Chicago Headed for Insolvency, Get the Hell Out Now

-edited

Chicago Mayor Lori Lightfoot and the Teachers Union reached agreement on a deal sure to send Chicago over the cliff.

The Wall Street Jounal Editorial Board blasts Chicago Mayor Lori Lightfoot for her deal with the Chicago Teachers Union (CTU). The deal will further wreak havoc on the already insolvent school system.

Who will be hurt most?

The WSJ answers the question this way: Union Routs Students in Chicago.

Contract Details

  1. 16% raise over five years (not including raises based on longevity)
  2. Three-year freeze on health insurance premiums
  3. Lower insurance copays
  4. Caps on class sizes
  5. More than 450 new social workers and nurses.
  6. New job protections for substitute teachers who going forward may only be removed after conferring with the union about “performance deficiencies.”
  7. Chicago Public Schools will become a “sanctuary district,” meaning school officials won’t be allowed to cooperate with the Immigration and Customs Enforcement without a court order.
  8. Employees will be allowed 10 unpaid days for personal immigration matters.
  9. Under the new contract, a joint union-school board committee will be convened to “mitigate or eliminate any disproportionate impacts of observations or student growth measures” on teacher evaluations.
  10. Instead of student performance, teachers will probably be rated on more subjective measures, perhaps congeniality in the lunchroom.
  11. The new union contract caps the number of charter-school seats, so no new schools will be able to open without others closing.

Get the Hell Out

The WSJ commented "Michelle Obama the other day complained that white people were leaving the city to escape minorities who are moving in. No, they’re fleeing Chicago’s high taxes and lousy schools—and so are minorities."

Chicago Public School Bond Ratings

Chart from CPS Credit Ratings.

You can kiss those positive and stable outlooks goodbye. The system is insolvent and this contract will further weaken the outlook.

Bond Rating Comparison

Chart from Wikipedia, yellow highlights mine.

S&P already has CPS bonds in the "highly" speculative area, five steps into its junk ratings.

Pension Spiking

A Chicago Teacher's Pension is based on your years of service and a pension percentage (up to 75%), multiplied by your final average salary. Their union notes "There are ways to increase these factors to enhance your pension or meet eligibility requirements."

Let's Discuss Pensions

Wirepoints asks Chicago Teachers Strike: Why is No One Talking About Pensions?

The average retired CPS teacher already receives a pension of nearly $55,000 a year, according to a 2019 FOIA request to the Chicago Teachers’ Pension Fund.

However, looking at the pension of an average teacher far understates the true size of CPS pensions. The “average” benefit includes teachers who only worked a few years for CPS, which brings down the average.

To get a more accurate picture of what pensions are really worth, look at career teachers. Over half of all currently retired CPS teachers worked 30 years or more. On average, they receive a $72,000 annual pension and began drawing benefits at age 61.

In comparison, the average annual Social Security payment in Chicago is just $16,000 and the maximum benefit for someone retiring at age 62 is $26,500.

C-O-L-A Cola, la la la Payola

The average career CPS pension will grow by 3 percent, compounded annually, due to the COLA benefits teachers get. That will double a teacher’s annual benefit to over $140,000 in 25 years.

Teacher Contributions

Wirepoints Projections

Those projections were based on the proposed contract. The CTU held out for even more benefits and got them.

Pension Funding Level

The Chicago Tribune notes that the end of 2018, City Hall’s pension funds had only 23% of what they should have.

By 2023, Lightfoot must find an additional $989 million a year for pensions, according to the Tribune’s Hal Dardick and Juan Perez Jr. Thank you, former mayors and aldermen, for promising more pension benefits than Chicagoans could afford.

Who Will Pay?

That one is easy.

  • The kids will suffer because charter schools are reined in, grading standards lowered, and incompetents were given further projections.
  • Taxpayers will face higher property taxes, higher gas taxes, and higher sales taxes with every penny going to pensions.

Get the Hell Out

On October 5, I commented Escape Illinois: Get The Hell Out Now, We Are

Goodbye Illinois. Hello Utah. See my reasons for Utah above.

If you can't get out of Illinois, do the second best thing, Get the Hell Out of Chicago.

By the way, Chicago is not "headed" for insolvency, it's already there, but it is just not recognized yet.

Mike "Mish" Shedlock

Comments (57)
No. 1-23
Carl_R
Carl_R

The part about this that I find interesting is that we will be able to find out at what point raising property tax rates will begin to actually decrease tax receipts. At some point, raising rates will reduce property values so much that actual receipts fall.

abend237-04
abend237-04

I continue to believe that the left's grand plan under Hillary was to gain access to the taxing power of the state via sudden, belated post-election discovery that cities like Chicago were inexplicably bankrupt and needed emergency rescue via Fed takeover, as in the plundering of GM bondholders and handing of GM to the UAW during the GFC, thereby impoverishing many GM employees confidently betting on creditor priority and all past precedent in holding GM bonds. The Donald's usurpation of "their" White House blew up that plan. Mayor Lightfoot is now setting the stage for another run at our wallets. Talk about desperate for impeachment...

RonJ
RonJ

"Who will be hurt most?"

The children.

"Who Will Pay?"

The people of Chicago voted for this. They have asked time and time again for their taxes to be raised.

RonJ
RonJ

"By 2023, Lightfoot must find an additional $989 million a year for pensions, according to the Tribune’s Hal Dardick and Juan Perez Jr. Thank you, former mayors and aldermen, for promising more pension benefits than Chicagoans could afford."

Lightfoot isn't a former mayor. Thank Chicagoans for voting for more of the same.

George Phillies
George Phillies

Also, Utah has a Free Range Children law.

ElPendejoGrande
ElPendejoGrande

At this point does it even matter what they do? They went beyond the point of no return years ago.

Blurtman
Blurtman

Taxpayer butcher of the world.

Jackula
Jackula

Let us not forget the continual lowering of interest rates so the massive debt berg doesn't have to be written off and to monetize government overspending has decimated the ability for pension funds to make any kind of return. This problem is by no means limited to Illinois, California is not far behind.

stillCJ
stillCJ

Editor

Chicago is a text book example of what happens when the people put in charge are only good at one thing: Politics. At everything else they seem even worse than incompetent.

CautiousObserver
CautiousObserver

It is legal thievery. Chicago and like jurisdictions make agreements and sets policies known to create future liabilities people cannot afford. When those liabilities come due, "precedent" has been set that the liabilities must be paid due to their having been on the books for a long period of time. At that point, the state financially rapes everyone subject to their jurisdiction with lawyers looking on in approval. There needs to be a word that describes government and state unions conspiring against citizens to steal from them in the future. If citizens conspire to overthrow government it is called "sedition" or "treason." When government conspires to steal from citizens it is called what? Justice? Legal Process? The best word I can come up with is "tyranny" and that does not fit well. Something is very wrong with this situation and it is happening in many places in the US.

Realist
Realist

It appears as though American society is all about the present generation living at the expense of future generations. While Chicago is a good example, the elephant in the room is your federal government. The current federal government is running a trillion dollar deficit after 10 years of economic growth (admittedly slow growth), with record low interest rates, while corporations are earning record profits, and the country creates record numbers of billionaires.

Meanwhile your government is promising Social Security, Medicare, Medicaid etc without properly funding them; leaving future generations to foot the bill.

This short term thinking is the reason the US (and many other countries) will experience slower and slower future growth.

Mish, moving from Illinois to Utah is simply changing your state room on the USS Titanic.

thimk
thimk

no worries the half billion dollar obama presidential library will save the city .

/s

leicestersq
leicestersq

Great article. I hope it shows clearly how people can be robbed by a rigged system.

When you run a public service, there has to be tax to pay for it. That is fair enough if the net benefit provided to taxpayers is greater than the tax. The problem comes when you raise tax for something where there is no benefit or even theft/legalised theft. It is difficult for ordinary people to keep track of all the schemes/scams that government bodies come up with, and as a result you get more and more scams where taxpayer money is diverted into private hands with little value being returned to taxpayers.

The other scam that is going on is the Ponzi pension scam made possible when you have pooled schemes. We all know that many of these pension schemes will fail. Sadly many of those in the pension schemes dont realise. Those paying into the schemes will find that there is nothing left one day soon. The first retirees have made off with the lot.

Expat
Expat

So much waste (trillions) in military spending, so much theft by the corrupt elite and so many hand-outs to corporations, but the ignorant (and apparently uneducated) right gangs up on teachers. Why? Because you don't think education is useful beyond reading the Bible.
Go ahead. Eliminate public schools and fire all the teachers. Fuck education. Who needs it, right? LOL

KidHorn
KidHorn

Education is a democratic run system. Not just in Chicago or in public schools. It's at the university level too, backed by Sallie Mae. Dems guarantee high paying jobs in exchange for votes and brainwashing students into becoming democrats.

It's the same thing with federal government jobs. The federal government hates Trump because he's a threat to their job security.

Hansa
Hansa

"Debts that cannot be paid will not be paid." Lightfoot is merely continuing the tradition the jerks preceding her set: leave the successor holding the bag. But when the bag is empty, what then? No number of strikes and lawsuits can make up for zero. There will be default. Pensions will go unpaid, and retired teachers on permanent vacation will have to learn how to actually retire: stay home, keep the lights and heat low, and get by on Social Security, since they blew their savings at the casino on the last 25 cruises. Social security will never go unpaid, because money can be printed to cover that. Pensions, though? Ehhh, no.

Illinois Refugee
Illinois Refugee

I became a statistic back in July. I am an official Illinois refugee. I should have left 4 years ago! It's the pits!

ottertail
ottertail

Chicago peaked with 3,621,000 people in the 1950 census. Since then it has been all downhill. In the last census (2010), population sat at 2,696,000. No American city has lost more people...not even Detroit. Chicago has been failing for 70 years. It's mindboggling that some folks are just now starting to figure it out.

dagnyg
dagnyg

Get out early and avoid the rush!

Bantha Cararanthime
Bantha Cararanthime

"You can kiss those positive and stable outlooks goodbye."

Whyfore aren't they already gone? Even the rating houses should be rating them as "Look Out Below!"

jivefive99
jivefive99

Like the sole-source journalists who cite only Shadow Stats cause SS's inflation number is lots bigger than everyone else and will get people all mad (a la Fox news strategy), journalists who only cite Wirepoints, Wirepoints, and only Wirepoints and no one else, would be equally wobbly in making their points ... sorry Mish. :)

El Capitano
El Capitano

"Michael" Obama complains that whites are leaving because blacks are moving in?? Either she's wrong and her implication to blacks is insulting because it implies they are some kind of economic plague that educated people will flee OR she's right and in that case who can blame people for getting to a better state? If blacks are the economic plague, should whites remain in order to take care of them?

Either way, Michael has egg on his face.

AndrewJackson77
AndrewJackson77

Mish, You are exactly right. And it’s not just Chicago, but any Democratic led city and state. Their only hope is declaring bankruptcy since they cannot pay off the debt. The last time the states went bankrupt was in the 1840s when nineteen of the twenty-six U.S. states were in default. See State bankruptcies in the 1840s, https://en.wikipedia.org/wiki/State_bankruptcies_in_the_1840s. Keep up the good work.