Look for Chicago’s pension mess to become worse. That’s a bad sign for taxpayers.

It’s a “ticking time bomb,” the Civic Federation warned in 2011. “Chicago Sees Pension Crisis Drawing Near,” The New York Times reported in 2013. In 2015, Moody’s sent its own warning by downgrading Chicago to junk bond status, the only major city to fall that far besides Detroit.

No, a big financial collapse has yet to hit Chicago and maybe it never will. But that doesn’t mean the pension mess hasn’t already inflicted real and continuing pain across the entire city. Instead of a bang, Chicagoans are being burned by the proverbial “slow boil” that’s wiping out retirement security for city workers, burdening residents with increasingly punitive taxes and depressing opportunities for the city’s most vulnerable.

Unless Mayor Brandon Johnson comes up with and lobbies for a serious set of reforms — he has a Pension Working Group creating recommendations — all Chicagoans will continue to suffer.

Start with the legitimate fears of Chicago’s city employees and pensioners, especially those in the public safety and municipal pension funds. Today their plans have only enough money on hand to cover four years of future benefit payments, the worst in the country among big city plans. Compare that to a well-funded public safety plan, like that in Los Angeles, which has enough money for 20 years or more. By nearly every measure, Chicago’s pension plans are effectively insolvent.

Chicago’s ordinary residents, meanwhile, are stuck with the other side of the burden: paying down the $52 billion shortfall in Chicago’s seven city-wide pension funds. Taxes, fees and fines of all kinds will jump as lawmakers force Chicagoans to pay down that debt, the equivalent of about $45,000 per Chicago household.

The squeeze of rising pension costs also contributes to the hurt affecting Chicago’s low-income residents. More than 30% of Chicago’s 2022 budget went to fixed costs like pensions, according to the latest available data from S&P. That’s the biggest percentage among major cities in the country. By comparison, only 21% of New York City’s budget goes toward fixed costs. In Denver and Philadelphia, it’s below 15%.

Predictably, it’s Chicago’s most vulnerable that will lose out. At 12.7%, Chicago’s Black unemployment rate in 2022 was, according to Census data, the highest among the nation’s big cities, So, too, was the Black poverty rate, at 27.7%.

Such dire statistics could tempt Mayor Johnson and his working group to try and shift the problem onto future generations. Rumored “solutions” include extending the debt-repayment ramp further into the future (aka “reamortization”); lowering the funded-ratio targets of pension plans to just 80%; and the use of pension obligation bonds, which means even more borrowing. All that will only make things worse and pass on the burden to our children, grandchildren and even those not yet born. Call it intergenerational inequity.

Driving out businesses, people

Hiking taxes of all kinds will be the other temptation for the working group, but a host of other data warns against that, too. The Case-Shiller Home Price Index puts the appreciation of Chicago homes since 2000 near the bottom of all big cities. People’s nest eggs, their home values, aren’t keeping up with those in the rest of the country. Ever-higher property taxes have something to do with that, as Chicago tax levies have grown three times more than inflation over the past decade. 

The threat of more big-name companies leaving is also real. The Chicago area has already lost Caterpillar, Boeing, Tyson Foods, Citadel, Guggenheim Partners and freight company TTX. More tax hikes could chase out the likes of McDonald’s or the Chicago Mercantile Exchange. 

The biggest risk, however, is that many Chicagoans will choose to flee rather than stick around to pay off old debts. Especially considering the other problems Chicagoans already face, like violent crime and failing schools.

That flight risk can’t be ignored. Only two cities of the nation’s top 15 in population in 2000 have shrunk since then. One is Detroit and the other is Chicago.

We haven’t heard much about Chicago’s pension problem in recent years because of the big tax revenues the city took in as a result of the federal COVID-19 bailouts. But the city’s pension shortfall did grow by $10 billion over the last five years. Count on renewed warnings of a crisis as the COVID money runs dry.

Johnson and his working group have the unenviable task of addressing Chicago’s pensions. With the city in such dire straits, they have just one path forward: recommend real, structural solutions. Otherwise, Chicagoans will eventually be cooked.

Ted Dabrowski is president of Wirepoints, Joshua Bandoch is head of policy at the Illinois Policy Institute, Dennis LaComb is executive vice president of the Technology and Manufacturing Association and Ed Bachrach is founder of the Center for Pension Integrity. Together, they form the Taxpayer’s Pension Alliance. 

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The views and opinions expressed by contributors are their own and do not necessarily reflect those of the Chicago Sun-Times or any of its affiliates. 

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