The new Chicago mayor wants the rest of the state to pay for Chicago’s profligacy. From Ted Dabrowski and John Klingner at wirepoints.org
It didn’t take long for new Chicago Mayor Lori Lightfoot to propose a plan that would wash her hands of Chicago’s pension crisis altogether. According to a recent report in Crain’s, Lightfoot wants the state to take over Chicago’s pension debts and merge them with the other pension plans throughout the state. The move would make all state taxpayers responsible for paying down the city’s debts.
The plan to shift city debts to the state would bail out the mayor from having to raise about $1 billion in additional taxes to pay for increasing pension costs by 2023. A massive tax hike is something she’s desperate to avoid.
But while Lightfoot may think the cost-shift is a solution, it will only make things worse for Illinois. She should expect significant pushback from many sides.
Start with downstate and suburban residents. Sure, their public safety pension funds would get consolidated under the state, too, but it’s the Chicago funds that are some of the biggest and worst-funded in the state. The four city-run funds are collectively funded at just 27 percent and face an official shortfall of $28 billion.
In contrast, the 650 downstate pension plans are 55 percent funded and have a shortfall of nearly $10 billion. The end result of any statewide pooling of pension funds will be a net bailout for Chicago.
Non-Chicagoans aren’t going to just accept yet another bailout of the city. Downstaters’ most recent bailout of Chicago came when the state’s new education funding formula locked in special subsidies for Chicago Public Schools. That included hundreds of millions in hold-harmless funding as well as $200 million-plus annually to pay for the district’s pension costs.
When you make promises you can’t keep, it has consequences other than the broken promise. From Tyler Durden at zerohedge.com:
As a result of high taxes and government debt, combined with a nightmarish looming pension liability, Chicago’s housing market continues to collapse, according to a new write-up in the City Journal.
Average home prices in Chicago have still not recovered from the downturn that started in 2009, despite the fact that property taxes continue to climb. This is part of the reason Illinois ranks highest among states losing people to other areas of the country. Chicago homeowners are also taking big losses when they sell their homes.
Ball State economist Michael Hicks said last month:
“Taxes are high, the services [that taxes] pay for are terrible, and the debt load is so high, so palpably unsustainable that people have no belief that the resources can be found to turn it all around.”
“You won’t recruit a business, you won’t recruit a family to live here,” Chicago mayor Rahm Emanuel said in 2012, warning about the city’s pension problems. And that looks to be the case: Realtor.com predicted that Chicago would have the weakest housing activity this year among the nation’s top 100 markets.
Soon Chicago’s pensions funds will have more beneficiaries than working contributors, which will be their absolute death knell. From Ted Dabrowski and John Klingner at wirepoints.org:
You can’t help but call it a Ponzi scheme. Not if you look at Chicago’s collapsing demographics and consider how they’re threatening the solvency of the city’s government-run pensions. Chicago households are on the hook for more than $145 billion in state and local retirement debts and there are fewer and fewer people left to pay them.
Consider first Chicago’s falling population. The city’s metropolitan population has fallen four years in a row. It’s the only top-ten city to shrink like that. In all, the Chicago MSA lost 66,000 people between 2014 and 2018.
A falling population means the city’s massive pension debts are falling on a smaller base of taxpayers. That’s bad news enough.
But another key demographic – the ratio of active government workers to pensioners – is even more concerning.
That ratio, which equaled 1.4 actives for every pensioner in 2005, has collapsed to nearly 1.05. And if the trend continues, in just a year or two there will be more pensioners draining money from the pension funds than active workers putting money in.
All that’s left for Chicago is the bankruptcy filing. From Simon Black at sovereignman.com:
While the federal government is slowly careening toward permanent, fiscal disaster, many state governments (which don’t have the power of the printing press) are already staring into the abyss…
Take Illinois, for example. It’s the most broke state in the US with nearly $250 billion in debt. And it only brings in enough in taxes each year to cover 92% of its expenses… so the problem is getting worse.
Good thing Rahm “you never want a serious crisis to go to waste” Emmanuel is the current Mayor of Chicago. You may remember, the above quote was from Rahm’s days as Obama’s Chief of Staff, as told to the Wall Street Journalduring the depths of the Great Financial Crisis…
What followed was the greatest monetary experiment known to man.
Now Rahm has another crisis on his hands – Chicago’s woefully underfunded pensions. And he’s reaching into his old bag of tricks.
Governments can only kick the can down the road for so long. Eventually, they’ve got to make some tough decisions – like who they’re going to default on. Despite the promises made by certain political representatives, it’s impossible for everyone to have everything…
And today, Rahm must choose…
Either Chicago defaults on the pension promises it’s made to city workers or it defaults on its massive debt. It’s simple arithmetic.
Rahm, it seems, has chosen the latter.
The lies that have been used to put over the Obama Center on Chicago are being exposed and the public is rallying against it. From Mark Glennon at wirepoints.com:
Here’s something you don’t see every day: Chicago’s progressive Readeraligned with conservative Breitbart. Both had articles Wednesday slamming the Obama Center to be built in Chicago’s Jackson Park.
And everybody in between, it seems, is upset with the proposed center for one reason or another. The community organizer has managed to inspire unusual unity:
• Fiscal conservatives worried about our insolvent state object to how some $200 million was quietly appropriated in Illinois’ recently enacted budget for roadways around the center. Federal taxpayers will reimburse Illinois for 80% of that money, which was the subject of our recent Wall Street Journal article.
Sooner or later Chicago will go bankrupt, and it’s certainly a plausible supposition that Rahm Emanuel wanted to get the hell out before it does. From Ted Dabrowski and John Klingner at wirepoints.com:
We may never know why Rahm Emanuel decided to drop out of the Chicago mayoral race. But the media is certainly giving him a pass. They say he simply dropped out for fear of losing. But there’s a far more likely reason than that.
Emanuel is smart, and the smart reason for leaving is glaring: He doesn’t want to risk becoming “mayor bankruptcy.” Chicago is a ticking time bomb and Emanuel is jumping ship just in case it goes off.
Don’t dismiss that scenario too quickly. Despite his lofty intentions when he first took office, Emanuel has failed miserably to reform the city’s finances. Now the risk of insolvency is rising.
Chicago’s financials are dire and the city has no plan and no reserves to survive an inevitable recession. In fact, the city has barely kept its head above the water despite a decade of national economic growth. Chicago Public Schools was already at the brink of bankruptcy just one year ago. Continue reading
The Obama Center is not going to a presidential library, it’s going to be Obama’s base for his continuing political operations. So why are taxpayers subsidizing it? From Mark Glennon at WirePoints via zerohedge.com:
It’s a political ‘institute,’ not a presidential library. So taxpayers shouldn’t be paying for anything…
When Barack Obama announced he would forgo a presidential library, the news was trumpeted as a win for good government. Instead, Mr. Obama would open an official center on Chicago’s South Side, funded entirely with private money. One author at Politico, who called presidential libraries a “scam,” wrote that Mr. Obama “will rip off the band-aid, removing government from what it has no business paying for.”
Now comes news that Illinois taxpayers will put up at least $174 million for roadway and transit reconfigurations needed to accommodate the Obama Center. If you don’t live in Illinois, you may be smirking – but you’ll be footing the bill, too. Eighty percent of such spending is generally reimbursed by the federal government, and Illinois officials confirmed to me that they expect to receive $139 million from Washington if they request it.
All that taxpayer money – and for what? Originally, Chicagoans imagined they’d be getting a true presidential library, akin to those they might have visited for Ronald Reagan in California or John F. Kennedy in Boston. But unlike those libraries, the Obama Center won’t be run by the National Archives and Records Administration. It won’t even house Mr. Obama’s records, artifacts and papers, which will be digitized and available online. Instead the center will be owned and operated by the Obama Foundation.
This wasn’t always the plan. In a 2014 request for proposal, the Obama Foundation said that the planned presidential library “will include an Institute that will enhance the pursuit of the President’s initiatives beyond 2017.” This institute now seems to have taken over the project. As the Chicago Tribune reported in February: “Obama said he envisions his center as a place where young people from around the world can meet each other, get training and prepare to become the next generation of leaders.” No doubt, his definition of “leaders” will be political.
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