Later this morning, Chicago will have a new mayor as Lori Lightfoot takes the helm with a 10:30 swearing-in ceremony. And expectations are high, as her constituents are looking for help with economic development, affordable housing, criminal justice reform, increased mental health services, increased support for education, and a long list of other objectives. She herself, in a Chicago Tribune interview, outlined four priorities: increased public safety and declines in gun violence, comprehensive attention to the needs of the South and West sides, reform of Chicago governance, and a fix for Chicago’s financial woes.
And those financial woes are even worse than previously known, according to a May 15 Tribune report. While updated pension reports are not publicly available (the 2017 reports were published in May of last year), Chief Financial Officer Carole Brown reported that poor asset performance in 2018 will require the city to cough up an additional $100 million in pension funding beyond the existing schedule of payments, as the pension “ramp” comes to an end and the city must contribute based on a prescribed formula. In addition, the Tribune reports,
the city’s move away from so-called “scoop-and-toss” borrowing — the practice of paying off old debt by creating new debt — under Emanuel has forced the outgoing administration to find new ways to pay down debt, Brown said. While last year the city’s sales tax revenue was higher than expected and covered those additional expenses, early estimates indicate there will be a need for around $130 million more to cover those bond payments in 2020, Brown said.
This is on top of an already-anticipated 2020 operating budget shortfall of $252 million, and a spike in pension contributions of $276 million; as a result, the already-daunting task of closing budget hole has only increased in difficult.
What’s more, to put this in context, the watchdog group Truth in Accounting released their latest report on the City Combined Taxpayer Burden. Not only was Chicago’s taxpayer burden worst-in-the-nation, based on an examination of the 10 largest cities, but at $119,110 per taxpayer, it far exceeded all other cities. It is 40% higher than second-worst New York City’s $85,600, and 111% higher than third-worst Los Angeles. It’s two times higher than the median taxpayer burden.
As a refresher, this report takes the same approach of TIA’s other “taxpayer burden” reports, calculating debt (except that related to capital assets) less assets available to pay bills, and dividing by the number of taxpayers in the city. However, in this report, they take a comprehensive approach and add in the burden that city taxpayers face from all sources: the school system, the county government, the transit authority, the park district, the state itself, and all the other taxing bodies in the city. In the case of Chicago, this includes $28.8 billion in unfunded retirement liabilities (pensions plus retiree medical/life) compared to $13.1 billion in all other debt, less $9.5 billion in available assets, plus an additional $14.6 billion in school district retirement liabilities vs. $1.4 billion in other net debt; $1.2 billion in park district retirement debt, and proportionate shares of $1.5 billion of transit authority retirement debt, $16.4 billion in Cook County retirement liabilities, $192.4 billion in state of Illinois retirement liabilities, and so on.
And as a further reminder, the Chicago City pensions are collectively only 27% funded (based on the old actuarial reports); adding in the teachers and similar funds only boosts the total to 37%.
The good news, such as it is, is the Lightfoot understands the task ahead of her. In another interview, she has said,
“We have to come up with a concrete solution so we can give taxpayers some relief, and give the city some breathing room so we can take on some of the other important issues. Pensions and city finances are clearly top of the list of priorities,” she said. “We have to have a future in this city where we’re not shackled by the burdens of bad decisions and mistakes that were made, particularly around pensions. But we’ve got to make sure that we hold true to the promise to our pensioners, who make up a huge percentage of the middle class in our city. Making sure that we balance those issues and forge new solutions in a way that brings people to the table and doesn’t make people leave the city.”
She has also appointed Jennie Huang Bennett, the Chicago Public Schools CFO, who will, as the Tribune describes it,
bring her expertise in the complex world of public finance to City Hall as Lightfoot’s top financial officer.
There is also some reassurance in what she has not said. Unlike Pritzker, she has not (yet) given any indications of flirting with a further pension “ramp,” nor has she proposed selling (more) city assets, and she has rejected outgoing mayor Rahm Emanuel’s pension bond proposal.
But at the same time, when asked what “keeps [her] awake at night,” it’s not pensions, and not finances. It’s the city’s violence — and this is perfectly understandable; it hits at the gut far more than budget figures. Yet it’s no easy task to fix this, and all the more so without spending money. Will Lightfoot be able to resist the temptation to consider city debt mere “beancounting” relative to the human needs she’s trying to care for?
What do you think? Share your thoughts at JaneTheActuary.com!