Reason Foundation’s latest look at state and local finances flagged Chicago for the same number of red indicators that preceded Detroit’s collapse in 2013. But Wirepoints founder Mark Glennon told The Center Square that a Detroit-style Chapter 9 may not be available to Chicago because the city has already sold most of its future sales-tax revenues under a state-enabled deal.
Red flags up, but a different playbook
Reason Foundation’s report found that Detroit’s finances at the end of fiscal 2012 would trigger seven red flags—the same number Chicago received in the group’s report last month, according to The Center Square. Detroit filed for bankruptcy in July 2013.
Glennon argued Chicago is in a different position: “Chicago, unlike Detroit, has sold most of its future sales tax revenue,” calling it “a major mistake that the legislature in Springfield made about five years ago when they passed legislation authorizing this form of financing,” he told The Center Square.
Pensions and budget gaps
Glennon said Chicago’s pension funds have an unfunded liability of $36 billion. “You can’t cut your way out of that. You’d be throwing retirees on to the street if you cut their pensions by 25%, by 75%, to solve it. There’s going to have to be another source of money to fund those pensions,” he told The Center Square.
Mayor Brandon Johnson’s budget office projected a $130 million budget gap for the current fiscal year in July, but Johnson said on Aug. 25 the shortfall was $85.1 million, per The Center Square. The mayor’s office also projected a $882.4 million deficit for 2027.
Who can authorize a bankruptcy—and who runs it
It is up to the Illinois General Assembly to authorize municipal bankruptcies, The Center Square reported. Glennon said lawmakers could also pass an emergency manager law, but argued state and city politics complicate that: “The wolf would be choosing the other wolf to watch over the henhouse,” he told The Center Square.
Glennon pointed to Detroit’s state-appointed emergency manager, Kevin Orr, as an example of strong outside control. He also suggested a financial control panel akin to the oversight board put in place for Puerto Rico’s bankruptcy in 2016 by President Barack Obama, while adding that “even though it’s a federal bankruptcy law, the federal government can’t choose that emergency manager,” The Center Square reported.
One contract that could flip
In a Chicago Contrarian article, Glennon wrote that a potential bright spot in a Chicago bankruptcy would be the possibility that canceling the city’s long-criticized parking meter deal could return hundreds of millions of dollars in revenue to the city.
