mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Pension Wars
Chicago's Blue Crack-Up

In the FT, Neil Munshi and Norma Cohen have an excellent account of Chicago’s attempts to address its pension crisis, closely following Illinois’ tentative first steps to do the same. The Chicago’s teachers’ fund is only 54% funded, while its municipal workers, police and firefighters’ pension funds are suspected by ratings agencies to be somewhere in the 33% range. The piece paints an vivid picture of the fracturing of the coalitions that so long gave the blue model political dominance:

Morgan [elementary school] was one of about 50 elementary schools forced to close this year, collateral damage from the ballooning pension crises in Chicago and the state of Illinois. The budget gap in Chicago’s school district alone is $1bn, mainly because of pension liabilities, while the combined unfunded pension liabilities of the city and the school district runs to over $27bn.

Rahm Emanuel, Chicago’s Democratic mayor, has said the school closures – along with 3,000 job cuts in the school system – were necessary to close the yawning hole in the district budget. The episode has further soured the mayor’s relations with the teachers union, which held a seven-day strike last year. Karen Lewis, head of the union, called the school closures “racist” and “classist”


The article goes on to discuss just how widespread the problem is across the country, and puts a lot of the blame on the actuarial system which is behind how the viability of the pension schemes is measured. A winning quote:

Jeremy Gold, a professor at the University of Pennsylvania’s Wharton School, who has been critical of actuarial methodology for years, describes the system as follows: “The actuaries invented it and the accountants fell in love with it and married it.”

Definitely read the whole thing.

This story illustrates just how big a problem the pension crisis poses for blue governance: it pits the interests of providers of government services against the recipients of those services. Taxpayers are faced with either paying astronomical property taxes—Rahm Emmanuel is talking about a potential 150% hike in Chicago—or cutting the pensions of police officers who provide protection; teachers must accept a cut in their pensions or parents will see even more schools closed and will have to send their children trudging half-way across town.

Ultimately, it’s also a reminder of the bigger underlying truth: blue model programs don’t generate the wealth and growth that would be required to sustain them—the cities aren’t growing in population and revenue (often, they are shrinking) even as the costs of maintaining them skyrocket. The pesky numbers just won’t add up.

Features Icon
show comments
  • Kavanna

    The last crisis of the Blue Model began in the mid-1960s and reached its climax in 1979-81. Its characteristic symptom was inflation, a sign of monetary and fiscal derangement. The building crisis today is characterized by unreal levels of debt (that can’t be repaid in full) and, at the same time, interest rates artificially suppressed by central banks worldwide. Its origins lie in the triple bubbles of the 1990s, 2000s, and 2010s, all fueled by conscious Fed policy. Debt is a more insidious and subtle derangement than inflation, though, and its poisonous results are taking longer to reach a climactic crisis.

    Unlike in the 1990s, the largest US cities can no longer count on either immigrants or yuppification to save them. Their populations are declining, as their costs keep growing.

  • Anthony

    $757 billion pension gap (all states based on 2010 fiscal analysis – most recent year data available for 50 states) with realistic estimate at $4.5 trillion beckons an acknowledgement of reality. The reality is that this is not going away without serious attention and addressing. But, the societal interconnectedness remains ignored by operating tendency to make distinctions – blue, red, government, private enterprise, etc. That is, the pension scheme (structure, management, and practice) and vested interests don’t countenance raising taxes, passing on social cost, refusing to examine pension promises, etc. as imperiling social compact. While Chicago and Illinois may be outliers, the problem infects us nationally and turns on governance – i.e. politics (as the realm productive of public policy). However given human nature (in municipal America), I would not expect anyone to trace problem to both themselves and officeholders WRM. So, contract clause trumps municipal economics – we shall see.

  • Andrew Allison

    Don’t overlook the enormous number of un- and under-employed who would jump at the chance of those jobs at lower pay and benefits.

  • xbox361

    The real problem is the math, the demon, is racist!
    Or the politicians are fools and knaves who hate to ever deal with reality.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service