The Illinois comptroller warns of big trouble in a stock-market downturn.
— Wall Street Journal | The Editorial Board —
Maybe Chicago isn’t a lost cause. That’s the power of positive thinking about some surprising truth-telling about the city’s public pension mess from Illinois comptroller Susana Mendoza.
“If the [stock] market gets a cold,” Ms. Mendoza, a Democrat, said in a recent interview with the Financial Times, “I don’t even know that we’ll survive with pneumonia.” You might say that Chicago’s pension funds currently have the equivalent of walking pneumonia—sick, but not yet on a ventilator.
Last month Ms. Mendoza announced that she’ll run against Mayor Brandon Johnson if he runs for re-election next year. It’s nice to hear some honesty about the city’s perilous finances. Chicago’s pension funds were in aggregate only 28.1% funded last year—compared to a national average of 82.5%.
Nonetheless, Gov. JB Pritzker signed legislation last year that boosted pension benefits for younger Chicago police officer and firefighters. For context, Detroit’s pension funds were about 60% to 80% funded when the city filed for bankruptcy in 2013.
As Ms. Mendoza said, “you are in the area of near-insolvency at this funded level.” The lower a pension fund’s ratio, the harder it is to dig out of the hole even as taxpayers shovel out more and more money to keep the shortfall from growing. Chicago’s pension costs have doubled over the last six years and are the biggest driver of its budget deficits.
Chicago property taxes rank among the highest in the nation. Yet residents are receiving fewer and fewer public services as pensions consume about 80% of Chicago’s property tax dollars. Blame state lawmakers, including Mr. Pritzker, who have sweetened benefits, and local politicians who for many years diverted money from pensions to boost pay for their government union friends.
Now those bills are coming due—and with hefty interest. If today’s feverish financial markets catch a chill, the city could have to start paying retirees directly out of general tax dollars. Bet on Chicago Democrats then to beg Washington for a rescue so they don’t have to demand concessions from their unions.
Sooner or later, Chicago will run out of other people’s money. Maybe Ms. Mendoza can make a campaign around this failure.
