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”
Ugly.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.