At midnight on Jan. 1, 2027, the city of Chicago will turn into a pumpkin. That's when stimulus funds from the Biden administration’s 2021 American Rescue Plan will run out, leaving the city and the state of Illinois with billion-dollar deficits.
At the beginning of the COVID-19 "rescue" flim-flams in 2020, Illinois Senate President Don Harmon sent a letter to the Illinois Congressional Delegation listing all the items that Illinois Democrats in Springfield thought the state needed. Most of the line items had nothing to do with COVID or relief funds. There was a request for a $15 billion "no strings" block grant — an off-the-shelf, ready-made, all-purpose slush fund for Democrats. There were pension bailouts and line items that disguised pension bailouts.
All told, the state wanted $40 billion to start with. We can expect that kind of request if, as many experts suggest, both Chicago and the state of Illinois approach Washington with their hands out. It will be sooner rather than later.
The fiscal cliff is driven by the worst pension crisis of any state. "Chicago’s four pension funds have more combined debt than 44 states," writes LyLena Estabine in Illinois Policy. "Seven of the nation’s 10 worst-funded local pensions are in Chicago."
For example, the Chicago police pension fund has a funding ratio of 21.8%. For every $1.00 the fund is obligated to pay in future benefits, it only has $0.21 in the bank today. This indicates a massive shortfall. While not all benefits are due at once, a 21% ratio suggests the fund is not collecting enough investment income or contributions to keep pace with its growing debt.
Chicago’s Chief Financial Officer, Jill Jaworski, described Chicago’s police and fire pensions (CFD funding ratio of 21%) as "technically insolvent." This is after the state passed a "pension sweetener" for firefighters that adds $11 billion in new liabilities.
When the pension plans can't meet the fiscal needs of members, funds, by law, must be taken from the city's budget. The city is already running a $2 billion deficit (they claim it's only $1 billion, but financial analysts and recent reports suggest the actual gap is nearly double that when accounting for expiring federal aid and rising costs). There are also increased costs for city services and personnel, combined with significant debt service payments, that continue to outpace tax revenue growth.
After decades of poor financial decisions made by the city, technical insolvency could soon turn into real and total insolvency. So, if Chicago’s pension funds become insolvent, what happens to retirement benefits?
The Illinois Constitution prevents adjustments to benefits once enacted, even reasonable limitations such as a temporary reduction on how quickly future benefits can grow. That can leave public pensioners feeling temporarily secure in their retirement funds. Insolvency would eradicate that safe feeling, exposing retirees and taxpayers to ugly options.
It is highly unlikely a court would be able to force a city to make pension benefit payouts if there is not enough money in the pension fund to cover them. That would leave pensioners with massive benefit reductions based on whatever money is left.
The city could choose to use more of its budget to make up the shortfall and continue paying out pension benefits each month. However, that would come at a severe cost to other city services and personnel, which would need to be cut to make up the difference.
Chicago is looking for nearly $1.65 billion in new taxes and fees through various "creative schemes" or tax hikes. The city council is far more concerned with assigning blame for the impending catastrophe than with addressing the problems.
"The door is open, then, for Illinois and Chicago to return to D.C. and ask for federal assistance," writes Thomas Savidge in City Journal. "If granted, taxpayers nationwide will pay for the Windy City’s fiscal recklessness."
That's unlikely as long as Republicans control Congress and Donald Trump is president.
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