Will Chicago Be Next?

The New York Times takes note of Chicago very serious public pension problems:

Among the nation’s five largest cities, Chicago has put aside the smallest portion of its looming pension obligations, according to a study issued this year by the Pew Charitable Trusts. Its plans were funded at 36 percent by the end of 2012, city documents say. Federal regulators would step in if a corporate pension fund sank to that level, but they have no authority over public pensions.

Chicago’s troubles, experts say, were years in the making. They are the result of city contributions under a state-authorized formula that failed to accumulate nearly enough money, two economic downturns in the 2000s that led to heavy investment losses, and an impasse in the State Capitol despite urgent calls to cut costs of the state’s own pension system. Illinois, which has the most underfunded state pension system in the nation, controls Chicago’s benefit and funding levels.

In Springfield, which, like Chicago, is controlled by Democrats, leaders have clashed over how best to cut costs of the plans — a notion that pits the lawmakers against labor unions, which have traditionally been allies.

This particular article highlights a number of the important issues behind Chicago’s pension woes. It’s easy to remain politically popular when you deliver services without asking that people pay for them. When you offer deferred compensation to public employees in the form of pensions and retiree healthcare benefits and similarly defer paying into the funds from which those benefits will be paid, everybody’s happy. For a while. But eventually that money will need to be paid back and that’s where Chicago is today. Eventually is now.

Neither Chicago’s nor Illinois’s problems can be laid at the feet of the evil Republicans who haven’t controlled the state’s government in well over a decade or the city’s in generations. There’s no political gain to be had for Democrats here. Meanwhile, the Democrats in the state legislature have fecklessly maximized Republican power by continually deferring the hard decisions on public pensions until the veto session.

The article repeatedly holds out the option of “raising taxes”. Raising tax rates and raising tax revenues are two different things. Chicago does not have the power to levy an income tax. It could raise the sales tax rate, already the highest in the country, but recent experience suggests that won’t actually raise any revenue. Lower sales taxes are just a short drive away. Or a mouse click.

The city has just about tapped out its ability to increase property tax rates without direct popular approval and getting that approval at the ballot box is not guaranteed.

The revenue-based solution for Chicago depends on the state paying much more of the freight, particularly in education where Illinois is 50th among the 50 states in the state’s contribution to education. Chicago has carried more than its fair share for decades while downstate Democrats have steadfastly refused to change. Presumably, they’re in fear of their own jobs.

Cutting pensions or retirement benefits is prohibited by the state’s constitution. The avenue that leaves open is reducing the compensation of present employees and, as you might expect, they’re not happy about it, viz. Chicago’s teachers’ strike last year. I suppose the converse of G. B. Shaw’s wisecrack that “when you rob Peter to pay Paul you can always depend on the support of Paul” is that Peter won’t think much of it but that pretty well summarizes the present state of affairs here.

Although Chicago isn’t in the dire, rundown condition that Detroit is, it’s possible that municipal bankruptcy may be Chicago’s best alternative. Better sooner than later.

12 comments… add one
  • jan Link

    It seems that within the framework, of so many municipalities’ problems, is the matter of unfunded pensions, as well as the constraints applied, to do anything about them, by unions. The overreach of unions seems to time and time again, have a straight line of cause and effect to collapsing cities.

    In a side bar, it will be interesting to see how the Amazon Mogul, Jeff Bezos, manages his new acquisition, The Washington Post, in lieu of it’s own in-house heavy weight union issues. This is especially noteworthy, as Bezos’s some 90,000 Amazon employees are all non-union, and attribute their innovation and flexibility to not be under the inhibiting effects of union demands.

  • Red Barchetta Link

    Given that there are only two asset classes (corporate and govt fixed income securities and public equities) that can really dominate the overall portfolio return, and that public equities have risen to pre-recession levels, blaming economic downturns seems a convenient and false scapegoat. Closer to the truth on that score would be ZIRP, QE, helicopter Ben-ing or whatever. Who has railed against this no-return-to-fixed-income approach? Oh, that’s right, me. And who grins from ear to political ear with the Bernank’s attempts to reinflate housing and auto finance, and cheapen government borrowing? Obama. Careful what you wish for unionists. Throw in actuarial assumptions and funding shortfalls that are a joke and its going to be a train wreck.

    I have a solution, though. Since I “care” and “we all have to pull together,” just raid the IN and WI treasuries. If they object, grab the guns and pitchforks. Ought to keep the Chicago and IL pols in power another 10 years…….

    Speaking of unions, Jan….when I was commenting over at OTB and Doug M was covering the Hostess mess I pointed out that the national union bosses were taking an unnecessarily hard stance and would sell the Hostess Teamsters and Bakers union workers down the river. Sure enough, the “new Hostess” manufacturing footprint is now some 40% of pre-BK, and there are no union workers.

    Do you know what a high seniority union worker calls a junior union worker:? “Brother.” And after financial reality rears its ugly head:? “Unemployed ex-brother.”

    But let’s keep our heads in the sand and blame greedy businessmen and slave wages.

  • jan Link


    Unions used to have a pivotal role in standing up for decent wages and work conditions on behalf of workers. But the pendulum of their virtue and usefulness has swung away from being a positive force, to now just being a powerful and sometimes destructive force to be reckoned with — even if it means to the demise of the worker, the company, and when it come to schools, to the well being and quality education of a child.

    As you can see, I have little praise nor respect for unions, especially public sector ones. One exception made would be what the CEO of Whole Foods supports, which are small in-house private unions who can fairly negotiate between worker interests and the ones manifested by the company. School unions, though, are the worse — despicable in how they manipulate their strikes to be ‘for the children,’ when it’s really all about themselves, and in the end only serves to lower the quality of education in order to sustain their own financial benefit plans. Chicago unions stand out in their overreach and audacity of delivering poor service while demanding top wages and benefits.

    It’s ironic too, because the liberal rich are always railing against criticizing and changing the public education system, or limiting the power of their unions. While, at the same time, they send their own children to better functioning private schools. Matt Damon is the latest example of such a hypocritical trend in the Hollywood elite and ‘special’ types of social progressive liberals — “Do what I say, not what I do” kind of rationalizations.

  • PD Shaw Link

    I don’t think Chicago can expect help from the state unless the state gets another income source.

    Here’s what I see happening. The state cannot pay its own legacy costs, so it reduces payments to the schools. This reduction is not unsympathetic to Chicago schools, the reductions are shifted to favor Chicago schools over downstate schools by favoring cuts to the foundation level payment (hurting low property value areas), and large increases to the tax cap adjustment (favoring Chicago/Cook) and poverty grants (about half of which go to Chicago).

    Many of the collar county schools get hardly any state-funding, leaving the fight for state funding between income poor and property poor. I don’t see downstate Democrats or any downstaters helping with that. The state either needs to get its own fiscal house in order, raise a progressive income tax, or everybody needs to get used to smaller pieces of pie.

  • PD Shaw Link

    Just some numbers from the Illinois Interactive Report Card:

    Lake Forest Schools
    Avg. teacher salary: $72,136
    Revenue % Local: 94.4%

    Chicago Schools
    Avg. teacher salary: $74,990
    Revenue % Local: 45.4%

    Springfield Schools
    Avg. teacher salary: $61,148
    Revenue % Local: 59.4%

    Harrisburg High School
    Avg. teacher salary: $55,453
    Revenue % Local: 27.6%

  • TastyBits Link


    … While, at the same time, they send their own children to better functioning private schools. …

    Matt Damon and the other rich liberals will send their children to public schools, but they do not want their children to associate with the wrong type of people. Over 15% minority students is about their maximum tolerance.

    If you want to be really impolite, you may notice how few minorities live on their blocks, and how few minority families are invited to any of their birthday parties. Somehow they can easily identify intolerance in others.

    They live the lifestyle that the poor racist dreams about.

  • michael reynolds Link


    Of course without Chicago, Lake Forest (and Wilmette, Winnetka, and the rest) wouldn’t exist. Those are commuter communities whose income derives from the employers in Chicago. Who then run away to the burbs with their tax dollars in their pocket and tsk tsk at the woes of the city that supplies their livelihoods.

  • PD Shaw Link

    @michael, true. Perhaps I should have identified the cities I picked:

    Chicago is Chicago
    Lake Forest is a wealthy suburb of Chicago in a neighboring county (and what michael said)
    Springfield is Lincoln’s hometown, the center
    Harrisburg is an old Southern coal town with a Democratic representative and senator

    Also Harrisburg is nowhere near Chicago:

    Harrisburg to St. Louis: 2:27
    Harrisburg to Louisville: 3:01
    Harrisburg to Nashville: 3:19
    Harrisburg to Memphis: 3:48
    Harrisburg to Indianapolis: 4:19
    Harrisburg to Jefferson City, MO: 4:35
    Harrisburg to Cincinnati: 4:39
    Harrisburg to Huntsville, AL: 5:08
    Harrisburg to Tupelo, MS:
    Harrisburg to Little Rock: 5:34
    Harrisburg to Chicago: 5:44

    (waiting for grill to warm . . .)

  • The complete entries from the Illinois Interactive Report Card are even more interesting:

    Lake Forest School District (excludes the high school)

    District Enrollment 2,039
    District Size LARGE
    Number of Schools in District 5
    U.S. Status –
    All Subjects Meets and Exceeds 95.8%
    Made Adequate Yearly Progress Yes
    Avg. Teacher Salary 72,136
    Avg. Teacher Experience 13.3 Years
    Instructional Expenditure Per Pupil 8,029
    Operational Expenditure Per Pupil 14,573
    Low Income 1.5%


    District Enrollment 400,931
    District Size LARGE
    Number of Schools in District 607
    U.S. Status 9 Years in School Improvement
    All Subjects Meets and Exceeds 67.3%
    Made Adequate Yearly Progress No
    Avg. Teacher Salary 74,990
    Avg. Teacher Experience 11.9 Years
    Instructional Expenditure Per Pupil 8,235
    Operational Expenditure Per Pupil 13,616
    Low Income 86.6%


    District Enrollment 14,328
    District Size LARGE
    Number of Schools in District 34
    U.S. Status 9 Years in School Improvement
    All Subjects Meets and Exceeds 67.6%
    Made Adequate Yearly Progress No
    Avg. Teacher Salary 61,148
    Avg. Teacher Experience 13.2 Years
    Instructional Expenditure Per Pupil 7,094
    Operational Expenditure Per Pupil 12,726
    Low Income 60%

    I think that explains the % local revenue figure in PD’s stats. The difference is Title I money. Mostly that’s from the federal government and distributed by the state.

    Rather than contradicting my point it actually supports it: the state of Illinois really isn’t contributing its fair share to Chicago schools. If you look around here you’ll find a link to an NEA report that says pretty much the same thing. Note, too, that these figures support the point I’ve made money times: relative to outcomes Chicago teachers are overpaid.

    Chicago is in Cook County, Lake Forest is in Lake County, Springfield is in Sangamon County. That’s an important distinction from a funding standpoint. Lake Forest residents only pay for Chicago schools via the meager portion from Illinois state taxes.

    Additional factor: Chicago pays its own teachers’ retirements and, via their state tax dollars, Chicago residents also pay for non-Chicago teachers’ retirements. Chicagoans are being over-taxed and under-supported.

  • Ben Wolf Link

    Drew nailed a big part of the problem, namely the Fed’s policies are starving pension funds, savers and retirees for very little return. We’ve already got a huge mess on our hands with IRAs and 401Ks woefully failing to meet goals and on top of that government guarantees are being allowed to fall through. The whole damned thing is a disaster of our own making.

  • Red Barchetta Link


    “Unions used to have a pivotal role in standing up for decent wages and work conditions on behalf of workers.”

    Indeed. I come from the poster child industry where that applied: steel. Unfortunately, like lefties who cite the interstate highway system as their shining light of good government intervention,………..those days were in the Paleozoic Era.

    Michael – You conveniently forget (anyone surprised??) that the big money used to reside right in the city. You think the University of Chicago is in Hyde Park because they love ghetto neighborhoods surrounding the Midway? Then came Big Government, and people got the hell out of dodge, say, like, oh, I don’t know, Detroit? As always, you get is back asswards. .

  • Red Barchetta Link

    Speaking of Detroit…


    How this nimrod failed to understand its all because selfish Detroiters and their tax dollars beat a path to green, leafy suburbs is beyond me………….isn’t it their civic duty to fork over vast sums of their hard earned dollars for the privilege of being shot at?

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