While all eyes have been focused on the budget battle in Springfield, Chicago has a budget crisis of its own to manage. In May, when Republican Governor Bruce Rauner addressed the Chicago City Council, he made it clear that Chicago could not look to Springfield to solve its budget issues. Currently, Governor Rauner and House Speaker Mike Madigan are locked in a fierce budget battle of their own, which leaves Chicago on its own to solve its own budget crisis.
To understand the Chicago budget crisis fully, it is necessary to examine how the crisis was created. Here is the simple breakdown. The city of Chicago is responsible for paying for a portion of retirement benefits for its unionized employees, who in turn are responsible for paying the remaining portion. In return, when those employees retire the city guarantees them a portion of their salary (pension) along with medical and dental benefits. The city currently contributes to the Municipal Employees’ Annuity & Benefit Fund of Chicago (MEABF), Laborers’ & Retirement Board Employees’ Annuity & Benefit Fund (LABF), Policemen’s Annuity and Benefit Fund, and Firemen’s Annuity and Benefit Fund.
Over the last 15 years while city employees continued to pay their share, the city was not paying its share. According to the Commission to Strengthen Chicago’s Pension Fund’s Final Report, “the Funds had lost ground in the falling market of the 2000-2002 ‘dot-com bust’ but had not substantially recovered in the subsequent rising market, despite good returns on investment.”
This required the city to borrow money to pay the benefits for a steady stream of retirees, essentially putting it “on the credit card.” As the city continued to charge the pension payments, the interest payments on that debt grew, requiring the city to borrow more money just to keep up with the interest payments, crating a “vicious cycle” whiled leaving the pensions woefully underfunded according to the report.
The city essentially reached its credit limit in May, when Moody’s Investor Services downgraded Chicago’s bond rating status to junk. That means that the cost of borrowing money increases dramatically. It also means that Chicago will be less attractive to investors, with some pension funds even being forbidden to purchase bonds with a junk rating. All parties agree, Chicago has got to solve the pension crisis, and none of the solutions are pleasant.
The Emanuel Administration spent its first term laying the blame for every tough decision at the feet of the “previous” administration, rightfully so. In his final years, Mayor Daley made some questionable decisions to balance budgets, including selling the Chicago Skyway and the infamous parking meter deal.
But as Mayor Daley fades in the minds of Chicagoans, the pressure is on Mayor Emanuel to provide answers, and blaming the previous administration will not be enough for the taxpayers.
Most recently, Emanuel proposed a state law that would reduce retiree benefits in exchange for repaying the pensions unfunded liability. Judge Rita Novak struck the law down as unconstitutional. It was Emanuel’s second attempt to fix the city’s budget through Springfield, with the first attempt being struck down in the Illinois Supreme Court. Things do not look good, and from all accounts, Emanuel is preparing for the worst.
The Chicago Defender obtained a letter from Alex Holt, Director of Office of Management and Budget to Chicago aldermen “regarding the acceleration of the 2016 budget process.” She says, “This year’s budget will be extremely challenging, in large part because of significant pension obligations, and it will require some difficult choices, both in terms of reforms and revenue.”
Those choices are of particular interest to the Black community because of their potential to destabilize it. Government has traditionally been a place where Blacks have had the most opportunity to succeed, so the Black middle class is made up disproportionately of government workers. The potential budget cuts combined with a massive property tax increase has the potential to devastate the Black community.
City budget cuts mean Black middle class layoffs. Those layoffs mean people will already have difficulty paying their mortgages before the potential massive property tax increase. When people have more difficulty paying their mortgage, they stop shopping, which causes local retail businesses to close. As those retail businesses close, they often are replaced by hair salons, weave shops, and fried chicken shacks. Because those businesses do no recirculate the dollars in the Black community, how Emanuel prioritizes this current budget impact the Black community for years to come.