Chicago staggers under debt, obligations
CHICAGO — This is now the city of big debt, where each of Chicago's 2.7 million residents — from infants in diapers to senior citizens on fixed incomes — is on the hook for about $20,000 in long-term pension promises and bond obligations.
Like the relentless snow clogging the city's streets, it just keeps piling up.
Chicago is not bankrupt Detroit, junk-status Puerto Rico or New York at the brink of insolvency in 1975. Yet the city of gleaming skyscrapers along Lake Michigan's shore tripled its debt load from 2002 to 2012, as it ignored annual pension payments and borrowed for capital and operating expenses. A $590 million payment for retirement obligations is due next year, threatening cuts in everything from police to garbage collection, a tax increase or both.
The rescue Chicago Mayor Rahm Emanuel needs will have to come from another financial leaky boat, the state of Illinois, which has the lowest credit rating among states. Lawmakers in Springfield, the capital, on Dec. 3 approved retirement-benefit cuts to address a $100 billion state pension shortfall. Not, though, for Chicago.
The city is about to pile on more borrowing, worsening its status as the biggest carrier of per-capita debt among the nation's most-populous cities. Chicago plans to sell $650 million of bonds in the coming weeks, adding to liabilities that soared in the past decade.
In the 10 years starting in 2002, the city increased its bonded debt by 84 percent, to $7.8 billion, according to the Civic Federation. That added $1,320 to the tab of each city resident. Among the 14 major cities surveyed by the group, only New York recorded a higher per-capita increase, $1,555 in that period. The average jump was $324.
At the same time, Chicago's per-capita pension obligations for teachers, police, firefighters, transit workers and other employees almost quadrupled, topping $11,800 in fiscal 2012. The combined debt burden from pensions and borrowing reached almost $19,600 per person in 2012, the federation said.
It took years for Illinois lawmakers to address pension shortfalls. Chicago doesn't have the luxury of a long debate. Like all other municipalities in the state, it must make higher retirement-fund payments next year, as required by a 2010 law.
“The work is far from finished,” Emanuel said in a December press release after lawmakers approved the bill cutting state pension benefits, saving Illinois an estimated $145 billion during the next 30 years. Chicago is “standing on the brink of a fiscal cliff.”
Moody's Investors Service made a similar observation in July when it cut the city's grade three steps to A3, six levels below the top, and tagged its general obligations with a negative outlook. A reduction of that magnitude was unprecedented for an American city as populous as Chicago, according to Moody's data since 1990.
The New York-based ratings company cited “large and growing pension liabilities and accelerating budget pressures” stemming from them.