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.