Severe issues could wreck potential Chicago bankruptcy

By Jim Talamonti
The Center Square

Although a recent report on financial red flags said Chicago is on a path toward insolvency, Wirepoints founder Mark Glennon says Chapter Nine bankruptcy might not work for the Windy City like it previously did in Detroit.

Reason Foundation’s report on state and local government finances said Detroit’s financial condition at the end of fiscal year 2012 would trigger seven red flags, just like Chicago received in the organization’s report last month.

In July 2013, Detroit became the largest city in U.S. history to file for bankruptcy.

Glennon said Chicago, unlike Detroit, has sold most of its future sales tax revenue.

“This was a major mistake that the legislature in Springfield made about five years ago when they passed legislation authorizing this form of financing,” Glennon told The Center Square.

Glennon said Chicago’s pension funds have an unfunded liability of $36 billion.

“You can't cut your way out of that. You'd be throwing retirees on to the street if if you cut their pensions by 25%, by 75%, to solve it. There's going to have to be another source of money to fund those pensions.” Glennon said.

In July, Mayor Brandon Johnson’s budget office projected a $130 million budget gap for the current fiscal year, but Johnson said on August 25 the shortfall was $85.1 million.

The mayor’s office projected a deficit of $882.4 million for 2027.

It’s up to the Illinois legislature to authorize municipal bankruptcies.

Glennon said the General Assembly could also pass an emergency manager law.

“But the problem is that Springfield, of course, is aligned with the same politicians in Chicago and the same political interests that have gotten us into trouble. The wolf would be choosing the other wolf to watch over the henhouse,” Glennon said.

Glennon said the Michigan legislature appointed an exceptional emergency manager in Kevin Orr to lead Detroit out of bankruptcy.

Glennon suggested that a financial control panel could be appointed, as President Barack Obama did to oversee Puerto Rico’s bankruptcy in 2016.

The panel, however, would not be appointed by anyone in Washington.

“Even though it's a federal bankruptcy law, the federal government can't choose that emergency manager,” Glennon said.

In an article he wrote for Chicago Contrarian, Glennon said one potential bright spot in a Chicago bankruptcy would be that the cancellation of the city’s infamous parking meter deal could return hundreds of millions of dollars in revenue to the city.