After decades of kicking the can down the road to buy off the city’s rapacious public employee unions, the fiscal vise is tightening around the Windy City—and policy elites are starting to openly broach a topic that should send a chill down the spine of bondholders and public employees alike. Crain’s Chicago Business reports:
Once unthinkable, the idea of Chicago filing for bankruptcy is becoming less far-fetched as the city stares down the barrel of $25 billion in pension obligations that it can’t meet. The topic sparked one of the more animated debates at Crain’s Future of Chicago conference last week.Bankruptcy, or the threat of it, may be the only way to bring politicians, unions and investors to the table to do what needs to be done to right the ship for the next generation, three panelists argued as part of a discussion on budget issues at the city and state level.“Bankruptcy was the opportunity to bring together a number of parties . . . both on the financial and on the labor side,” said Kevyn Orr, who was the emergency manager for Detroit when it filed three years ago.
This news should be setting off alarms on Capitol Hill. Municipal governments across the country are groaning under the weight of unsustainable pension obligations, and the next economic downturn could well force a dozen or more to go belly-up all at once. Such a scenario will necessitate a stronger and more deliberate response from the federal government than we have seen thus far in the case of Puerto Rico. Congress and the Treasury ought to have a plan for handling the unfolding disaster in America’s biggest blue cities—including a framework for a relief-for-reform agenda that will prevent this kind of catastrophic misgovernance from happening again.