Even Paying $500 Million Extra in Property Taxes Won't Save Chicago From Its Junk Credit Rating

Taxpayers were shocked last week when news leaked of Mayor Rahm Emanuel's plan to raise $500 million with the largest Chicago property tax increase in modern history.

But with $30 billion in unfunded pension liabilities and its municipal bonds rated as junk, a $500-million cash infusion is weak medicine for what ails Chicago, a panel of experts said at the City Club of Chicago panel discussion Tuesday.

"The half-billion dollar property tax increase... would be the largest in modern history for the city of Chicago but it's not the full answer. It's not going to be enough... because we've dug the hole so deeply," said Civic Federation President Laurence Msall. "And that's all of our responsibility, right? We can look to our City Council which did or did not act in a way to protect the city financially, we could look to the Legislature which created much of the pension statutes that allow for benefits greater than we can afford, that allow for statutory underfunding."

"But I think we have to look at ourselves as Chicagoans that let this condition get to such a horrible place. And now the answers are not politically attractive. They are not politically easy."

But Wall Street will look for more than just more tax money before it raises Chicago's credit rating, said Matt Fabian of Municipal Market Analytics.

"Part of what makes a good and strong financial profile is not just being resilient in your ability to sort of absorb shocks but it's also in being predictable. Investors are looking for this, it's not just financial but also political stability...," Fabian said. "The market doesn't want just higher taxes and lower spending. It wants a politically sustainable and stable government so that volatility in management doesn't just arise and volatility in policy doesn't arise."

Unfortunately for politicians and taxpayers alike, fostering a "stable and sustainable government" often means doing things that voters don't like -- like raising taxes or cutting services to make pension payments -- or not doing things that make good re-election campaign slogans but cost a lot. Neither of those options have been significant parts of Chicago city government's recent history.

The specter of unpaid bills is not just hanging over the city of Chicago. The state of Illinois has plenty of its own problems in that area too. Comptroller Leslie Munger warned the rest of the government that the state currently owes $6 billion and that without a budget agreement by the end of the year, the state will owe nearly $13 billion by New Year's. Read Mark Fitton's report of both calculations at Reboot Illinois.