Chicago continues to live up to its moniker “Second City” in at least one respect: It has the second-worst debt load of any large city in America—about $43,000 per taxpayer, or almost $40 billion in total. First place goes to New York City, but Chicago residents also have to deal with Illinois’s particularly high debts, which total $42,000 per taxpayer. Thus, a family moving to Chicago suddenly inherits about $85,000 in liabilities. By this measure, Chicago has by far the worst debt burden of any major city.
Chicago’s accumulating debt might be bearable if the city had low taxes. That would give it room to raise revenue and pay down some of its liabilities. But taxes in the Windy City already rank among the nation’s harshest....
High debt and taxes might be manageable if the city’s economic fundamentals were strong. They aren’t. Chicago relied for years on commercial properties, especially downtown offices in the Loop, to power its economy and fund the city’s excesses. But those jobs are fleeing. Downtown Chicago’s office vacancy rate recently hit 25.1%, a record high....
Making matters worse, the population is shrinking.... The city can’t be saved by the area’s surrounding dynamism, either. Both the Chicagoland metropolitan region and the state of Illinois have fewer people than they did before the financial crisis 15 years ago....
In the past three years, 40% to 44% of all local budgets went to the “fixed costs” of bond interest charges and pensions. Chicago is in a league of its own here. The next closest big-city competitor was Dallas, with 31% going to fixed costs.
The lion’s share of Chicago’s burden is its pension debt, totaling $34 billion, with another $2 billion for retiree health benefits.... It carries the most pension debt of any American city and more than the vast majority of states.
Both Illinois and Chicago tried to reform their pensions in 2014, but two years later the Illinois Supreme Court decreed any reductions in pensions unconstitutional. This ruling left Chicago with little room for maneuver and led Moody’s to push Chicago’s debt into junk-bond status. The city punished Moody’s by no longer sending it business.
The debts and pensions of the city proper are only one part of the problem.... Residents need to worry not only about the liabilities of the city and the state but also those of the Chicago School District, the Chicago Park District, Cook County, and obscure bodies like the Forest Reserve District and the Metropolitan Water Reclamation District. These government entities add another 50% to the local debt facing Chicago taxpayers....
Like many large cities, Chicago got lucky during the pandemic. President Biden’s American Rescue Plan dispensed funds using a formula that gave preference to older, and generally more Democratic, cities. Chicago was a major beneficiary, receiving about $2 billion in federal aid. The support allowed the city to run a surplus in 2022 of more than $300 million. For the first time, Chicago put in the required contribution for all four of its major pension funds. This led Moody’s to remove Chicago’s junk-bond status.
But Chicago retains by far the worst debt rating of any of the largest American cities, and it has done nothing to reform its bad habits..... In September 2023, Mayor Johnson’s office projected a $538 million budget hole for the next year, almost three times what the previous mayor had expected, and a potential $1 billion deficit for 2025.
Chicago has been bailed out by miracles before, but its current problems are structural and seem to have no clear solution....
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