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Tuesday, March 03, 2015 2:08 PM

Chicago's Only Possible Salvation: Bankruptcy - a Name That Cannot be Spoken

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Is the Chicago pension system so messed up and union work rules so entrenched the only way to change either of them is bankruptcy? I think so.

So does Dennis Byrne who wrote on his blog today Chicago's Only Salvation: A Detroit-Like Bankruptcy.

This is a guest post from Byrne.

Chicago's Only Salvation: A Detroit-Like Bankruptcy

Wait, I thought only the Republican Party was being torn asunder by a rift between the establishment middle and the fringe. That impression was nailed down, again, last week by the embarrassing fracture among House Republicans over funding for the Department of Homeland Security.

But don't forget last Tuesday's Chicago primary in which incumbent Rahm Emanuel, the so-called establishment candidate, was forced into a runoff election for mayor with progressive Cook County Commissioner Jesus "Chuy" Garcia.

Observers on the right and left expect that Garcia's unexpected success bodes well for progressives and is bad for moderate, establishment Democrats. That includes "centrist" (I don't necessarily agree with the label) and president-in-waiting Hillary Clinton.

They see an uprising among progressives that'll energize the drive to draft the far-left Sen. Elizabeth Warren, D-Mass., to challenge Clinton. Suggesting that a national movement is afoot to cleanse the Democratic Party of centrist heretics, they also point to the election of New York Mayor Bill ("I'm a progressive, don't call me liberal") de Blasio. Others said last year's election of labor-backed Ras ("We are the mayor") Baraka as Newark, N.J., mayor energized progressives.

Locally, left-wing Democrats have draped their mantle over the shoulders of Garcia. That's happened even though, after reading his answers to the Tribune's Candidate Questionnaire, I wouldn't call him the perfect progressive. The Illinois branch of MoveOn.org (the left's noisy equivalent of the right's tea party) endorsed Garcia. The Chicago Teachers Union and assorted progressive activists credit themselves for Garcia's unexpectedly strong showing and their successes in several alderman races.

So, yes, there is a fissure within the Democratic Party, between the establishment types and progressives.

So what? Frankly, I don't care about whatever splits are ripping apart whatever political party. More important than political process is the substance of the issues — the incredible, shrinking city of Chicago.

At least give Emanuel credit for trying to confront the city's calamitous deficits and debt. Give Garcia and his supporters a thumbs down for not only failing to try to provide some realistic, convincing answers, but for wanting more of the same policies that are sinking the city and the schools.

How dare Emanuel close down 50 Chicago schools! Keep them open, but don't ask how to pay for them. How dare Emanuel face the real problem of government labor costs! Pretend that the Chicago Public Schools don't have to find $688 million in pension payments in fiscal 2016. Hey, get rid of those red light cameras; they're only there to make a bundle of money for the city! Jump on Emanuel for finding sneaky ways to increase revenues without raising property taxes. Applaud Garcia when he promises no property tax increases.

In this, progressives are true to form. Pain avoidance is a priority. More and costly programs are desperately needed. Instant gratification trumps the long-term common good. Saving for our children's future is inconsequential.

Emanuel and Garcia, the latter especially, are criticized for not coming up with a better solution. Few commentators have great ideas, either. The problems have become too mind-boggling. Turning over all the tax increment financing, or TIF money, that has been salted away won't do it. New and higher taxes will fall short. Promises of "operating more efficiently" are hollow. The idea of a state bailout from nearly bankrupt Illinois is preposterous. Don't even look to Washington.

There's a reason no one is putting forth a realistic solution: There is none.

Chicago is too far in over its head to dig itself out. The only solution is the one whose name may not be spoken: bankruptcy.

It worked in Detroit. Last December, it emerged from what was the nation's largest municipal bankruptcy after about 17 months of court supervision. Ironically, under bankruptcy, the city's homicide rate, the highest in its history, dropped 18 percent, The New York Times reported. Police average response time dropped to less than 18 minutes, from 58 minutes. Replacement of the city's streetlights — of which 40 percent failed to work — is in the offing. Detroit isn't out of the woods yet, but it's in a better place now than when there appeared to be no hope, none at all.

Rip Chicago's finances out of the hands of the connivers, special interests and political opportunists and give them to a court-appointed manager to oversee the necessary reorganization. Start with Chicago Public Schools and, if necessary, throw in the entire stinking mess, called city of Chicago.

Might as well include the state of Illinois, too.

End Guest Post

Byrne is a Chicago Tribune contributing op-ed columnist and author of forthcoming historical novel, "Madness: The War of 1812." Byrne is also a reporter, editor and columnist for Chicago Sun-Times and Chicago Daily News.

Election Runoff

In an election runoff, mayor Rahm Emanuel  faces Jesus "Chuy" Garcia. The Chicago Tribune endorses Rahm Emanuel.

One can quibble over Emanuel's accomplishments. And Emanuel certainly has his faults as the Tribune noted in an endorsement.

  • He failed to end Chicago's crippling dependence on borrowing.
  • He continued Daley's practice of issuing taxable bonds, stretching debt payments far into the future.
  • He pushed a $900 million borrowing plan through the City Council nearly three years after being elected.
  • He has been slow to respond to public outrage over that scandal-ridden traffic camera program.

Jesus "Chuy" Garcia

When asked about the Chicago's pension crisis, Garcia's non-solution is even more problematic. Consider three statements made by Garcia in the Tribune's Candidate Questionnaire.

  • This is a problem we created together as a City, and it is a problem that will require everyone's participation to resolve. That said, I do not support cutting benefits for current retirees.
  • I believe in the right of collective bargaining and the important social policies that it reflects, and I would prefer to negotiate such changes with the elected union leadership.
  • I do not support a property tax rise to fund pensions, because I know too many families – and especially senior citizens -- who are already struggling to pay their existing tax bills.

Garcia also wants to put more police on the street.

Garcia's solution apparently involves magic because it maintains benefits and adds police officers without hiking taxes, at least property tax hikes. Nowhere does Garcia explain how he pays for his position.

Simply put, Garcia is in Fantasyland.

The Problem and The Solution

Even with Chicago's recent financial reforms and spending curbs, there's a $300 million hole in the 2016 budget and a $550 million balloon payment for police and fire pensions due next year. The Chicago Public Schools system faces an unfunded pension obligation of more than $9 billion.

The problem is debt and untenable pension promises.

Someone needs to step up to the plate and admit the obvious:

  1. Pension promises need to be cut.
  2. The only way to cut pension benefits in a court-approved manner is bankruptcy.

Nothing else works. Unions will fight every other attempt, just as they have done now.

Say the Word!

Bankruptcy is the word no one wants to say, but eventually bankruptcy will be thrust upon Chicago.

Detroit would have been in recovery years ago had it taken that action years ago. Instead, every mayor of Detroit fought bankruptcy for a decade or more after it was perfectly obvious that bankruptcy was in the cards.

Every delay made matters worse.

Hopefully Chicago will not suffer the same sad fate of delay after delay accompanied with crumbling infrastructure.

Pension Plan Review

For more on the sorry state of Illinois pension plans, please see ...

For a look at pension plans in general, PIMCO founder Bill Gross (now with Janus Capital) says There's Too Much Debt, Too Many Zombie Corporations, and Low Interest Rates Destroy Pension Systems.


Byrne has it correct. Chicago's only possible salvation is bankruptcy. Let's admit the problems and the solution before more damage is done.

The Illinois legislature needs to permit bankruptcy because that is the only conceivable solution, not just for Chicago, but for numerous Illinois cities afflicted with untenable pension plans.

Delay means more problematic tax hikes accompanied with business and personal flight.

Mike "Mish" Shedlock

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