Chicago is sitting on top of a debt bomb that gets worse every year. As of now, Chicago carries the most pension debt of any city in America and no politician from the mayor on down wants to do anything about it.
In truth, there's very little to be done. Chicago has the worst debt rating of any large city in the country. All four of the major pension funds run by the city are in awful shape, with the city paying only about 25% of the required annual contribution. The $34 billion owed to the pension funds is more than any other city and more than some states.
Chicago’s combined city and state taxes would eat up more than 12% of a U.S. median family’s income, so the prospect of raising taxes (except on the "rich" of course) isn't feasible. Business taxes are also among the highest in the nation, with the property tax on office buildings twice as high as any other city.
The city is trapped and rather than treat the problem as a crisis, politicians are robbing Peter to pay Paul.
Unprecedented debt and punishing tax rates, a declining business sector, and a shrinking, poorer population—it’s no recipe for long-term success. Unfortunately, even if Mayor Brandon Johnson wanted to constrain spending and corral expenses—which he doesn’t—he’d have few options. 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 city once used tax-exempt bonds to provide back pay to police officers. City funding moves from crisis to crisis with the bill to taxpayers constantly rising.
Chicago used to be the best-run city in America. That was more than 50 years ago. In some ways, the city is actually better. Chicago was named the "Best Big City" for the seventh straight year by readers of Condé Nast Traveler Magazine.
"It's no wonder Chicago is topping this list yet again," Chicago's winning entry reads. "A world-class destination known for its impressive architecture, first-rate museums, brilliant chefs, and massive brewing scene, it’ll take several repeat visits to get through your list of must-dos."
In other words, a great place to visit but I wouldn't want to live there.
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 2022 the city saw a delay in property-tax receipts, and, despite the flush times, money proved so tight that the pension funds couldn’t pay current retirees. 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.
Surprisingly, Chicago will probably not go bankrupt like Detroit. Instead, the fiscal juggling act will continue, hollowing out city services and driving more people away. The politics of the city will continue to get worse as more clowns like Brandon Johnson are elevated to do the bidding of one powerful interest group or another.
The biggest problem the city faces isn't politics or even the debt. The biggest problem is apathy. And no one has yet come up with a cure for that.
