Chicago’s debt of $43,100 per taxpayer, due to pension debt
Tax watchdog Truth in Accounting has again given Chicago an “F” grade, thanks to high debt due to unsustainable retirement costs. Solving the problem will require amending the Illinois Constitution.
Chicago earned a failing grade again from Truth in Accounting in its latest report on the financial state of the cities thanks to more than $38 billion in debt – $43,100 for each taxpayer.
Every Chicagoan should send this amount to the city just to get Chicago to pay the bills it owes. Chicago only has $9.9 billion to pay $48.6 billion in bills. The Windy City came in 74th out of 75 cities surveyed in the report, only topping New York’s massive $204 billion debt with a per-taxpayer burden of $71,400.
The city’s financial failures stem from pension promises the city cannot afford to keep. “Chicago’s financial problems stem primarily from unfunded pension obligations that have accumulated over the years. The city had set aside only 23 cents for every dollar of promised retirement benefits and no money for promised retiree health care benefits,” the report noted.
Retirement costs are destroying public finances throughout Illinois: Chicago is no exception. 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 $47 billion in debt. This amount represents more retirement debt than 44 US states. These pensions are only 34% funded overall, meaning they save 34 cents for every dollar of future promises. Pension plan experts consider plans with less than 40% funding to be past the tipping point and on the road to insolvency or major cuts.
Chicago’s huge pension funding shortfalls have locked it into a cycle of rising taxpayer costs and declining service quality. Taxpayers have recently been asked to pay more for water and sewer, more for gas, carpooling and other taxes, fines and fees. Chicago’s 10.25% sales tax is tied for the nation’s second-highest combined rate for a major city. Increased spending on retirement debt means fewer dollars for essential programs and services the city provides to residents. That means further tax and fee hikes, like the $76.5 million property tax hike contained in Mayor Lori Lightfoot’s budget for fiscal year 2022.
Even though the city continues to spend more on pensions and less on utilities, this increase in pension spending is not enough to adequately address the city’s pension underfunding issues. Chicago’s pension spending has increased by nearly a billion dollars in the three years Lightfoot has been in office alone. It is up nearly 500% since 2004 in nominal terms. Similar to the State of Illinois, Chicago chronically underfunds all of its required payments by targeting 90% funding instead of 100%, while relying on other assumptions unrealistic accountants.
The city has received nearly $2 billion in COVID-19 relief funds from the federal government. These funds have helped support the city’s challenging budget for the current fiscal year, with Lightfoot calling it “the most progressive and forward-looking budget in our city’s history.” Its budget included $1.2 billion in spending on new programs for affordable housing, homelessness, violence prevention, job training and mental health services. It also included $32 million for the creation of a Universal Basic Income pilot program, which will send $500 in monthly cash assistance to 5,000 families.
These expenses are supported by emergency funding from the federal government, which makes it very unlikely that the programs will be able to continue once this money is exhausted. A city that needs billions more to pay debts it already owes should focus on taking steps to shore up spending rather than creating new programs that people will lean on just to see them. removed when the city runs out of money.
The mayor has sometimes been refreshingly candid about the pension crisis. Lightfoot declared the city’s pension system “unsustainable in its current form,” during a meeting with investors in May 2021. She also called the pension crisis the “biggest problem” facing city finances. the city. Although he was candid about the seriousness of the problem and the need to fix it, Lightfoot always stopped short of pushing for a realistic solution. His last budget speech included no call for pension reform, forcing Springfield to send a constitutional amendment to voters.
The best possible solution to Chicago’s and Illinois’ tax problems remains a constitutional amendment to allow pension reforms to the root causes of the crisis. Without it, Chicago and Springfield will continue to make promises they can’t afford to keep while asking taxpayers to pay more for less.
Illinois needs to end this cycle of taxpayer abuse and let the people vote on pension reform.