Chicago's increasing interest expense cause for concern, experts say
Expenditures by the city of Chicago over the past few years have risen into the billions, including a 50 percent increase in 2014 to 2015 in interest expense, according to Truth in Accounting.
“Our government in Chicago has been kicking the can down the road for a couple of decades. So, spending more money than it takes in and borrowing to make up the difference,” Truth in Accounting 's research director Bill Bergman said. “The dollar amounts are staggering. We are up to over $850 million in interest alone before we spend a dime on anything else."
Bergman acknowledges that much of Chicago's budget goes to social services and valuable community-building behavior, including public protection for police, the fire department and related items.
"But on the other had it is importantly driven by the need to get money into the coffers because so much money is going into the pensions," he said. "That dollar amount has been growing rapidly.”
Bergman said another major problem was the way the city prepared its financial documents.
“The public accountability has not been what it should have been in part because of the economic and financial reports issued by the city for many years, under quote, unquote government accounting standards have effectively hidden much of the growth rate and the debt from the Chicago citizens,” he said.
The city reports it has been balancing the budget, he said, which is required by state law. But that only tells part of the story.
“The taxpayers and the citizens of Chicago have been very poorly served. This has been a long standing problem but it has accelerated actually during the current administration. The growth rate in the city’s debt has doubled in the last four years.”
Bergman pointed to a recent article written by former chairman of the Federal Deposit Insurance Corp. William Isaac calling for a federal intervention into Chicago. In the piece, Isaac says the city of Chicago and the state of Illinois should use Chapter 9 and tools like the ones Congress has given to Puerto Rico.
“The process would entail about two years of unpleasant headlines, but the city and state will rebound far sooner and less painfully than if they stay on their current paths,” he wrote.
He also stated that the city of Chicago bonds were rated as junk by Moody’s.
Isaac wrote that money that should have been put toward pension plans in the city and the state, “have been diverted for years.”
Ultimately he calls for three types of changes to get the city and state out of the financial mess: increasing taxes, decreasing expenditures and restructuring liabilities.
“In the short run, tax increases can partly bridge the deficits, but even this benefit will prove pyrrhic,” the opinion piece claims.
Truth In Accounting has gathered financial information for other large cities and the change in their interest expenses over the last 10 years. The results show that Chicago saw the largest increase in interest debt, followed by San Antonio, Philadelphia, Houston and New York City.