Is there a cure for what ails Chicago? The city’s protracted meltdown—declared the “next Detroit” by the NYT nearly two years ago and dropped to “junk” by Moody’s this May—has been well-documented. In a critical look at the city’s “Great Financial Fire,” Aaron Renn lays out the dire facts and presents a cautiously optimistic best case scenario:
While some sort of refinancing may be required, the proposed debt issue contains maneuvers similar to those that helped get Chicago into trouble in the first place—including more scoop-and-toss deferrals, $75 million for police back pay, $62 million to pay a judgment related to the city’s lakefront parking-garage lease and $35 million to pay debt on the acquisition of the now-vacant site of the former Michael Reese Hospital.Most dubiously, the city actually is borrowing the money to pay the first two years of interest payments on these bonds. In true Chicago style, the proposal passed the City Council on a 45-3 vote. Hey, at least the city is getting out of the swaps business.
And now the hopeful part:
Emanuel should not let this crisis go to waste but use the opportunity to accelerate, not defer, painful choices. This means declaring a hard stop on gimmicks like borrowing for current expenses and scoop-and-toss after the current bond issue and structurally balancing the budget now. Yes, aggressively defend the pension reform deals—but just as aggressively put the city on track to full funding even at the expense of current pain.And a few more things: Join with Gov. Bruce Rauner to fight for legal changes at the state level to require all future local employees to receive 401(k)-style pensions only, and to prohibit any enhancements to existing legacy pensions, in order to prevent a repeat of the current problems.Easy? No. Painless? No. Which is why a strong leader like Emanuel should be taking them on.
While Rahm has, at times, looked keen to wish away, rather than face, Chicago’s deep pension crisis, options are beginning to run scarce. The way things are going, some of the proudest cities in America are going to be looking for bailouts: there won’t be much appetite in cities and states who have done the hard work to manage their finances well to bail out the bad actors. For Chicago and its peer cities nationwide, reform is on the way.