What I have been reading: The New Chicago Way
The New Chicago Way. Lessons from other big cities. Bachrach E, Berg A. SIU press. 2019
This book, analyses Chicago's problems, mainly financial, and offers painful solutions. From this book, it is abundently documented that Chicago is very close to bankruptcy (failing a miracle). The core thesis of the book is that Chicago's problem is due to mismanagement, traced to a structure of government where the Mayor of Chicago holds almost all of the power.
I suppose somewhat like Greece, Chicago has chosen to finance itself using debt rather than taxes or income. This only works as long as one can find lenders, and as Chicago's financial problems get worse and worse, the problem is "blowing up".
This book compares Chicago to other big cities (such as New York and LA), and Chicago seems always to be at the bottom of the heap, with little hope of getting off the the bottom. Here is a list of the problems documented in the first half of this book.
- Chicago Public school debt has grown from about $4 billion to nearly 8 billion between 2007 and 2017. Unfunded Pension debt for the teachers is roughly the same, about $10 billion at the end of 2016. Although school enrollment dropped by 13% between 2008 and 2016, school total expenses increased by 20%. This book suggests that the Chicago teachers union is part of the problem, and notes that almost all of about 20 similar size school districts in the US (for example, NYC and LA) do not have a right to strike. In addition, in most other school districts, voters must approve bonds and increased taxes, but that is not the case in Chicago.
- Chicago has agreed to labor contracts that ensure that it pays the highest possible rates for many services. For example, although LA has about twice the population and land area as does Chicago, it's fire department and police budget is nearly identical. Or in other words, Chicago pays twice as much as does LA for fire and police. Chicago's bond and pension debt per person is similar to New York (about $20,000 per person), but twice that of LA ($8,373), as well as similar sized cities such as Philadelphia and Houston. Because Chicago has contracts and debt that lock it in, this book suggests that backruptcy may be the only practical solution.
- Chicago's pension debt (there are many groups getting pensions from Chicago), is the largest of the top 15 US cities, and about $15,379 per capita. LA's debt is about $2,000 per person. Due to cost of living adjustments (that increase 3% every year), a worker that earned 1.4 million while working, gets paid 2.5 million in pension (such is the miracle of compounded interest). This also prevents hyperinflation becoming a saviour for Chicago. It seems likely that future Chicago residents will be responsible for paying for these pensions through increased taxes, or a legal mechanism will be found that avoids paying these pensions (perhaps bankruptcy ?).
It would seem to us, that in Chicago is unlikely to "get out" of this situation through local taxes as the residents will simply leave for places that have lower taxes. Doesn't look good.