Illinois has one of the worst pension messes in the nation as the cost of government employee benefits is sending state, county, and local governments into bankruptcy crises all across the state. No place has more trouble than Chicago, prompting Mayor Rahm Emanuel to warn that property taxes will have to double to serve that spiraling debt.
In 2015 Chicago faces a looming financial disaster with a municipal pension system that is in worse shape than that of any other major U.S. city. Chicago is under the gun for a whopping $1.07 billion balloon payment on its $19.4 billion pension debt for city employees. Chicago’s mayor is struggling to figure out how to pay the balloon payment, which is equal to one third of the city’s entire budget. According to The Wall Street Journal, the balloon payment alone could pay for the salaries of the Chicago Police Department’s entire 4,300 officer force or for the re-paving of all 16,000 blocks of roads in the city.
The city fathers have made some furtive attempts to address the crisis.
“Last month, Chicago’s city council approved the issuance of $500 million in commercial paper and $900 million in general-obligation bonds purportedly to refinance existing debt and improve public works,” the Journal reported early in March. “There’s little to stop politicians from pouring the proceeds into pensions – or later reneging on this unsecured debt if it were to file for bankruptcy.”
The shortfall to the pensions amounts to $7,100 per Chicago resident.
In any case, if something else isn’t done, Mayor Emanuel is warning that he’ll have to double property taxes to fund the payment.
The municipal pension fund isn’t the only pension in failure in Chicago. The city’s teachers’ pensions are also widely understood to be one of the worst-funded in the country. The teachers’ pension fund will require a tripling of its required contribution.
“The Chicago teachers’ pension fund is roughly 54 per cent funded, far below the 80 per cent threshold considered healthy,” Financial Times reported last December. “But it is better off than the city’s municipal workers, police, labour and firefighters’ pension funds, which Fitch, the credit rating agency, estimates are collectively 33 per cent funded.”
Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, though, warns that just raising taxes and cutting services won’t fix the problem.
“I don’t think either one is even a possibility. Everybody’s going to have to give something,” Pagano said in December.
Meanwhile, the State of Illinois already comes in at second place in the number of citizens moving out of state. Outward migration for The Land of Lincoln ranked second only to New Jersey in 2013.