Sinkhole city: Financial watchdog again gives Chicago an ‘F’ in finances
An annual analysis of Chicago’s finances finds the city’s debt burden continues to weigh heavily on the shoulders of taxpayers.
The Windy City’s financial condition over the year saw minimal improvements, but not the kind needed to rescue it from a failing grade issued by a financial watchdog group.
Truth in Accounting handed Chicago an “F” on its fiscal grading scale for the second year in a row. The study pegs the city’s overall debt at $32.5 billion, or $36,000 per taxpayer.
In 2017, Truth in Accounting pegged Chicago’s debt per taxpayer at $45,000. The report attributes the city’s minor improvement to a recent change in state law imposing stricter funding requirements for local pension funds.
Informed Chicagoans won’t be surprised that city finances are overwhelmed by pension debt. Chicago’s unfunded pension liability shrank by $7.8 billion as a result of the new state law, leaving the Windy City saddled with $28 billion in pension debt, according to the study.
Despite the size of Chicago’s debts, the full picture is not always visible to the public. The watchdog also flagged nearly $830 million in retiree health care debt, $655.3 million of which goes unreported.
Chicago’s massive debt burden earned it the designation of a “sinkhole city.” The report assigned the “sinkhole city” distinction to any “F”-graded city in which expenditures surpass revenues.
Truth in Accounting publishes annual financial analyses of 75 U.S. cities. This year’s full report is slated for publication in January, but the group released its findings for Chicago, New York and Los Angeles in advance. New York shares with Chicago the status as a “sinkhole city” – and in fact shoulders a more severe debt burden. Los Angeles narrowly outperformed Chicago and New York, earning a “D” grade on the watchdog’s scale.
While Chicago leaders might be tempted to find reassurance in a financial report showing even modest improvements, they should not misread these findings as evidence of long-term fiscal stability. Springfield’s new pension funding requirements do nothing to address the structural problems fueling Chicago’s growth in pension obligations.
To the contrary, Truth in Accounting’s latest report serves as a reminder that serious pension reform is an urgent need. State lawmakers must give local leaders the ability to rein in the growth of future pension obligations – a measure that will require amending the Illinois Constitution. Absent such an amendment, Chicago taxpayers can expect further tax hikes and city workers can expect their retirement security to remain in jeopardy.
Staring down a failing letter grade is unpleasant, but not as unpleasant as staring down insolvency.