At its core, Chicago’s fiscal problems are straightforward. For decades, the city has committed itself to unsustainable spending levels. While its ridership is declining, the Chicago Transit Authority (CTA) is flush with funds thanks to sales tax and driver fees. Chicago Public Schools (CPS) expenditures keep growing despite declining student enrollment. In addition to structural budget deficits, Chicago has some of the nation’s largest unfunded pension liabilities.
Meantime, residents are fleeing both Chicago and the State of Illinois. In the year ending last July 1, Illinois lost over 40,000 residents, many from Chicago and the surrounding suburbs. The Chicagoland area lost more than 35,000 residents either to other counties in Illinois or to other states. Despite an influx of 44,000 international migrants, blunting the effect of net domestic outmigration, government officials can’t conceal the city’s fiscal irresponsibility.
Residents, bond investors, and credit rating agencies see the writing on the wall: the Windy City is headed over the fiscal cliff. Chicago’s credit ratings have been downgraded to BBB+, with rating agencies citing fiscal issues. While Illinois has enjoyed credit-rating upgrades in recent years (thanks to support from federal Covid-19 funds set to expire this year), Illinois still remains the worst-rated state.
It’s worth considering Illinois and Chicago’s financial predicament in a larger context. Detroit’s 2013 bankruptcy is often compared with Chicago’s fiscal crisis since the Motor City suffered from similar problems: massive unfunded pension liabilities, budget shortfalls, and rampant corruption. But at the time of Detroit’s bankruptcy, Michigan was in far better fiscal shape than Illinois is now. Pension reforms in the late 1990s improved Michigan’s solvency, leaving it better positioned (both before and after the Great Recession) than if the reforms had not been made.