Chicago pensions move to center stage

Marketwatch reports:

In a 2013 study on the burden of pensions on 173 cities -- sparked by the contention that pensions were responsible for Detroit’s bankruptcy -- we concluded that generally pension costs were not a major burden for most cities. On average, annual required contributions to both the city’s plan and required contributions to state plans amounted to 7.9 percent of city revenues. Chicago, however, was a stark outlier, with required pension contributions amounting to 17.0 percent of revenues. (Chicago was #2; Little Rock, AK was #1 at 17.6 percent and Aurora City, IL was #3 at 16.1 percent.)

The options, at this point, seem limited. It is unlikely that Illinois voters will change the non-impairment clause in the constitution, and, given the Supreme Court decision, public employees have little incentive to compromise on benefit cuts. That means Chicago most likely will have to pay off $30 billion in unfunded liabilities. These funds can come from cutting all other government spending to the bone or by raising taxes.

Of the largest 25 cities, Chicago was #9 in combined property and sales tax revenues as a percentage of personal income in 2012. Paying off the $30 billion in unfunded liabilities would raise the tax burden by about 40 percent. Such an increase would make Chicago #3 behind Baltimore and New York, which are already funding their pensions.

Just a reminder, for you rookies out there thinking about owning Chicago debt.