Polities Under Fiscal Pressure: Chicago and Cook County

They were already on the road to ruin before COVID hit

Jun 30, 2020

You knew this one was coming. We all knew this one was coming.

Let me sample from a recent interview with Lori Lightfoot in the NY Times

Q: Let’s talk about the city’s financial situation. You’re facing a near-billion-dollar budget gap. That would be hard to address during an affluent time. How do you address it now? It’s certainly not a problem you can tax your way out of. Is there a path forward that doesn’t involve bankruptcy?
A: We’re not looking at bankruptcy. Bankruptcy is when there’s no other hope. We have a lot of other hope. We’re probably looking at a billion dollars of potential revenue impact, but I believe this as a governing principle: We can’t ask people to sacrifice when we as a government haven’t sacrificed on our own. Right before April, we stood up a $2 million fund to help people pay their rent and their mortgages. Within days, we had over 83,000 people apply for 2,000 grants. The need now is even that much greater than it was before. Going to people and saying, “I know you may not know where your next meal is coming from, but by the way we need to tax you more” — I can’t take anything off the table, but we have other tools in our tool kit.
Q: What are the other tools?
A: This problem is so enormous that the only place that we can look to is the federal government. We need the federal government’s help to restore revenue loss. What we’ve gotten so far, and I’m incredibly grateful, is only for reimbursement for Covid-related expenses. It doesn’t begin to scratch the surface of what the need is across the city. We’ve got to continue to support our safety-net hospitals, our Federally Qualified Health Centers — all those component parts that are going to be necessary not only now but, God forbid, if we get a second surge in the fall. Also, we’ve got to put people back to work; our restaurant industry has been decimated. My list is long. I feel like I’ve got one of those old-timey scrolls and I’ve let it go and it keeps going and going. But we need help.
Q: How optimistic are you about getting it? I ask that question in light of the rhetoric we’ve seen suggesting that the fiscal problems of Democratic-run cities and states are of their own making — that you’ve got to reap what you’ve sown.
A: Yeah, I’ve seen that. I’ve had some goofy Republican senators take shots at Chicago. I’m like: “I don’t even know this person. What the hell is this?”
At a town hall in May, Senator Martha McSally, an Arizona Republican, said, “This is not the time for states and cities … who have mismanaged their budgets over the course of many decades, for them to use this as an opportunity to see you, as a taxpayer in Arizona, as a cash cow for them in whatever city you want to talk about, whether it’s Chicago or New York or whatever.”
I’m like, really? In the middle of this pandemic, when people were scared, you saw that unity was helpful. Now some people feel like the storm has passed — it hasn’t — and you’re seeing partisan divides rear their ugly head. But we need to take the approach of the government being a catalytic force for making the recovery more V-like instead of U-like and accelerating that recovery as appropriate. I say “as appropriate” because we still have to make sure that we’re keeping people safe.

Well, I’m very skeptical you’re going to get that hole filled in 2020 from the federal coffers. There may be something. But it won’t be $1 billion.

I do like how Lightfoot doesn’t even try to lie here, that Chicago’s finances were just fine before COVID hit. Many cities and states have tried that lie…. and maybe she has tried it elsewhere. I haven’t read every story about Chicago finances recently. I’ve been a bit busy.

But that “we have a lot of other hope” is founded on….what, exactly? Maybe she’s hoping Biden wins the election, and the Dems sweep House & Senate, and then money time!

Well, you’ll have to wait til 2021 for that, then. You ready to sweat out the rest of 2020 with nothing?

Cook County troubles

Unsurprisingly, Cook County also has its fiscal ills.

‘Everything On The Table’ To Close Cook County’s $220 Million Budget Gap

Cook County anticipates a $219.7 million revenue shortfall for the end of the 2020 fiscal year, according to preliminary budget estimates released by county budget officials Thursday.
Officials say they plan to close that gap in part with an expected $102 million from the federal government, some furloughs of county non-union workers, reductions in hiring and delays of contracts for planned work.
Illinois’ largest county has dealt with projected budget deficits in the past — most notably during the soda tax debacle in 2017. But this time is different.

Seriously, “this time is different.”?

I mean, yes, it actually is different this time, but trotting out that old chestnut?

“One of the unique things for this year and next year, is that we just don’t know how the pandemic is going to play out,” explained Ammar Rizki, the county’s Chief Financial Officer. He says one of the biggest unknowns: whether there could be a second wave in the fall that continues into early 2021.

Well, actually, that’s not the unique aspect. When you’re in a recession, you don’t know if you’ll have some growth and then another recession. For crying out loud.

Second wave or not, next year’s fiscal forecast is even bleaker with an anticipated general fund deficit of about $222 million and a health fund deficit of $187 million, for a combined $410 million gap. That number assumes no additional federal stimulus. Since Cook County President Toni Preckwinkle is required to present a balanced budget this fall, she says “everything is on the table” when it comes to closing that gap.
“This is the largest budget gap we’ve seen in almost a decade. So we are going to be looking at holdbacks [layoffs], delaying purchases, renegotiating contracts with our vendors, a variety of strategies to meet the challenge that we face,” Preckwinkle told reporters when asked if a tax increase is being considered.
Preckwinkle and her budget team told reporters they oppose dipping into the county’s budget reserves or delaying next year’s pension payment.

Yes, revenues are down, and you’re likely going to have to cut something. Evidently, they cut 70 nonunion jobs, but I don’t see that making much of a dent into a $410 million budget gap.

Preckwinkle and budget officials stressed an urgency for additional federal aid in order to prevent any drastic measures to close the gap.

Yes, everybody is hoping for a visit from the money fairy, but it doesn’t even seem like she’s anywhere to be found.

Other stories on Chicago and Cook County’s woes

This is purely talking about the money issues. Not stuff like, oh, the police union negotiations.

April 6: Cook County drawing on $100M credit line – this was its entire revolving line of credit with a specific facility
April 7: Chicago’s Transit Agencies Got $1.43B in Bailout Money. Will it be Enough?
April 26: Chicago Plans for a Slow Recovery from the Coronavirus
April 28: Chicago’s rating outlook slips on coronavirus-induced recession
May 1: Cook County bond rating outlook downgraded from stable to negative
May 4: Chicago motor fuel tax bonds downgraded to junk
May 4: Property tax pain looms in a pandemic-ravaged economy
May 8: Cook County April Revenue Estimates Show Early Impact of COVID-19
June 8: Without revenue replacement from Congress, Chicago faces ‘really difficult or impossible choices,’ mayor says
June 9: Fallout From The Pandemic Blows A $700M Hole In Chicago’s Budget, Mayor Lightfoot Says
June 15: How public unions can help avert furloughs and layoffs for Chicago and Illinois government workers

As for that last one, it’s not a news piece, but an idea.

Let’s consider the likelihood:

Both the state and the city continue to hope the federal government will ride to the rescue later this summer with another stimulus package. But nobody should count on that, and it likely would be a partial bailout at best.
The grim truth is that the finances of Illinois and Chicago were structurally unsound long before the coronavirus pandemic hit, and major layoffs and furloughs are virtually a sure thing now — unless difficult steps are taken immediately.
Almost certainly, the state and city will have to refinance their pension debt to attempt to save hundreds of millions of dollars. And almost certainly, there will be new and higher taxes.
What is less certain — but should not be — is that union contracts for public employees will have to be reopened to reduce costs. Every possible solution to the current crisis must be on the table, including a reconsideration of a host of contract provisions.

Do you really think the public employee unions will do this? I don’t.

This is an editorial from the Chicago Sun-Times editorial board, so no particular person’s name is on this flight of fancy. I mean, it would be nice if unions would realize that there is a limit to what they can extract from the taxpayers (and bondholders) of Illinois and Chicago. But I’ve seen what’s happened in Connecticut, where the local public employee union simply shouted “TAX THE RICH!!!! MOREEEEE!!!!”

Will all of this, plus other contract revisions, result in a financial savings big enough to pull Chicago and Illinois out of crisis?
Probably not.
Further unpopular measures, such as expanding the state’s sales tax to include services, could well be necessary.
But if unionized public employees, the biggest cost of government, refuse to budge on even their contract provisions, they risking feeding a bad dynamic — union versus non-union.
Why would everybody else agree to pick up the tab?

And this is the question for all the bailouts being proposed. Why should people in Atlanta pay for the debts of Chicago? Why should the future generations who will likely live somewhere else entirely, have to pay for the expenses of the past? And it’s not even capital projects that they get some benefit from, but paying for normal operating expenses.

And no, you cannot blame most of this for COVID.

Even should its impact last a few years, it’s not equivalent to decades’ worth of outliving one’s income.

A sampling of Chicago finance in recent years

Here are just a few of my old posts on Chicago’s finances. I may have a few Cook County ones thrown in, but it’s mainly Chicago. You will see this is driven by the pensions mostly, and it’s taken its toll over decades.

If you shortchange the pensions by a hefty percentage each year, it’s nowhere like a one year 30% revenue shortfall.

It’s much, much worse.

Now, that may seem like a lot of posts, but more are here in my Chicago post compilation [which stops around 2017… I really should go back sometime.]

The inevitable crash: not caused by COVID

Let’s look at my 2019 post again, about what the (then) next mayor would have to deal with. The prior mayor, Rahm Emanuel, really did try various things to fix the pensions, which is pretty much the biggest financial problem Chicago has. But deals were knocked down by the unions, courts knocked down other changes, and then Rahm kind of gave up. And didn’t run again for mayor. (That was probably more due to the murder of Laquan McDonald, and more specifically, the squashing of evidence in that case, than due to the money problems.)

[My 2019 post also has me losing it at somebody on twitter for claiming the pension didn’t have to be funded. But you can go to the post to read that bit.]

Here was my conclusion:

Look, I’m not wishing ill on Chicago. I just think ill is coming to Chicago. I didn’t have any hand in the decades of deliberate pension underfunding.
I didn’t cause any of the pain that will be coming to Chicago, and I don’t glory in it.
But I am extremely angry at the people who have tried to minimize the repercussions that are the extremely foreseeable results of deliberate policy.
I will pray for your souls, those of you who are responsible. You really need it.

Now, maybe they’re “lucky” that bad fortune has hit all cities and states. Perhaps a little bit of federal bailout will occur just so that everybody gets a little taste.

However, even if the feds filled the entire hole of Chicago’s revenue, even for a few years, Chicago would still be in trouble.

The COVID-revenue drop just makes the reckoning sooner.

Original STUMP post.

STUMP - Meep on public finance, pensions, mortality and more

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