Politics & Policy

Blowing Down the Windy City

Chicago is seeing a slow fiscal collapse, but could it be saved?

Chicago — Having just been downgraded three notches by Moody’s, Chicago is suddenly hearing the uncomfortable shifting of deck chairs, as people wonder if the nation’s third-largest city is about to slam into the same debt-and-pensions iceberg that sank the SS Detroit last month.

It was once inconceivable that the Motor City would become the setting for post-apocalyptic visions of burned out, abandoned neighborhoods, a corrupt and incarcerated city government, and all-but-nonexistent public services. Yet Detroit’s collapse took but a few decades. Now, the same disbelief and denial about Chicago is being heard, yet the evidence for the inescapable bill of mismanagement and bad policy is still making headlines just a few hundred miles north of the Windy City.

For all its manifest faults (such as being the world’s most dangerous global city), Chicago is not yet close to matching Detroit’s mismanagement, hollowed-out tax base, or loss of productive sectors. Neither is it the one-industry town that Detroit was, nor has it been hemorrhaging residents for decades. In fact, it is a far more vibrant place than when I was growing up here in the 1970s and 1980s, with lots more young people, gentrified neighborhoods (which, admittedly, reduces its gritty charm for an erstwhile resident), and money sloshing around. Even those decades, though, were an improvement over the city’s near-death experience in the 1960s when faced with the decline of traditional industries like steel. Then, Mayor Richard J. Daley, the “Boss,” saved the city, or at least argued that he did, by building vital transportation lifelines into the downtown, making real development of the suburbs and exurbs a viable proposition. Of course, to do so, he had to drive the Dan Ryan Expressway through vibrant ethnic neighborhoods like Little Italy. It was messy and highly controversial, but it was focused solely on making the city economically competitive again.

Today, Chicago faces another threat, shared by many Democratic municipal governments. The city may seem healthy on the surface, but its finances are shaky, to say the least. Chicago is staring at a massive, $340 million budget deficit, which, if pension plans aren’t radically changed, may open up to a $1 billion shortfall as soon as 2015. The Moody’s downgrade was tied directly to the looming budget hole and lack of progress on restructuring its pension and health-care obligations. All too predictably, Mayor Rahm Emanuel has addressed this by focusing on increasing revenue and getting a bigger slice of state taxes.

The next decade will likely determine the city’s future, and mordant urban death watchers should track every step Emanuel and City Hall makes from now on. Whatever you think about Emanuel, he’s no deer-in-the-headlights politician, and his battle with the Chicago Teachers Union last year showed his willingness to take on heavyweight opponents, regardless of the outcome. He knows that Chicago will face the same fiscal pressures Detroit did, the same political battles to preserve pension plans, and the same pressure on businesses to relocate to friendlier confines in Indiana and Wisconsin. And there’s no hope for help from the state capital: Illinois’s situation is far more dire, with unfunded pension liabilities topping $100 billion. Time will tell whether Emanuel adapts and forces Chicago to make the tough choices, or follows the Detroit model of slow, inexorable collapse.

One thing both Mayor Emanuel and Illinois governor Pat Quinn can be sure of: Their neighbors aren’t standing still. A friend who runs a Chicago food-industry business told me that one of his subcontractors looking for new land in Indiana personally was contacted by then-governor Mitch Daniels. Daniels apparently had standing orders that he be informed about any company considering relocating to Indiana, so he could reach out himself to sell them on the virtues of the state. Daniels and Wisconsin’s Scott Walker are just as sharp-eyed as Rahm Emanuel but happen to understand that the key to prosperity is creating business-friendly conditions that will lead to more and higher-paying jobs. Meanwhile, as the excellent Illinois Policy Institute reports, Illinois has the nation’s second-highest property taxes in the U.S., which comes on top of 2011’s 67 percent increase in income-tax rates. Quinn and Emanuel may win their fight to limit pension benefits, but none of that will matter if they don’t create a viable economic environment for entrepreneurs and manufacturers.

Meanwhile, society is suffering. A large part of the city’s budget deficit comes from higher-than-expected costs for public safety. Of course, with an elevated murder rate, one can see why Chicago’s Finest are putting in lots of overtime. Already, however, warnings are coming that Emanuel may have to start cutting city services to bring down the budget deficit. That could send Chicago into a Detroit-style death spiral whereby the affluent flee the ever more dangerous city, taking their tax dollars and investments with them.

Breathless media reports about the all-time highs on the stock market condescendingly ignore that life is changing for the worse in our increasingly impoverished cities and towns. Even beyond failing local governments, important urban institutions are increasingly at risk. Consider one small example in Chicago this week: The world-famous Field Museum announced more plans to cut its renowned research staff. A half-dozen tenured curators at the 120-year-old museum are leaving, this coming after a $5 million cut in its operating budget, a 20 percent drop in its research funds, and the consolidation of its anthropology, botany, geology, and zoology departments into one generic science and education division. It is a telling sign that an intellectual institution founded in the heyday of civic philanthropy in the country’s industrial center faces an unknown future.

Being $170 million in debt, thanks to underfunded expansion and modernization plans, the Field Museum is in grave danger of losing its status as one of the world’s premier research centers. That will ultimately affect its exhibitions and educational role in the city. The balance struck between shedding expensive capabilities and maintaining some core competencies will fundamentally change the nature of the museum. It may not disappear, but it will be a very different place in a decade, one that may provide far less value to students, youth, researchers, and the like. That sounds a lot like Chicago itself, come to think of it.

— Michael Auslin is a scholar at the American Enterprise Institute. Follow him on Twitter @michaelauslin.

Editor’s Note: This piece has been amended since its initial posting.


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