Chicago has the highest pension burden in the nation, with liabilities amounting to an alarming 678 percent of revenues, according to a report by Moody’s. The ratings agency’s warning, coupled with the fact that the city will need to drastically increase pension contributions by 2015, has prompted Mayor Rahm Emanuel to try to buy some time. The Chicago Tribune reports:
The measure would require a series of small city property tax increases starting in 2018—three years into what would be Emanuel’s second term as mayor. It also would delay the need for big increases in city pension payments to 2022, three years into what would be Emanuel’s third term, if he decided to serve that long and was able to win re-election. […]Absent any changes, coming up with that much money would require a major tax increase, severe service cuts or a combination of the two in the budget the mayor will propose a year from now. That’s the precise point at which the next mayoral campaign will be heating up, and proposing cuts and tax increases isn’t exactly a way to voters’ hearts.
It’s difficult to know what to make of this. On the one hand, as the Tribune notes, it was exactly this sort of kick-the-can-down-the-road approach that is responsible for the pension crisis in the first place. And further, the timing is suspicious, to say the least. The current system would require massive tax hikes just as Emanuel is running for re-election. Emanuel’s proposal would push a lot of the tax hikes so far into the future that he might not even be in office anymore.On the other hand, some of Emanuel’s reasoning makes sense. The tax hikes required to bring the pension up to full funding (the Tribune estimates that property taxes would rise by 50 percent) would indeed drive businesses and residents out of the city in droves, as Emanuel claims. And Chicago is already a high-tax city with ample competition from the south and west. If Illinois’s recent history is any indication, a reform plan would also take time to put together. Even the constant credit downgrades and threats of impending disaster haven’t been enough to get state legislators to deal with their own fiscal meltdown.If Emanuel is really serious about reform, buying time might be the right move. But it’s also a risky one, as the problem is only getting worse with time. Given the track record of the city, we’re not sure it’s a gamble worth taking.