Surprise: Chicago's Debt Triples, City Slapped With Credit Downgrades

Guy Benson

7/30/2013 10:25:00 AM - Guy Benson

So it turns out the president's home city of Chicago (D-IL) is suffering through a bit of fiscal trouble:


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. Last week, Moody’s Investors ordered an unprecedented triple-drop in the city’s bond rating, citing Chicago’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes that has continued under Emanuel.

Those unprecedented downgrades were delivered despite what the Sun-Times describes as Mayor Rahm Emanuel's "aggressive cost-cutting measures."  Long-term unfunded promises and the costs of servicing the city's debt are swamping shorter-term attempts at fiscal restraint.  Absent significant reforms, this is America's future, too.  More on that eye-opening triple downgrade, directly from the credit ratings agency:


Moody's Investors Service has downgraded the City of Chicago's (IL) general obligation (GO) and sales tax ratings to A3 from Aa3; water and sewer senior lien revenue ratings to A1 from Aa2; and water and sewer second lien revenue ratings to A2 from Aa3. Chicago has $7.7 billion of GO debt, $566 million of sales tax debt, $2.0 billion of water revenue debt, and $1.3 billion of sewer revenue debt outstanding. The outlook on all ratings is negative ...The downgrade of the GO rating reflects Chicago's very large and growing pension liabilities and accelerating budget pressures associated with those liabilities. The city's budgetary flexibility is already burdened by high fixed costs, including unrelenting public safety demands and significant debt service payments.

Moody's reference to "unrelenting public safety demands" is in part a euphemism for Chicago's appalling murder and violent crime crisis, which manages to remain alarmingly acute despite the city's strict anti-gun laws.  Strange, that.  Oh, did I say triple downgrade?  I meant quadruple, and this one genuinely hurts The Children:


Chicago's public schools on Wednesday forecast a record $1 billion fiscal 2014 budget deficit despite layoffs of 1,000 teachers and the expected closing of 50 schools, prompting one credit agency to downgrade its debt rating. The nation's third-largest public school district blamed the mounting red ink on an expected sharp rise in annual pension payments for teachers, because the state of Illinois has failed to curb ballooning pension costs.

For years, Illinois teachers unions negotiated unsustainable contracts with their Democratic buddies, who run the city and state -- a vicious cycle that is has begun its inevitable meltdown.  The obligations owed to these government employees are consuming the city's budget, prompting desperate bouts of austerity cuts -- which are now unavoidable.  To paraphrase one of the city's prominent citizens, Chicago's fiscal recklessness is comin' home to roost.  Sadly, today's kids -- especially the city's underprivileged ones -- are bearing much of the brunt of these cuts, which became necessary after chronic irresponsibility from generations of adults.  Chicago's woes mirror many of the challenges facing the state of Illinois, which has been battered by recent downgrades from various ratings agencies.  Illinois was already in dead last in terms of state credit ratings prior to the additional recent blows.  Purely coincidentally, Illinois -- like Chicago -- is run by one political party.  Democrats hold the governorship and super-majorities in both chambers of the legislature in Springfield.  Major tax increases haven't made a dent in Illinois' mess; the state has struggled to pay its bills for years.  By the way, the state in 49th place on this roster of ignominy is California, which also happens to be in the thrall of a particular ideology embodied by the one political party.  Thankfully, Chicago is a far cry from Detroit (hey, there's that same party again) at this stage, but continued mismanagement could eventually yield similar decay and collapse.  I'm just thinking out loud here, but shouldn't prominent jurisdictions dominated for decades by the party of compassion, fairness and progress be beacons of success by now?  Before you click away, be sure to read this piece by CBS News' Major Garrett.  He recalls an upbeat 2011 speech the president delivered in Detroit, just two years before its bankruptcy.  One choice snippet from Garrett's brutal assessment:


Obama's 2011 speech described a Detroit that can only be described as a myth wrapped in a wish inside a dream.  "This is a city that's been to heck and back," Obama said. "And while there are still a lot of challenges here, I see a city that's coming back." Obama referenced "tough choices" made to bail out GM and Fiat-Chrysler and also hailed the birth of a new wave of high-tech employment. "We said American workers could manufacture the best products in the world. So we invested in high-tech manufacturing and we invested in clean energy," he said. "And right now, there's an advanced-battery industry taking root here in Michigan that barely existed before."  The biggest factory in this supposed new trend, Massachusetts-based A123 Systems, had plans to employ 5,900 workers nationwide to build lithium-ion batteries. In Detroit, A123 Systems never employed more than 1,000. The Energy Department awarded A123 Systems a $249 million grant to boost production. It filed for bankruptcy in 2012 and was still receiving DOE largesse. A judge approved the bankruptcy in 2013.  In other words, the Detroit-area advanced-battery industry Obama said "barely existed before" his 2011 speech now … barely exists.

Obama is on the speech-giving trail again, peddling the same talking points and the same "solutions" he did two years ago.  This time will be different, though; just don't ask him why.