Who Will Bailout Chicago?

New York City and Los Angeles seem to get an outsized amount of attention when it comes to their fiscal challenges.

New York City is in the news right now as Mayor Mamdani implements a new "pied-a-terre" tax on expensive homes, condos and co-ops used as second homes in the city.

Source: https://abc7ny.com/post/nyc-property-owners-express-anger-confusion-rollout-mamdanis-pied-terre-tax/19603490/

In June, Los Angeles County voters approved a tax increase effective October 1 that will raise the local sales tax to 10.25%. 

Source: https://www.nbclosangeles.com/news/local/la-county-measure-er-pass-sales-tax/3902591/

No matter how much tax revenue these cities take in it is never enough.

Chicago seems to dominate the headlines more with its crime statistics but the Windy City is undoubtedly in far worse financial shape than New York City or Los Angeles.

It is difficult for me to see how Chicago will not have to file for bankruptcy in the next few years.

Someone is going to need to bail the city out of its fiscal mess.

The City of Chicago just finished the first half of the year with a $130 million shortfall after several revenue plans failed to produce the projected money for the city.

Source: https://news.wttw.com/2026/07/07/chicago-130m-short-after-revenue-backed-city-council-fails-materialize-johnson-says

The city's most recent budget forecast for 2027 projects a likely deficit of $1.16 billion!

Underlying Chicago's fiscal problems are massive underfunded pension plans for city employees.

The combined funding ratio for the pension plans for city employees is 28.1%.

By comparison, the national average for large city pension plans is a funded ratio is 82.5%.

Chicago only has $14 billion in pension assets compared to $51 billion in liabilities.

For context, when Detroit filed for bankruptcy in 2013 its various city pension funds were 60% to 80% funded.

This graphic illustrates just how bad Chicago's fiscal situation is with the level of pension liability underfunding it has compared to the city's total operating budget.

Credit: https://x.com/StuLoren/status/2080492418579718589

Chicago has been kicking the can down the road for so many years that they have almost destroyed the can in the process.

To make matters worse, the property tax base in the city appears to be disintegrating.

Take a look at the recent sales of commercial sales in Chicago compared to their previous sales price.

Many sale prices are down 60%, 70%, 80% or even 90% from where they were before.

Lower real estate prices mean lower real estate tax valuations which will ultimately lead to reduced property tax collections.

This will mean less revenue for city operations as well as less money for the Chicago Public Schools (CPS).

The CPS has their own fiscal problems.

In a split vote, CPS school board recently approved a $10 billion budget for the 2026/27 school year that includes $150 million of state funding that has not been approved.

By including the phantom revenue the school board averted the necessity of laying off 760 teachers, 800 or so support staff and 41 assistant principals.

All of the elected school board members voted against the budget because it included the phantom state money and avoided the difficult issue of staff layoffs.

However, those school board members appointed by Mayor Brandon Johnson (the former President of the teacher's union) all voted in favor of the budget.

You have to ask whether the CPS school board is there to just represent the teachers and staff rather than the taxpayers and students?

Since 2019, while student enrollment has decreased by 12.5%, school staff has increased by 26.4% and spending in the budget is up 71.4%.

There are dozens of school buildings in Chicago that are underutilized and overstaffed.

For example, Douglass High School has 28 students, 27 staff positions and 97% of the school facility is unutilized.

In addition, 0% of the students were proficient in reading in 2024 despite the 1:1 ratio of students to staff.

Credit: https://x.com/DeAngelisCorey/status/2028272384470392978

The 2026/27 CPS budget works out to over $32,000 in spending per student.

To put that in context, an in-state liberal arts undergraduate student at the University of Illinois-Chicago entering this Fall will pay less than half of that cost in tuition and fees for the academic year.

Tuition per semester is $5,826 x 2= 11,652 

Fees of about $2,000 per semester would increase the total cost to $15,652 for the year---less than half of what CPS is spending to educate students in Chicago's government schools.

Source: https://uofi.app.box.com/s/3ub3lw8qeda73k7u9bl2927o66vhyvzq

Everybody complains about the high cost of college today.

However, who is pointing out that in Chicago and elsewhere there are public school systems with higher costs than public universities in the same area?

Some say that Mayor Johnson in Chicago and the CPS school board are purposely making the fiscal problems worse to hopefully facilitate a bailout from the state or the federal government at some point.

They are not interested in making the tough decisions today that are necessary to fix the fiscal problems.

Considering the increases in political spending by the Chicago Teachers Union it is not hard to believe that.

When it comes to fiscal issues as I have outlined above, you can run but you cannot hide.

Math alway wins.

A day of reckoning awaits the city of Chicago and its public school system.

They have both spent and made pension promises well beyond their abilities to pay.

The only question is who is going to end up paying the bill in the end?

Chicago taxpayers?

The sales tax in Chicago is already 10.25%.

Property taxes on residential property as a % of value are higher than in New York City, LA and Philadelphia.  The tax on commercial property is one of the highest rates in the country.

State law prohibits the adoption of a city income tax but that could be in Chicago's future if the Illinois state legislature passed a law to allow it.

If Chicago taxpayers don't pay their own bills, who will?

Illinois taxpayers?

Bond holders?

United States taxpayers?

Pensioners?

Someone always pays and somehow it is never the politicians who created the mess.