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Is Chicago the New Detroit?..Fresh Look at City’s Financial Crisis

Is Chicago the New Detroit?..Fresh Look at City’s Financial Crisis

There is no arguing that Chicago is having money troubles. Despite the fact that next year’s projected operating shortfall is the lowest it has been since 2008, at $233 million, the city of Chicago is facing some of the largest financial hurdles it has ever had to deal with.
In his opening letter in the Annual Financial Analysis for 2015, Mayor Rahm Emanuel did not try to hide the financial troubles plaguing Chicago right now.
“Despite the work of the past four years, we start this year’s budget process with a $426 million deficit,” Emanuel wrote. “We will continue to look for savings and efficiencies everywhere we can. But there is no doubt this year’s budget will require difficult choices.
Emanuel also noted in order to find a solution to the fiscal situation, it will require an “all hands on deck” approach from “elected officials and residents alike.”

Emanuel

One of these ‘difficult choices’ was the decision to increase property taxes across Chicago.
In an effort to help mitigate some of the debt facing the city, Mayor Emanuel proposed a $543 million property tax hike to pay for the pensions of police and firefighters. This tax hike was put into place with the intention of resolving Chicago’s unfunded pension debt and will be phased in over the next four years.
However, some analysts are already projecting Mayor Emanuel’s property tax increases will not be enough. Through 2025, Emanuel’s proposed property tax hikes will raise an additional $2.25 billion. The problem is that by 2025, additional city contributions to the municipal fund will total $4.1 billion. If you do some quick math, that means the tax hike will come up $1.9 billion short. Not a good start. Especially when you factor in the idea that raising taxes means more people and business will pack up shop and head somewhere else (but more on that later).

Chicago

On Sept. 22, Mayor Emanuel detailed his budget proposal for 2016. In an effort to make sure this new tax burden (which may or may not help as is intended) is paid by those who can best afford it, Emanuel is looking to expand the homeowners’ exemption. This means that any resident whose home is valued at $250,000 or less would not pay a property tax increase for police and fire pension obligations.
But there is some good news, according to Mayor Emanuel, about Chicago’s financial future.
Over the past four years, Chicago’s structural deficit has been cut by two-thirds and the 2016 budget will have that number at its lowest mark since 2008. This means that over the next four years, the city is on the path to eliminating its structural deficit.

Chart

In addition, Emanuel’s proposed 2016 budget will establish a $9.50 monthly fee per household for garbage pickup (this fee is expected to generate more than $60 million) and also become the first big city in the country to tax e-cigarettes (which is expected to generate $1 million).
But here is the problem with all of this, the majority of the funds that will be used in an attempt to tackle the city’s debt comes from increased taxes. Chicago already has the highest sales tax of any big city in the nation and is also always right near the top as far as things like gas prices go, as well. Increasing taxes even further in other areas is going to continue to push people and businesses out of the city.
Currently, Chicago has around 2.7 million people living within city limits (and has been steadily losing residents for years). By 2025 that number is expected to drop to 2.5 million residents. Surely, eliminating residents is not the way to solve Chicago’s financial issues. But that is what is going to keep happening the way the budget and the city itself is trending right now.
While the budget proposal attempts to identify areas for the city to save money, it also identifies places to expand and spend. Things such as a $50 million investment in critical youth services, repaving 300 miles of neighborhood and arterial streets, and a $500 million investment to replace 90 miles of water, 72 miles of sewer, and install 14,000 sewer structures and 20,000 water meters were also outlined by Mayor Emanuel. But much of the mayor’s budget proposal makes Chicago look more like an undesirable place to live, and not the other way around.
Chicago is at a critical point in its existence right now. Many editorials from newspapers around the country have begun to ponder if Chicago is on the way to becoming the next Detroit. Regardless of whether or not Chicago will indeed go down the same path as Detroit, it is a little worrying that the question even needs to be asked.

David.M@mychinews.com

What do you think?
Is Chicago in as much trouble as
it seems and do we have another
Detroit on our hands?
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