Timely Article

Someone at Crain's is looking ahead:

• It won’t be news to readers that Chicago is struggling financially. Chicago is not yet on the brink of default, but the city has started accelerating down an increasingly slippery slope of financial undoing. The city’s general obligation bond rating was downgraded by S&P and Kroll last year, and just downgraded by both Fitch and Kroll this week. As a consequence, investors have started demanding higher returns for Chicago’s general obligation bonds and even some of its safest revenue bonds. Thanks to the property tax disbursement fiasco at Cook County, the city is now struggling with its cash flow. These are all bad signs. It’s still possible for the city to course-correct, but Chicago is nearing a financial point of no return. If we reach that point, leaders should look to Detroit’s bankruptcy experience as both an indication of things to come and a positive example of how bankruptcy can help an insolvent city move toward financial and political stability.

  Right now, Chicago spends about 40% of its operating budget on debt service and pension payments. That effectively means that only 60 cents out of every tax dollar goes towards providing services for current residents. As the city’s credit rating slips, borrowing costs will continue to climb, creating a vicious cycle that will end in service reduction, ballooning debt service payments or both. Before it filed for bankruptcy in 2013, Detroit faced an even more severe version of the same basic issue; the city spent 65% of its operating budget on legacy debt payments. Then the city filed for municipal bankruptcy.

Illinois currently doesn't allow for municipalities to file for Chapter 9, so the minute that a bill shows up in Springfield to allow it, you know that Chicago has one foot in the grave.

In the meantime, it's an interesting read with lessons learned from Detroit. Chicago is still quite a ways from insolvency, but it's definitely closer in the rear view mirror than in years past.