Chicago had $ 41,100 in debt per taxpayer before COVID-19, second behind New York

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A new report from Truth in Accounting, the public finance watchdog, gave Windy City an “F” for financial health. Chicago’s massive $ 36 billion net debt comes mainly from pensions.

Chicago city taxpayers just hit $ 94 million in property tax increases and $ 38 million higher fines and fees, including a speed camera policy for ticketing drivers for exceeding the speed limit by just 6 mph, to help close the city’s budget deficit. City leaders have attributed much of the blame to the impact of COVID-19 on government revenues, but a recent report from tax watchdog Truth in Accounting shows that Chicago’s problems existed long before the pandemic.

Chicago came second to last and was called a “sinkhole city” in Truth in Accounting’s latest report, “Financial State of the Cities”. The ranking of the nation’s 75 largest cities reflects financial data before the COVID-19 pandemic, showing how badly large cities like Chicago were for financial disaster.

The report found that Chicago’s net debt – or the amount of money needed to pay its bills after accounting for everything the city owns – was $ 36.4 billion. That’s a per taxpayer burden of $ 41,100, meaning each taxpayer would have to send that amount to the city for Chicago to eliminate its debt, which would earn the city an F for its fiscal health. Chicago’s debt per taxpayer increased by $ 4,000 from the last year and represents 5.5 times the average burden of $ 7,355 per taxpayer in the 75 cities.

Only New York was in worse shape, with a massive tax burden of $ 68,200 on net debt of $ 186.7 billion.

Collectively, the 75 cities had $ 333.5 billion in debt, a number that is expected to worsen without significant financial reforms.

Much of Chicago’s financial woes stem from out-of-control retirement promises. Over 68% of the city’s total debt burden comes from unfunded pension liabilities and almost 2% comes from unfunded liabilities for retiree health insurance, meaning that 70% of the city’s debt is linked to pension benefits.

Just five years ago, Chicago was spending its the biggest increase in property tax in modern history, which the then mayor Rahm Emanuel said would put pension funds on a “path to solvency. “The tax hike has failed to stop the increase in pension debt.

Chicagoans continue to see their property taxes hike, the latest increase of $ 94 million containing $ 42.5 million to cover planned shortfalls in required pension funding. Despite substantial property tax increases, Moody’s Investors Service in October changed the outlook for the Chicago Junk Bond rating from stable to negative.

The city’s eight pension funds, including the four funds to which the city contributes directly and the four funds of related entities financed by the same taxpayers, have accumulated nearly $ 45 billion in debt, more debt than 44 US states. These pensions are only 35% funded overall, which means they save 35 cents for every dollar in future pledges.

The fiscal realities created by these large deficits and the further tightening of available funding due to the impact of the pandemic should clearly show the need for significant and necessary reforms.

The high cost and unsustainable nature of the city’s pension obligations have become a source of division among elected leaders. Chicago Mayor Lori Lightfoot recently opposite legislation put forward by the Illinois General Assembly that would double the cost of living adjustment for 2,200 city firefighters’ pensions from 1.5% to 3%. Lightfoot called the increase, which is expected to cost the city $ 850 million by 2055, “irresponsible” because it “will deliver a massive, unfunded mandate to Chicago taxpayers.”

Few of Chicago’s leaders have publicly endorsed specific reforms to stabilize pensions and put them on a sustainable path. For its part, Lightfoot asked change and often recognizes the seriousness of the pension problem, but does not propose a specific reform plan. Towards the end of his term, Emanuel approved the prospect of a constitutional amendment to curb the retirement problems plaguing Chicago and Illinois.

Because of a Illinois Supreme Court decision, substantial public pension reform for the state of Illinois and local governments is only possible with a constitutional amendment.

Apply for a pension amendment continue to grow stronger in Illinois, but Gov. JB Pritzker has remained quiet on the subject since falsely claiming in his budget speech last year, that an amendment is prohibited by the contract clause of the US Constitution.

Chicagoans should also know that the city’s debt is not their only responsibility. Each Illinois taxpayer must also $ 52,000pay off all of the state of Illinois’ debts, Truth in Accounting reported in September. Chicago’s $ 41,100 debt is added to the state’s debt.

Pritzker recently stated that he was “nice to meet you” by the prospect of a Democrat-led US Senate, as this indicates an increased likelihood of a federal bailout of state and local governments. The current proposal would send $ 7.5 billion to Illinois and $ 5.7 billion to its local governments.

Regardless of whether or not federal aid will arrive to ease the immediate fiscal pressures for Illinois and Chicago, a amendment because pension reform is the only long-term cure for the budget crises in Illinois and Chicago. The problems existed before the pandemic, and they will come back even stronger after the exhaustion of a single federal bailout.

Elected leaders in Chicago and Springfield owe it to taxpayers to use the time they earn from any windfall to sort out retirement issues now. Continuing to pretend nothing has happened and wasting bailouts will simply result in increased pension debt, crowding out more public services and increasing debt further.


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