Wednesday, July 31, 2013

Is Chicago the Next Detroit?

So it turns out the president's home city of Chicago (D-IL) is suffering through a bit of fiscal trouble:
Mayor Rahm Emanuel closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, year-end audits show. Last week, Moody’s Investors ordered an unprecedented triple-drop in the city’s bond rating, citing Chicago’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes that has continued under Emanuel.

Those unprecedented downgrades were delivered despite what the Sun-Times describes as Mayor Rahm Emanuel's "aggressive cost-cutting measures."  Long-term unfunded promises and the costs of servicing the city's debt are swamping shorter-term attempts at fiscal restraint.  Absent significant reforms, this is America's future, too.  More on that eye-opening triple downgrade, directly from the credit ratings agency:

Moody's Investors Service has downgraded the City of Chicago's (IL) general obligation (GO) and sales tax ratings to A3 from Aa3; water and sewer senior lien revenue ratings to A1 from Aa2; and water and sewer second lien revenue ratings to A2 from Aa3. Chicago has $7.7 billion of GO debt, $566 million of sales tax debt, $2.0 billion of water revenue debt, and $1.3 billion of sewer revenue debt outstanding. The outlook on all ratings is negative ...The downgrade of the GO rating reflects Chicago's very large and growing pension liabilities and accelerating budget pressures associated with those liabilities. The city's budgetary flexibility is already burdened by high fixed costs, including unrelenting public safety demands and significant debt service payments.

Moody's reference to "unrelenting public safety demands" is in part a euphemism for Chicago's appalling murder and violent crime crisis, which manages to remain alarmingly acute despite the city's strict anti-gun laws.  Strange, that.  Oh, did I say triple downgrade?  I meant quadruple, and this one genuinely hurts The Children:
Chicago's public schools on Wednesday forecast a record $1 billion fiscal 2014 budget deficit despite layoffs of 1,000 teachers and the expected closing of 50 schools, prompting one credit agency to downgrade its debt rating. The nation's third-largest public school district blamed the mounting red ink on an expected sharp rise in annual pension payments for teachers, because the state of Illinois has failed to curb ballooning pension costs.

For years, Illinois teachers unions negotiated unsustainable contracts with their Democratic buddies, who run the city and state -- a vicious cycle that is has begun its inevitable meltdown.  The obligations owed to these government employees are consuming the city's budget, prompting desperate bouts of austerity cuts -- which are now unavoidable.  To paraphrase one of the city's prominent citizens, Chicago's fiscal recklessness is comin' home to roost.

Read More: Town Hall