Wednesday, June 26, 2024

Chicago's dire warning for Houston

Judge Glock has a very sobering piece in the City Journal on "How Debt Ate Chicago - Mounting liabilities are the greatest threat to the city’s survival."  Chicago is a few decades ahead of Houston on the urban maturity curve, but it's critical that Houston act now to make sure we don't end up on the same path to stagnation (which is almost impossible to stop once momentum builds). Some key points to indicate just how screwed they are, some of which I think you'll recognize as starting to happen in Houston as well:

  • Chicago faces a severe police shortage, with over half of high-priority 911 calls going unanswered due to a lack of available officers.
  • The city's financial woes stem from a massive debt burden, reaching $43,000 per taxpayer, the second-worst in the nation, further compounded by Illinois's own high debt load.
  • Chicago's tax burden is among the highest in the nation, with combined city and state taxes exceeding 12% of a median family income, placing a heavy strain on both residents and businesses.
  • Chicago's economic fundamentals are weakening, with downtown office vacancies reaching record highs and companies relocating due to high taxes, leading to a shrinking population and a decline in median household income.
  • Newly elected Mayor Brandon Johnson, a former Chicago Teachers Union member, has pledged to increase spending on progressive initiatives, including a "Green New Deal" and expanded social programs, despite the city's dire financial situation.
  • Johnson's plan to raise revenue through taxes on the "ultra-rich" and a "mansion tax" has faced resistance and has been deemed impractical or politically unfeasible.
  • Chicago's financial woes are exacerbated by a high percentage of its budget being dedicated to fixed costs like pensions and bond interest, leaving little room for flexibility.
  • Chicago's pension debt is particularly concerning, reaching $34 billion, with assets covering only 25% of obligations, placing a significant burden on the city's finances.
  • The city's complex governance structure, with overlapping agencies and bodies like the school district, park district, and county, further complicates the debt situation and adds to the financial burden on taxpayers.
  • Chicago has a history of using debt to finance political projects and social causes, leveraging its financial distress to push for progressive agendas, leading to concerns about the long-term sustainability of its financial strategy.
"Chicago has been bailed out by miracles before, but its current problems are structural and seem to have no clear solution. That doesn’t mean that the city will necessarily suffer Detroit’s fate and find itself in bankruptcy. The dangers of insolvency are real, but, just as with the exploding federal debt, too much focus has been put on the possibility of a single disaster and too little on the more obvious cost: deepening decline. Chicago could keep paying off its bondholders and retirees by bleeding public services, hiking taxes, and driving out still more residents, but it would become a shell of its former self. A debt-ridden Chicago wouldn’t be the first, or last, great American city to become a byword for lost possibilities."

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