Turnabout

Opinion pieces in out-of-town journals tend to capture my attention and this one in City Journal by Thomas Savidge is no exception. I’m inclined to agree with him that despite its fiscal problems the federal government should not bail Chicago out:

Six years ago, Illinois Senate President Don Harmon sent a letter to the Illinois Congressional Delegation detailing a federal bailout request. Most requests in this letter pertained to budgetary issues that long predated Covid-19, including a $15 billion “no-strings-attached block grant.”

While the feds rejected that specific item, Illinois and Chicago received billions of federal dollars through various stimulus programs. Illinois also received a first-of-its-kind loan from the Federal Reserve. Many proponents of the Covid-19 fiscal expansion still defend this massive spending, with former Treasury Secretary Janet Yellen stating last year that the stimulus was necessary.

The door is open, then, for Illinois and Chicago to return to D.C. and ask for federal assistance. If granted, taxpayers nationwide will pay for the Windy City’s fiscal recklessness. And the bailouts likely won’t stop there. Officials in other cities, such as Mayor Zohran Mamdani in New York, will be watching closely. If Chicago can get a bailout, why not the Big Apple?

Rather than properly manage their budgets, city and state officials may scramble to secure the next spot in line at the federal trough. Fiscal responsibility will erode as state and local officials pay more heed to federal policymakers and the terms of federal funding than their obligations to their constituents.

The only constructive way forward is for federal officials to make an explicit warning against bailouts. When fiscally mismanaged states and cities see that Washington won’t enable their behavior, they may finally make the necessary and painful adjustments to restore fiscal solvency.

The federal government should not bail Chicago out even less than it should bail New York City out. I do think that the State of Illinois for a couple of important reasons.

First, the state has been leeching off Chicago for most of the last century. The preponderance of state revenues are derived from Chicago and that has been true for a very long time. Turnabout is fair play. The downstate belief that Chicago is the leech is poorly founded as the table at the bottom of this post documents.

Second, a considerable portion of the city’s budget is devoted to public employee pensions, making up for decades of fiscal profligacy. The state is compelling Chicago to make up for profligacy of which it is itself guilty.

And neither the city nor the state can tax its way out of the consequences of having kicked the can down the road too long. Tax increases would only hasten the flight of those with the income and wealth on which their revenues depend. No, the only remedy is allowing the city and state to restructure public employee pensions, something presently barred by the state’s constitution.