It’s Later Now In Chicago

Megan McArdle uses her latest Washington Post column to remark on Mayor Lightfoot’s recent “State of the City” address which I commented on here:

It’s been obvious for decades what was going to happen to Chicago and also obvious what would have to be done about it: some combination of pension trims, spending cuts and tax increases. But that’s budget-scold math. The political arithmetic was much simpler: Everyone thought that 100 percent of the cost of adjustment ought to be borne by someone else.

And so, Chicago politicians kept opting for “later” whenever possible, turning to a series of one-time tricks to cover shortfalls. With each delay, the problem got worse as they borrowed even more money from the future to keep taxpayers and workers happy.

Compound interest is your friend when you’re saving and your mortal enemy when you’re borrowing. Every day you delay the reckoning means that tomorrow, you’ll have to run even farther just to stay in place. Chicago is now approaching the point where the growth of its obligations will outpace the growth of any possible revenue stream it might use to cover them. It’s a few steps from there to municipal bankruptcy.

Of course, Chicago politicians aren’t the first ones to say “later”; they certainly won’t be the last. In fact, we’re all saying it right now, except for those tiresome budget scolds.

I disagree with this observation of hers:

There’s nothing inherently wrong with paying generous pensions, if that’s how workers prefer to take their compensation. But that sort of compensation is actually quite expensive. To fund even a modest guaranteed pension benefit decades in the future, you have to invest a big chunk of money in assets right now. Over time, those assets will grow, and generate the cash to pay out the benefits you’ve promised —

I think there is something inherently wrong with defined benefit pensions for public employees. There is no way to compel politicians to put enough money to pay for them into the pension funds. Unless they do, future voters who had nothing to do either with the commitments that were made or the inability to pay them are bound by them. That is unjust.

I also think that Chicago voters have been the victims of a certain amount of unfair criticism and unseemly glee at our plight. I doubt that one voter in 100 voted to short-change the public employees’ pension funds. The blame for that lies squarely on elected officials, many of whom flee the city (and the state) when their terms of office are over. We have really had very limited choices. Many elected officials here run without serious opposition from anyone who would do much differently than they would. So, for example, there has not been a serious Republican challenger running for mayor of Chicago in a very long time.