Pension Meltdown
Chicago Tries to Stiff the Pension Piper

Rahm Emanuel is taking the matter of Chicago’s drastically underfunded pension system into his own hands. And he’s throwing it all on red, as Allysia Finley writes in the WSJ:

[…H]ow does Mr. Emanuel plan to pay the city’s pension bills? Gambling. The mayor wants state lawmakers to authorize a city-owned casino whose revenues would exclusively fund pensions. He says the casino would be a win-win for workers and taxpayers […]

Chicago taxpayers would be on the hook for losses in the not unlikely chance that the joint goes bust. For years, Chicago politicians have used budget gimmicks to balance the city’s books, and the temptation to do so would be even larger with a casino whose revenue projections can be manipulated.

Let’s examine the steps that the good legislators of Chicago took to get here. Step one: Crony pols promise comfy pensions to city union leaders, allowing union leaders to brag to their members about how effective they are—and to go on drawing big salaries as union bosses. Step two: The city fails to fund the unrealistic pension promises it has made. Step three: Union leaders keep their lips zipped about irresponsible city behavior (promising outsized, unrealistic pensions, say) that clearly puts their workers at risk. Why? If city governments actually had to pay for the promises they’d made, there would be taxpayer revolts and politicians would no longer be willing to play the game that works out so well for union bosses.

Then comes step four: Win a court case that says no matter what, in Illinois, pensions must be paid. Step five follows: Watch the city’s credit rating drop to Detroit levels while investors digest the implications of those unfunded pension commitments for Chicago’s (in)ability to pay its bills. The city responds with step six: Build a casino. And, finally, step seven: Use the revenue from said casino to fund said pension gap.

And that’s where we are today. Chicago’s city government is literally trying to build a casino to provide the income stream necessary to meet its pension obligations down the road. (Already, pensions account for more than 30 percent of the city’s general budget, and that number is growing.) Never mind that casino revenues are down nationwide, nor the amount of taxpayer-funded overhead that opening a casino entails. While we salute Rahm Emanuel’s ingenuity in looking under every possible rock for the money Chicago needs, it occurs to us that making retirees depend on the profitability of a casino is, perhaps, not the kind of security that defenders of the defined benefits plans had in mind.

Defined benefit pensions plans are supposed to protect workers from the turmoil of stock markets and investment risk. But though you can get a court order against arithmetic, that doesn’t change the math.

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