Chicago is drowning in debt that no one alive today created, yet everyone must pay.<\/p>\n
The city of Chicago owes a staggering $35 billion<\/a> to $60 billion<\/a> to public sector pension funds \u2014 several times the annual city budget. Chicago is in deeper arrears than almost all other American cities, including New York.<\/p>\n This is not new. Back in 1917, just a decade after social worker Jane Addams helped establish the innovative teachers pension fund, the Illinois General Assembly warned<\/a> that the condition of the pension system was \u201cone of insolvency\u201d and \u201cmoving toward crisis\u201d because the \u201cfinancial provisions (were) entirely inadequate for paying the stipulated pensions when due.\u201d<\/p>\n Commissions have repeated the message ever since then. The response? While solemnly promising to pay up, politicians have steadily increased benefits while adding a provision to the state constitution declaring pension recipiency to be an \u201cenforceable contractual relationship, the benefits of which shall not be diminished or impaired.\u201d<\/p>\n Ever-rising pension provisions, even in the face of ever-rising deficits and interest payments, are easy to explain. Although public sector jobs may not pay especially well, the promise of a secure and substantial income after retirement is a strong economic incentive for workers and a morally honorable stance for city residents to uphold. In addition, promises of added pension benefits are politically valuable to all contract negotiators. Union leaders can assure members of a constitutionally guaranteed gain. Mayors can postpone new strains on their overstretched budgets while avoiding strikes by firefighters, police, teachers and garbage collectors. Aldermen need not raise taxes during their terms in office. Existing pension funds can be used as huge credit cards to cover urgent expenses of schooling, policing and health care. Voters are unaware or uninterested.<\/p>\n The real mystery isn\u2019t why Chicago has this problem \u2014 it\u2019s why every American city hasn\u2019t generated ever-increasing pension deficits.<\/p>\n As pension debt ballooned along with the proportion of the city\u2019s budget (slowly) dedicated to funding pension systems and as property taxes rose, observers began taking more notice. By the mid-2010s, all three major credit agencies downgraded both Chicago and Illinois with ratings that, as The Economist noted, put the state \u201con par with Botswana\u201d \u2014 prompting an incensed Tribune editorial<\/a> to ask what Botswana had done to deserve such an insult.<\/p>\n After passing more laws that further increased pension promises without any financial offsetting, Illinois legislators acted in 2010. Their solution was to make future workers \u2014 people who couldn\u2019t oppose the bill because they weren\u2019t yet employed or possibly even adults \u2014 absorb the rising costs.<\/p>\n In the classic Illinois tradition, the Tier 2 bill was introduced one morning\u00a0without any notice, debate or analysis; it passed both houses of the legislature that day. Then-House Speaker Michael Madigan noted<\/a> that \u201cwe don\u2019t have actuarial numbers relevant to this Amendment\u201d but nevertheless claimed that it would save \u201cover a hundred billion dollars\u201d over an unspecified time frame.<\/p>\n The speaker\u2019s prediction may turn out to be right; those savings are coming entirely at the expense of young workers who took jobs after the tier system was established. Even Chicago\u2019s Civic Federation \u2014 a longtime advocate for reducing pension deficits \u2014 calculated disapprovingly that Tier 2 teachers pay almost 2% of their salaries<\/a> to subsidize their predecessors\u2019 benefits. The teachers pension fund managers calculated, in fact, that on average, Tier 2 recipients would receive a small net negative outcome from their pension contributions. Experts fear that newer workers are receiving pensions so low that they might violate the federal \u201csafe harbor\u201d law prohibiting payouts less than what Social Security would have paid that worker.<\/p>\n But there\u2019s an even more troubling dimension that has gone almost unmentioned in public discourse and probably unnoticed by most observers: the racial wealth transfer. From 1940 through 1980, Chicago\u2019s non-Hispanic white population declined from about 90% to about 40%. Today, the city is roughly one-third Black, one-third Hispanic and one-third white. These demographic shifts mean that Chicago\u2019s increasingly diverse young workforce is financing more and more of the retirements of a generation of predominantly white pensioners.<\/p>\n I see no easy resolution to this conjunction of demographic change, financial insouciance and political expediency. But Chicagoans should at least recognize the irony. Once again, white Americans are benefiting from the labor of their nonwhite compatriots \u2014 with no controversy, and the blessing of state law and advocates of responsible governance.<\/p>\n Jennifer Hochschild<\/a> is a professor of public policy, the Henry LaBarre Jayne professor of government and a professor of African and African American studies at Harvard University.\u00a0<\/p>\n Submit a letter, of no more than 400 words, to the editor here<\/a> or email letters@chicagotribune.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"Chicago is drowning in debt that no one alive today created, yet everyone must pay. 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