The city of Chicago, a notorious sanctuary city that has, for many years, been a safe haven for criminal illegals who entered the United States not only without permission, but with lengthy rap sheets, is facing its most difficult financial period in recent history. Things were bad before, but Illinois Democratic Gov. J.B. Pritzker may have put his signature down on a piece of legislation that could lead to total economic collapse.
Pritzker’s bill, signed into law back in August, is being touted by many economists as one of the most financially reckless in the history of the state. The legislation includes pension “sweeteners” for police officers and firefighters hired after 2011. Experts have estimated the legislation creates a staggering $11 billion in new liabilities along with lowering the “funded ratio” of Chicago police and fire pensions to 18 percent.
What this means is that for every dollar owed, there are only 18 cents on hand. Chicago has the worst public pension issue in the country. To illustrate just how bad things have become, the Windy City carries more pension debt than 43 states in the nation. It also features seven of the ten worst-funded local pension systems in America.
According to City Journal, there’s no other big city in the U.S. that spends as big a chunk of its budget on debt and pensions yearly than Chicago. It also has the worst credit rating of any city. The new pension sweeteners in Pritzker’s bill will likely lead to that credit score being downgraded further, a disastrous outcome that will plunge the Windy City into junk status and put its ability to fund schools, safety, and infrastructure in peril.
The Illinois constitution makes things even worse as it contains a “pension protection” clause that makes it almost impossible to make cuts to pension benefits. Now that these new sweeteners have been passed, elected officials are unable to make changes, regardless of what voters may want.
Residents of the city will now be stuck paying for new benefits for years and years after the politicians who passed them have left public office. City Journal goes on to say that even if the city chopped its highly successful summer youth jobs program, which costs $52 million a year, they still would not have enough to cover the cost for the new pension benefits which will cost $60 million in 2026 and eventually hit $753 million a year by 2025.
Given the enormous financial burden of these new benefits and the fact that they were passed unanimously and completely unopposed by Chicago Mayor Brandon Johnson, the report says Illinois will have to depend on the residents of the other 49 states in the country to ensure it fulfills its pension promises.
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Taxpayers had already been given a sneak peek at the plan during the COVID pandemic in 2020. During that time, the vast majority of states were requesting hospital supplies and emergency aid, while the president of the Illinois Senate wrote Congress to request $10 billion for a pension bailout. So what, if anything, can be done about the situation?
City Journal says that state leaders need to change the law to allow municipalities to file for Chapter 9 bankruptcy. A total of 24 states in the country already allow this. Bankruptcy would allow Chicago to make adjustments to pension contracts. The reason this is possible is because federal Bankruptcy Code would trump the pension clause in Illinois’s constitution. It would also provide the city with the power to renegotiate other corrupt deals.
Chicago has also been issuing sales-tax bonds which now outnumber its general-obligation bonds. Dedicated sales-tax revenues, along with other securitized revenue streams would continue to flow to bondholders even if the city filed bankruptcy. In light of that, the report suggests that Illinois should appoint a receiver or emergency manager, create a “Tier 3” retirement plan for all new public employees, which would provide them with a 401(k) type benefit, along with passing a new constitutional amendment that would allow for changes to be made to future benefits.
Featured image: screenshot taken from embedded video