Cities: The problem with socialism, Margaret Thatcher once noted, is you eventually run out of other people’s money. In progressive Chicago, that’s hit home as Moody’s has cut its credit rating to two grades above “junk.”
Chicago’s finances are staggering under the weight of an unfunded pension liability that Moody’s Investors Service has estimated at $32 billion, eight times the city’s operating revenue.
Chicago has a $300 million structural deficit. And Illinois law requires the city to up its 2016 contributions to its police and fire pension funds by $550 million.
“This is an unfortunate wake-up call for anyone still asleep over the fiscal cliff facing the city of Chicago,” said Laurence Msall, president of the Chicago-based government finance watchdog, the Civic Federation.
The steady financial decline of the nation’s third-largest city prompted us recently to say that Chicago was well on its way to becoming the next Detroit.
In other words, it’s another bankrupt monument to the perils of Democratic governance: a one-party town in one of the bluest states, whose mayor, former White House Chief of Staff Rahm Emanuel, learned financial discipline at the feet of President Barack Obama.
A large part of Chicago’s problem is that the game of maintaining campaign armies by overpromising and underfunding pensions is over. Emanuel can expect little help from Illinois’ new Republican governor, Bruce Rauner, who is trying to fix similar problems at the state level.
Chicago’s pension funds are only 40% funded, and prospects aren’t good, as people — particularly high-income individuals and businesses — flee the city’s high taxes and stiff regulations.
Emanuel recently emerged from the Windy City’s mayoral primary with just 45% of the vote against four opponents, forcing Chicago’s first-ever mayoral runoff. A poll taken by local polling firm Ogden & Fry on Feb. 28 showed Emanuel leading second-place primary finisher Jesus “Chuy” Garcia, who serves on the Cook County Board of Commissioners, by a slim 42.9% to 38.5% margin. Chicago natives are clearly restless.
As Aaron Renn has noted in City Journal, Chicago lost 7.1% of its jobs in the first decade of this century. Its famous Loop, the second-largest business district in the nation, lost 18.6% of its private-sector positions.
Raising the city’s minimum wage will not reverse that trend. People are leaving in droves, voting the only way they can in a one-party town — with their feet.
From 2000 to 2009, Chicago’s population shrank by 200,000 — the only one of the nation’s 15 largest cities to lose people. The city now has 145,000 fewer school-age children than it had more than a decade ago, according to district data, forcing the closure of about 100 schools since 2001.
Chicago may soon be forced to go to Washington for a bailout similar to New York City’s 1975 rescue. The prospect of Emanuel begging his former boss, President Obama, for financial help would be ironic indeed.
The man who once said that a crisis is a terrible thing to waste now finds his city and President Obama’s home town in fiscal crisis and his own political future teetering on the brink.
Follow us: @IBDinvestors on Twitter | InvestorsBusinessDaily on Facebook