Chicago’s $43,100 debt per taxpayer driven by pension debt

Chicago’s $43,100 debt per taxpayer driven by pension debt

Fiscal watchdog Truth in Accounting again gave an ‘F’ grade to Chicago, thanks to high debt driven by unsustainable pension costs. Fixing the problem will take amending the Illinois Constitution.

Chicago once again earned a failing grade from Truth in Accounting in their latest Financial State of the Citiesreport thanks to over $38 billion in debt – $43,100 for each taxpayer.

Every Chicagoan would have to send the city that amount just for Chicago to pay the bills it owes. Chicago has just $9.9 billion available to pay $48.6 billion in bills. The Windy City came in 74th out of 75 cities studied in the report, only besting New York City’s massive $204 billion debt with a per-taxpayer burden of $71,400.

The city’s financial failings stem from pension promises the city cannot afford to keep. “Chicago’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years. The city had set aside only 23 cents for every dollar of promised pension benefits and no money for promised retiree health care benefits,” the report notes.

Pension costs are wrecking public finances throughout Illinois: Chicago is no exception. The city’s eight pension funds – including the four funds to which the city contributes directly and four funds for related entities funded by the same taxpayers – have accumulated nearly $47 billion in debt. That amount represents more pension debt than 44 U.S. states. Those pensions are only 34% funded overall, meaning they have 34 cents saved for every $1 in future promises. Pension experts consider plans below 40% funding to be past the point of no return and on the path to insolvency or major cuts.

Chicago’s huge pension funding shortfalls have caused it to become stuck in a cycle of increasing taxpayer costs and decreasing service quality. Taxpayers have recently been asked to pay more for water and sewer use, more for gasolinerideshares, and other taxes, fines and fees. Chicago’s 10.25% sales tax is tied for thenation’s second-highest combined rate for a major city. Increasing spending amounts on pension debt means fewer dollars for critical programs and services the city provides residents. It means further tax and fee hikes, such as the $76.5 million property tax increase contained in Mayor Lori Lightfoot’s budget for fiscal year 2022.

Even as the city continues to spend more on pensions and less on public services, that increase in pension spending is not enough to adequately address the city’s underfunded pension problems. Chicago’s pension spending is up nearly $1 billion just during the three years Lightfoot has been in office. It is up nearly 500% since 2004 in nominal terms. Like the state of Illinois, Chicago chronically underfunds its full, required payments by targeting 90% funding instead of 100%, along with relying on other unrealistic accounting assumptions.

The city received nearly $2 billion in COVID-19 relief funding from the federal government. Those funds helped prop up the city’s troubled budget for the current fiscal year, with Lightfoot calling it “the most progressive and forward-looking budget in our city’s history.” Her budget included $1.2 billion in spending on new programs for affordable housing, homelessness, violence prevention, job training and mental health services. It also included $32 million for the creation of a universal basic income pilot program, which will send $500 in monthly cash assistance to 5,000 families.

That spending is propped up by the emergency funding from the federal government, making it very unlikely the programs will be able to continue once that money runs out. A city needing billions of additional dollars to pay for the debts it already owes should be focused on taking measures to shore up spending rather than creating new programs on which people will rely just to see them taken away when the city no longer has the money.

The mayor has been refreshingly candid about the pension crisis at times. Lightfoot declared the city’s pension system “unsustainable in its current form,” during a meeting with investors in May 2021. She also referred to the pension crisis as the “biggest problem” facing the city’s finances. Despite being forthright about the severity of the problem and the need to fix it, Lightfoot has always stopped short of pushing for a realistic solution. Her latest budget address did not include any call for pension reform, which requires Springfield to send a constitutional amendment to voters.

The best possible fix for Chicago and Illinois’ fiscal problems remains a constitutional amendment to allow for pension reforms to the root causes of the crisis. Without it, Chicago and Springfield will continue to make promises they cannot afford to keep while asking taxpayers to pay more to get less.

Illinois needs to end this cycle of taxpayer abuse and let the people vote on pension reform.

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