‘Sinkhole city’: Accounting watchdog gives Chicago an F in fiscal health
A recent analysis ranked 75 of the most populated cities in terms of fiscal health - and placed the Windy City next to dead-last.
As Chicago’s debt grows, so too does the city’s pile of disappointing fiscal reports.
The latest installment in this stream of news came by way of accounting watchdog group Truth in Accounting, or TIA, in a report released Jan. 24. Based on financial information from fiscal year 2016, the study found Chicago performed second-worst in the nation, ranking 74th out of 75 cities behind only New York City.
The report is the second annual “Financial State of the Cities” analysis published by TIA. And for a second consecutive year, the Windy City’s finances have earned an F grade.
Another blemish the city has managed to retain from the previous year’s report is its status as what TIA calls a “sinkhole city” – a city whose bills have outpaced its available assets. According to TIA’s analysis, Chicago has $35.8 billion in unfunded pension obligations and more than $715 million in unfunded retiree health care benefits.
TIA produced these assessments using data derived from the city of Chicago’s 2016 audited Comprehensive Annual Financial Report as well as actuarial reports from the city’s pension funds.
Despite Chicago’s ritual tax hikes, the TIA analysis shows the city still shackled to a debt burden of $40.5 billion – due primarily to unaffordable pensions obligations. “While Chicago has promised these benefits, the report notes, “little money has been set aside to fund them.”
This has dire implications for Chicago taxpayers, many of whom already face a heavy tax burden. However, the TIA report makes it look likely that they’ve gotten off easy – compared with future generations. Employing TIA’s “Taxpayer Burden or Surplus” methodology, which subtracts a city’s total liabilities from its total assets, the study finds Chicago with a net taxpayer burden amounting to more than $45,000 per taxpayer. Assuming City Hall continues down its current path, this figure will look modest compared to the burden tomorrow’s taxpayers will inherit.
Unfortunately, Chicagoans are hardly offered a reason to expect a shift in lawmakers’ ingrained habits. In fact, the study reiterates last year’s admonition against the city’s pattern of debt obscurantism, in which officials attempt to brush the city’s fiscal disorder under the rug.
“These statistics are jarring,” the report cautions, “but what’s also alarming is that city government officials continue to hide significant amounts of retirement debt from their balance sheets, despite new rules to increase transparency.”
TIA estimates $548.3 million in total debt hidden from Chicago’s books.
The lessons Chicago should take from this year’s Financial State of the Cities report remain unchanged from last year: Without structural spending reform, the city’s finances will continue to spiral out of control. Lawmakers’ favor for quick-fix fee hikes and tax increases only serves to distract from serious, needed reforms.
As another year delivers another failing grade, the Chicago City Council owes it to taxpayers to study harder.