Chicago on the Fiscal Brink (perhaps BK soon)

[cyppok]

Chicago Next? Windy City Cash Balance Plummets To Only $33 Million As Debt Triples | Zero HedgeChicago Next? Windy City Cash Balance Plummets To Only $33 Million As Debt Triples | Zero Hedge

According to the Chicago Sun Times citing year-end audits, Obama's former right hand man, Rahm Emanuel, closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers. In addition to a liquidity problem, Chicago may also be quite insolvent as the city's total long-term debt soared to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338 per resident. Of course, in a world in which debt is "wealth", this is great news... at least until debt becomes "bankruptcy."

I am going to give you some perspective through numbers hopefully.

As of the 2010 United States Census, there were 2,695,598 people and 1,194,337 households residing within the city limits of Chicago.

Ergo lets say 1,250,000 households in Chicago.

median income for a household in the city was $38,625

(I took the numbers out of wiki but I am sure they are census driven)

so that $29 billion in debt is actually $23,200 debt per household.
Bare in mind that the debt number does not include 'pension promises' and 'healthcare promises' to past/future retirees. Notice the debt tripped in 10 years... so If you think its possible for it to tripple again to 90 bill I wish you luck, because that's where it has to go for those pensions, etc to remain stable/growing etc...

The city spends about 6.3 billion a year which it takes from residents.
Or $5040 in taxes per household.
Chicago budgets for a slow year in 2012 home sales
(link to budget is there that's where I got 6.3 billion and 2 billion from grants)

Lets play. If Grants are cut by half residents have to pay 15%+ more in taxes from 5k to 6k.
If income declines 10% for median household income taxes for the rest have to go up by, 11.1%.
If we combine median income declines, grant decreases, and increased payments for pension/health for retirees. You get a very bleak picture.
5000 in taxes which is spent and then more is borrowed upon it. (22% is what they pay out pensioners)
If interest rates for their debt go to 5% the carry for every household is $1160. (23% of the 5000 tax pie), its actually (24% in their 2012 budget page 17)
So you are essentially on approach for 50%+ pay outs or more for debt and past costs(pensions).

The reality is income declined, some residents moved because of tax jacking, some corporations moved as well for the same reason. Federal gov't can cut those grunts(pun intended) in the future or simply give lower amounts.

[Triple C]

Something about this doesn't sound quite right. Chicago's economy is twice the size of Detroit's.

Analysis: Why we

[Doktor]

So is the debt. 17 vs 33 bn.

[cyppok]

So is the debt. 17 vs 33 bn.

you also have to remember that they are selling actual assets left and right.
rights to collect revenues, tolls etc...


in 2008

Mayor Richard Daley recently completed a deal to lease all 36,000 of Chicago's parking meters for the one time lump sum of $1.2 billion. The deal will transfer the meters into private hands for the next 75 years.

in 2009
The great sell-off: Chicago auctions city assets - CSMonitor.com

Over the past five years, the Windy City under Mayor Richard M. Daley has sold or leased out public institutions such as the Chicago Skyway ($1.83 billion), underground garages beneath Grant and Millennium Parks ($563 million), and, more recently, city parking meters ($1.15 billion).

in 2011
http://www.huffingtonpost.com/2011/04/01/chicago-recycling-privatization_n_843582.html

yep I am sure if that happened those companies simply jack up the fees to pay for the 'privatization' cost

in 2012
Chicago mayor to privatize city assets | MuniLand
there was some talk they would sell Midway airport.

Its odd in a way with every shed of assets they earn less revenue and the pensioneers get one more year or payments, yet in all likelyhood will enjoy Scranton living when the city goes insolvent (ergo wages cut to what is in the coffers and pensions as well.)

Privatizing monopolies almost like in the days of Kings, with royal monopoly holders here and there leeching the public until it implodes. In the end there is ability to pay and once that wall is hit all else is irrelevant.

[Triple C]

According to rebuttal writer on Sun-Times, Chicago's GDP is estimated at around three times of Detroit's and the fundamentals are sound[er]. We'll find out soon enough.

[Minskaya]

Chicago's two biggest fiscal headaches seem to be city pensions/benefits and schools. They have closed dozens of old/under-performing schools and last month the school board (CPS) gave pink slips to 2000 teachers.

[cyppok]

According to rebuttal writer on Sun-Times, Chicago's GDP is estimated at around three times of Detroit's and the fundamentals are sound[er]. We'll find out soon enough.

its not how much you make its how much you spend.

[Triple C]

its not how much you make its how much you spend.

It's not how much you owe but whether you can pay it back. Debt levels alone offers very poor indicators of solvency or economic performance. Similarly, debt percentage to GDP is correlated to future growth but not deterministic.

[cyppok]

It's not how much you owe but whether you can pay it back. Debt levels alone offers very poor indicators of solvency or economic performance. Similarly, debt percentage to GDP is correlated to future growth but not deterministic.

If you need to sell assets and borrow money in order to have enough in the budget to pay (salaries and pensions) you are effectively broke. Its just a matter of time before you run out of stuff to sell or even if you do your revenue won't cover the deficiency.

Countries default even at lower (less than 100% debt to gdp) percentages of debt to GDP when cash flow becomes a problem or their purchasing power dynamics collapses relative to payability. Think Mexico, Argentina, Russia etc...

[astralis]

and the british empire had some of its highest levels of debt when it was a world-bestriding empire, and some of its lowest after it collapsed back to a collection of islands.

the US had some of its highest levels of debt when she effectively controlled 40-50% of the world economy in 1945.

nations are not people. they work on far longer timelines.

[cyppok]

and the british empire had some of its highest levels of debt when it was a world-bestriding empire, and some of its lowest after it collapsed back to a collection of islands.

the US had some of its highest levels of debt when she effectively controlled 40-50% of the world economy in 1945.

nations are not people. they work on far longer timelines.

we are talking about city debt ... cities are not countries my point was even countries default, cities have people that don't have to go far to leave just go beyond the limits and your taxes fall by a marginal factor say 3-4%.

[astralis]

cyppok,

cities have people that don't have to go far to leave just go beyond the limits and your taxes fall by a marginal factor say 3-4%.

yet for the most part they don't. that's why detroit is such big news; cities don't exactly go bankrupt everyday. there's a myriad of factors for why a city goes into decline-- poor education policies, horrible urban planning, inability to diversify the city economy, etc-- all issues which detroit could not overcome.

trying to pin it down to one factor, too much spending, is simplistic at best.

[gunnut]

Don't worry about it. What can possibly happen?

[DOR]

cyppok,

“If Grants are cut by half residents have to pay 15%+ more in taxes from 5k to 6k.”
When did a spending cut automatically become a tax increase?

“If income declines 10% for median household income taxes for the rest have to go up by, 11.1%.”
When did tax revenue become a zero-sum game?

“If interest rates for their debt go to 5%. . .”
So, this scenario is a for a robust national economy? That would imply robust tax revenues. And, lower spending on income support.

Assumption checking . . .

[Triple C]

we are talking about city debt ... cities are not countries my point was even countries default, cities have people that don't have to go far to leave just go beyond the limits and your taxes fall by a marginal factor say 3-4%.

Yes, but where to? Unlike Detroit, the best job opportunities in Chicago are concentrated in the city proper.

Don't worry about it. What can possibly happen?

Remember the Chicago teacher union strike? The police freak out when Rahm outmaneuvered the union rep by voiding the union contract on a technicality? The rationalization of city construction equipment and labor saving devices? Chicago has been fiscally conservative for quite some time.