Chicago’s total debt more than triples to over $24B in 2015
A new Chicago financial report shows the city’s total unfunded liabilities have jumped by over $17 billion, growing to nearly $24 billion in 2015 from $6.5 billion in 2014.
Chicago property owners concerned about their future property-tax bills have had plenty to worry about over the past year – but a new report on the city’s crumbling finances has all but ensured that property-tax hikes will continue to be a painful reality for local homeowners.
The city already passed a $700 million hike in October 2015 to help plug the hole in police and firefighter pensions, and the city is expected to raise property taxes by another $250 million to fund ailing Chicago Public Schools, or CPS, pensions. And with billions more in other health care and pension shortfalls still unfunded, more hikes are on the way.
But the newest debt numbers in the city’s 2015 Comprehensive Annual Financial Report, or CAFR, show that without massive pension reforms, the city’s tax hikes are just beginning. The report found that the total city debt Chicagoans are on the hook for has more than tripled since 2014.
Chicago’s real pension debt numbers
Chicago’s total unfunded liabilities have jumped by over $17 billion, growing to nearly $24 billion in 2015 from $6.5 billion in 2014. The increase is mostly due to new accounting standards and the fact that in March the Illinois Supreme Court struck down the city’s recent attempt to reform its broken municipal-workers and laborers pension funds.
Add to that their share of sister-government and Cook County pension and health care costs and long-term debt, and Chicagoans are on the hook for over $65 billion.
Without significant spending and pension reforms, that burden is likely to grow even larger.
This more than tripling of the city’s total debt occurred because the Governmental Accounting Standards Board developed new government accounting standards that took effect in fiscal year 2015.
Some would have Chicagoans believe the resulting massive debt is nothing more than an accounting problem – but that’s not true. Chicago’s massive financial crisis has been growing for years, and the new standards have revealed just how dire the city’s situation really is.
The new standards, similar to the standards that ratings firms such as Moody’s Investors Service have been promoting for some time, require Chicago officials to use a more realistic rate of return on investment of 5 percent a year instead of the unrealistic 7.5 percent those officials usually assume.
In addition, the Illinois Supreme Court’s ruling against the city’s attempted municipal-workers and laborers pension reform meant that Chicago had to remove the reform’s financial savings from its calculations.
In total, the city’s total pension debt grew by over $13 billion – and there is more to come.
The amount of pension debt for which Chicagoans are on the hook will only get bigger when another of Chicago’s two city-run pension funds – for police officers and firefighters – release their actuarial reports for 2015.
Chicago’s 2015 CAFR has forced the city to show the true extent of its financial woes and just how much debt it’s piling on overburdened Chicagoans.
The massive size of that debt means there is no chance of Chicago taxing its way out of its financial mess. Chicagoans are already struggling under a record $700 million property-tax increase, plus the looming threat of the next CPS property-tax increase.
The stopgap budget passed by the Illinois General Assembly on June 30 grants Chicago the authority to raise property taxes by 0.383 percent, or $250 million, to contribute to the CPS teacher pension fund.
Ever-increasing taxes will do far more harm than good. Further hiking the burden on Chicago taxpayers will only drive more residents to leave the city and seek opportunities elsewhere.
It will take bold reform to stabilize Chicago’s finances, protect city taxpayers, make government-worker retirements secure, and restore confidence in the city’s future.
Bold reform means a pension overhaul that protects what workers have already earned and empowers government workers with 401(k)-style retirement plans.
It means capping the growing debt burden and paying down existing debts in a responsible manner.
Finally, it means reining in spending and opening up union contracts to negotiate levels of benefits and wages that Chicago taxpayers can afford.