Fran Spielman

My Thoughts On Chicago’s Financial Crisis

I know I’ve been blogging a lot about Chicago/Cook County/Illinois lately. Which should come as no surprise to regular Survival And Prosperity readers considering I’ve talked about how I was born on the West Side, was raised around that area, and lived on the Northwest Side until I moved to the northwest suburbs two years ago.

Both the Chicagoland area and Illinois have been on my mind a lot recently. I fear we’re on the verge of some major upheaval stemming from decades of fiscal mismanagement by policymakers from both sides of the political aisle (some might think this blog only targets Democrats- over the years I’ve demonstrated everyone’s “fair game”). And by verge, I mean in the coming weeks. Focusing on Chicago today, what might kick it off (regular observers have witnessed the crisis growing for some time now)? I suspect the following. From the Chicago Tribune website back on July 31:

At a news conference this week, the mayor would not rule out a politically unpopular property tax hike, saying he’ll wait to show his hand until September, when he rolls out “a full budget with all parts in there.”

(Editor’s note: Bold added for emphasis)

A good portion of the coming pain is going to be felt by the Chicago taxpayer. What kind of “pain” am I talking about? That which I’ve been blogging about for a couple of years now- new/higher fees, fines, and taxes, coupled with reduced government services. Last night’s post about potential revenue generators Chicago Mayor Rahm Emanuel and the City Council are mulling over (hat tip Fran Spielman of the Chicago Sun-Times) should give Chicagoans a better picture of what’s headed their way (a property tax hike and garbage collection fee look likely). Concerning cutbacks in government services, I think that’s already begun. For example, the manpower shortage in the Chicago Police Department (hat tip Second City Cop) that’s existed for some years now. Down the road, I predict the average Chicago taxpayer will find it increasingly difficult to afford living in the city, let alone doing it safely as local government struggles to provide effective, efficient services to constituents.

Now, it’s bad enough Chicago/Cook County/Illinois are in real financial trouble. But then there’s the legitimate concern of a slowing economy/recession being right around the corner, never mind that coming financial crash I started blogging about back on Memorial Day Weekend 2007.

So what’s a Chicago taxpayer to do? This former Chicago resident picked up and left the city limits in 2013. Concerned about future tax and public safety liabilities, my girlfriend and I reluctantly departed our “suburb in the city” and moved into a house in a not-too-far away authentic suburb. Granted, we’ll still be on the hook for county and state problems, but it’s what makes sense for us in the short-term.

As much as I blast Chicago on Survival And Prosperity (“tough love”), I’m not convinced the city’s going to go “belly-up.” I think there’s a good chance it could be run by something similar to the Emergency Financial Control Board in New York City from 1975 until 1986 (talked about here back in April), but even a setback like that won’t be the end of the “City By The Lake,” just like it wasn’t for the “Big Apple.” I do predict city life is going to get real hairy once the “balloon goes up,” but I think that will be the case in a lot of urban areas nationwide.

That’s my two cents on Chicago’s financial crisis- for now. Chicago readers of this blog- what are you planning to do about the crisis? Or, what are you already doing? Maybe you don’t think a crisis exists? Please share your thoughts or experiences in the “Comments” section of this post, as I’d really like to talk more about this going forward.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Source:

Dardick, Hal. “Emanuel needs $754M more to make ends meet.” Chicago Tribune. 31 July 2015. (http://www.chicagotribune.com/news/local/politics/ct-rahm-emanuel-chicago-budget-shortfall-met-0801-20150731-story.html). 21 Aug. 2015.

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Chicago, The Writing Is On The Wall

The city of Chicago is in for some tough times down the road.

“The Machine” keeps putting a positive spin on the city’s deteriorating financial condition, but the numbers don’t lie. I’ve rattled them off time and time again, the most recent being Tuesday. The Chicago press (sans Fran Spielman over at the Chicago Sun-Times and a few others) has even caught on, publishing articles with more frequency these days that reveal just how ugly the city’s finances truly are. Case in point, a Chicago Tribune editorial entitled “Chicago is on the road to Detroit” that appeared on their website yesterday. From the piece:

By the most recent numbers, Mayor Rahm Emanuel’s government owes $13.9 billion in general obligation bond debt, plus $19.5 billion in unfunded pension obligations. Add in Chicago Public Schools and City Hall’s other “sister agencies” and you’re talking billions more in debts that Chicago taxpayers owe. Yet here we are on a Wednesday when the mayor probably will get approval from a derelict City Council to issue another up-to-$900 million in bonds backed by property taxes — and to double, to $1 billion, the amount of short-term bank money his administration can borrow to raise cash…

(Editor’s note: Italics added for emphasis)

By the way, Mayor Emanuel got that approval. Fran Spielman reported on the Chicago Sun-Times website Wednesday morning:

Without a word of debate, the City Council on Wednesday blindly added $1.9 billion to Chicago’s mountain of debt even though aldermen have no idea how the money will be spent.

The vote was 43-to-4. “No” votes were cast by Aldermen Bob Fioretti (2nd), Scott Waguespack (32nd), Brendan Reilly (42nd) and John Arena (45th)…

Now, I’ve heard/read some Chicagoans say something along the lines of don’t worry about the city’s finances, Governor Quinn and the State of Illinois or President Barack Obama and the federal government will ride to the rescue of their fellow Democrats in control of the “Windy City.”

To which I say, I’m not so sure. Is there anyone in America who doesn’t know how much of an economic basket case the “Land of Lincoln” is? A $100.5 billion public pension debt and the worst credit rating of all 50 U.S. states routinely make headlines across the country. As for the federal government, I keep encountering the words “insolvent” and “bankrupt” more and more these days to describe the nation’s finances. And don’t think for a second other economically-challenged cities across the country won’t cry foul to the Oval Office and their elected representatives if Chicago is bailed out. I find it hard to believe the State of Illinois or the Feds could come to Chicago’s rescue without there being serious financial and political repercussions.

Chicago, the writing is on the wall. By the looks of things, that great city where I was born and from which I recently just left is now past the proverbial point of no return, no longer looking capable of effectively navigating the growing financial crisis.

While I don’t foresee the city’s death, I do envision a continuation of its already gradual decline until a point of fiscal implosion is reached. Will it be Detroit-esque in its bottoming out? I don’t know. But it sure as hell won’t be pretty.

Faced with such a scenario, will Chicagoans choose to stay and contend with the almost certain prospect of much higher taxes and fees in conjunction with curtailed city services (public safety comes to mind here), or will they depart the “Second City” like I did?

One might think the latter (going), but I’m sure there will be plenty of the former (staying).

In the interests of surviving and prospering, which is the better choice?

I don’t think the answer is as clear-cut as many readers might think. And it’s something I’ll be exploring and blogging about more in the coming days.

By Christopher E. Hill
Survival And Prosperity (survivalandprosperity.com)

Sources:

“Chicago is on the road to Detroit.” Chicago Tribune. 5 Feb. 2014. (http://www.chicagotribune.com/news/opinion/editorials/ct-chicago-debt-edit-0205-20140205,0,3757189.story). 6 Feb. 2014.

Spielman, Fran. “City Council OKs going $1.9 billion deeper into debt.” Chicago Sun-Times. 5 Feb. 2014. (http://www.suntimes.com/25398572-761/city-council-oks-going-19-billion-deeper-into-debt.html). 6 Feb. 2014.

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Thursday, February 6th, 2014 Bankruptcy, Credit, Debt Crisis, Education, Entitlements, Fiscal Policy, Government, Mainstream Media, Political Parties, Public Safety, Taxes Comments Off on Chicago, The Writing Is On The Wall

Chicago’s Debt Crisis Finally Gets Major Exposure

Early Sunday morning, I mozied on down to the end of my driveway to pick up my Chicago Tribune. After eating a little breakfast, I busted out the paper and saw the following headline in big, bold letters on the front page:

City’s debt splurge: ‘It’s like a cancer’

Well, it’s about time Chicago’s debt crisis gets major exposure in a mainstream media outlet.

Of course, Survival And Prosperity readers have known about this growing debacle for some time now (a big hat tip goes out to Fran Spielman over at the Chicago Sun-Times). Back in July 2012 I noted Chicago’s long-term debt was over $27 billion. This July, I blogged that this figure was now up to nearly $29 billion, or $10,780 for every city resident ($780 more per Chicagoan in just one year). So the debt splurge wasn’t just a feature of the Daley regime.

Regarding that Tribune piece, Patricia Callahan, Heather Gillers, and Jason Grotto reported:

A reckless pattern of borrowing by city leaders has undermined Chicago’s future by ignoring the most basic tenets of municipal finance and piling billions of dollars of debt onto the shoulders of future generations, a Tribune investigation has found.

Chicago officials abused a powerful financial tool intended to build for the future — issuance of bonds backed by property taxes — as they spent nearly $10 billion in 13 years with few restrictions and virtually no oversight.

The Tribune’s unprecedented examination of city finances reveals that Chicago built mountains of long-term debt from thousands of problematic short-term purchases including software that was soon obsolete, spare parts for vehicles and items you might find on a weekend shopping list: trash bins, flowers, even bags for dog waste…

When the Tribune analyzed $9.8 billion in proceeds from general obligation bonds issued from 2000 to 2012, it found that nearly half of the money went to paper over growing budget problems.

(Editor’s note: Italics added for emphasis)

Any doubts I still may have had about Chicago being in serious financial trouble were dispelled when I read that last bit about half the bond money going to “paper over growing budget problems.”

As to the culprits in this financial caper? Callahan, Gillers, and Grotto added:

Most of Chicago’s debt woes can be traced to the long reign of former Mayor Richard M. Daley, but the borrowing he relied on so heavily has continued under Rahm Emanuel as his administration gropes for ways to deal with the financial problems it inherited…

There is no limit on the city’s general obligation debt, and the sole check and balance is the City Council, a body that rarely pushes back on major mayoral decisions. Since 2007, aldermen have authorized $7.6 billion in general obligation bond issuances without a single dissenting vote. And each year they get millions in bond proceeds to dole out for projects in their wards.

While it would be easy to blame Richie Daley, Rahm Emanuel, and the alderpeople for this big mess, at the end of the day, many Chicagoans need only look into the mirror to see who’s really to blame for letting the city’s finances get this far out of hand.

As to what “Windy City” residents might want to do now seeing that “a reckless pattern of borrowing by city leaders has undermined Chicago’s future”? Perhaps start looking at ways to mitigate the current and coming damage- something I’ll be talking more about in the months to come.

A good place to begin would be read the article to get a sense of how bad the problem really is, which can be found on the Chicago Tribune website here.

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

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Monday, November 4th, 2013 Bonds, Borrowing, Debt Crisis, Essential Reading, Fiscal Policy, Government, Mainstream Media, Spending, Taxes Comments Off on Chicago’s Debt Crisis Finally Gets Major Exposure

City Of Chicago 2012 Audit Shows Debt Continues To Grow

I’ve been wondering when information regarding the latest City of Chicago audit would be released.

And wouldn’t you know it, it happened on a Friday evening.

That bad, huh?

Not really. Just continuing a worsening trend when it comes to the City’s long-term debt.

Thankfully, Chicago Sun-Times City Hall Reporter Fran Spielman picked up on the audit’s release and broke it down for readers when, as far as I can tell, no other Chicago mainstream media outlet is discussing it. Spielman wrote Friday night:

Mayor Rahm Emanuel closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, year-end audits show.

(Editor’s note: Italics added for emphasis)

Spielman was all over the 2011 audit release too, and reported back on July 22, 2012:

Mayor Rahm Emanuel closed the books on 2011 with $310 million in cash on hand, $167 million more than the year before.

$310 million cash cushion in 2011 (or is $167 million?- will try to clarify with Ms. Spielman) down to $33.4 million in 2012. Not the best news.

(Editor’s note: Ms. Spielman confirmed with me that the cash cushion in 2011 turned out to be that $167 million figure. So, $167 million all the way down to $33.4 million= still not good).

Regarding the “mountain of debt,” the Sun-Times reporter wrote last year that the City amassed an additional $465 million in debt according to the 2011 audit, bringing the City of Chicago’s total long-term debt to just over $27 billion, or $10,000 for every one of the city’s nearly 2.7 million residents.

In Friday night’s piece, Spielman pointed out:

The new round of borrowing brings Chicago’s total long-term debt to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338 per resident.

Around $2 billion more in additional long-term debt- or $780 more per Chicagoan- in just one year.

Mayor Rahm Emanuel and City Hall have found themselves in a difficult situation once more, one that I’ve been warning about for some time now. Spielman added:

By July 31, Emanuel must release a preliminary city budget. It’s almost certain to include another massive deficit — strengthening the city’s case in contract talks with city unions — that will have to be closed with more layoffs, service cuts and new revenues.

What’s that I’ve been saying? Expect new/higher taxes and fees, and less government services, as the financial crisis marches on.

Hat tip to Second City Cop for picking up on the Sun-Times article, and a nice job by Fran Spielman for staying on top of these revealing audits.

By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Spielman, Fran. “2011 audit shows Chicago has more cash and growing debt load.” Chicago Sun-Times. 22 July 2012. (http://www.suntimes.com/news/metro/13895641-418/2011-audit-shows-chicago-has-more-cash-and-growing-debt-load.html). 29 July 2013.

Spielman, Fran. “City of Chicago’s cash cushion plummets, debt triples, arrests drop, water use rises.” Chicago Sun-Times. 26 July 2013. (http://www.suntimes.com/21552920-761/city-by-the-numbers-cash-cushion-plummets-debt-triples-arrests-drop-water-use-rises.html). 29 July 2013.

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Monday, July 29th, 2013 Debt Crisis, Deficits, Fiscal Policy, Government, Spending, Taxes Comments Off on City Of Chicago 2012 Audit Shows Debt Continues To Grow
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