has roughly half the assets needed to pay promised benefits. Those in the worst condition, covering police and firefighters, are now less than 20 percent funded because of a “sweetener” rammed through the state legislature last year.
Last month, two ratings agencies downgraded the city’s debt. The school district’s bonds are already rated as junk. The city council’s laudable rebellion in the fall against the feckless budget proposed by Mayor Brandon Johnson (D), a former organizer for the teachers union, was a hopeful sign, but the modest tweaks they forced him to accept in December won’t change the fiscal trajectory.
If local politicians think outsiders will bail them out, they’re being delusional. State finances are also in perilous condition. And it’s hard to imagine bipartisan support for a federal bailout.
The way forward is making structural reforms that can put the city back on the road to long-term health. Aldermen need to again take a more active part in the budget process. To do that effectively, they need an independent office to monitor Chicago’s $16.6 billion budget.
The city also needs the state to allow it to declare bankruptcy in the event of a crisis. In the meantime, the council could get to work implementing more of the $1 billion in efficiencies recommended by Ernst & Young.
One small change that might make a big difference would be adjusting the timing of elections to match the national calendar. Chicago’s municipal elections are currently held in February of odd years, with April runoffs for districts in which no candidate receives a majority. Progressive reformers once imagined this would allow voters to focus their concentration on local matters. In practice, most voters just ignore them, which gives outsize influence to special interests.
If voters don’t force Chicago’s elected officials to change, the bond market eventually will. That would be much more painful.
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