USA Today’s Nathan Bomey has some experience covering municipal bankruptcy, and looking at the state of Chicago’s finances, Bomey’s sees only three options – and none of them are good.
Bomey covered Detroit’s bankruptcy woes for the Detroit Free Press, and says runaway pension costs are putting entirely too much pressure on Chicago’s system.
“It shows what can happen when a great American city ignores financial reality for years,” Bomey told the Chicago City Wire. “Somebody pays the bill; the significant pension deficit is completely unsustainable. At some point something has to change.”
Bomey and Caitlin Devitt, public finance reporter for Debtwire Municipals, exchanged tweets on Chicago's situation recently.
“I'm positive about Chicago," Devitt tweeted on April 19.
Devitt cited Jim Spiotto, managing director at Chapman Strategic Advisors LLC, who talked at a Civic Fed Panel discussion. He said Chicago has seen increases in jobs over the last five years and corporate moves that might indicate economic green shoots.
“I'm not,” Bomey tweeted in response. “Bankruptcy is Chicago's destiny, barring pension cuts or massive tax increases. Just a matter of when, and whether the state allows it.”
But Bomey backtracked a little, laying out three scenarios by which he feels Chicago could avoid bankruptcy.
The first is to reduce benefits packages, which he called “extremely unlikely” considering the general unwillingness of politicians and benefits recipients to decrease payments.
The second is an increase in taxes, which has its own consequences.
“You risk driving more people out of the city,” Bomey said.
The third option is to cut spending, but Bomey pointed out that this approach can undermine public safety -- not a good idea for a city with significant crime problems.
“Cities exist for one reason: to serve their residents,” Bomey said. “This is about preserving basic services.”
But Chicago needs to do something before it's too late, he warned.
"Unless there is an effort to address this, they are headed for a path toward insolvency,” Bomey said.
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