Recently the bond rating company Moody’s Investor Service cut their ranking of Chicago to junk status.
The move ticked off a lot of people in the Windy City who think Moody’s overstated the case. I agree that Moody’s is wrong… not because they went too far, but because they didn’t go far enough.
Chicago is not close to bankrupt. It’s completely bankrupt. People are just afraid to say this out loud.
The city’s pensions are underfunded by $20 billion. Moody’s gave a rating that reflects how the city is performing. City officials are just angry Moody’s called them out.
The bureaucrats pointed to Standard & Poor’s, which had Chicago ranked an A+. But after Moody’s released their assessment, Standard & Poor’s lowered their rating as well — just not as low as the Moody’s rating.
It really isn’t all that complicated. Unless there’s a change to how pensions are funded or benefits accrue, the pension liabilities will completely swallow the city and then some.
Chicago has four ways it can offset this financial mess: raise taxes, lower benefits, require higher contributions from city workers, or some combination of the three.
There has been a lot of talk about changing what workers pay into the system, as well as cutting benefits for workers that are still years from retirement… but the Illinois Supreme Court already shot this down when they ruled that similar changes by the State of Illinois violated the state’s constitution. If it won’t work at the state level, then it won’t fly at the local level, either.
Chicago could still try raising taxes high enough to cover its costs. Though I highly doubt voters will support a tax hike big enough for public employees to enjoy their comfortable pensions, when the average private worker still must fend for himself.
That doesn’t leave the city with many options. Which means it has a liability that, at this point, it can’t pay. That sounds like bankruptcy to me.
