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Honey, I Shrunk Chicago

eye on the news

Honey, I Shrunk Chicago

The Illinois Supreme Court refuses to let anyone fix the pension crisis, and people are leaving. March 24, 2016
Economy, finance, and budgets

Already reeling from a mountain of financial woe, Chicago just got hit again—twice. New Census estimates show that the region’s population is actually shrinking, and yet another pension reform deal has been overturned by the Illinois Supreme Court.

Chicagoland’s population growth has been slow in recent years, but according to the Census, the Chicago metro area actually lost 6,300 people in 2015. The loss was driven by domestic outmigration—more people leaving than coming in—that exceeded both international immigration into the area and natural increase (births minus deaths). It’s one of the worst performances of any major urban region in the nation. Even struggling Detroit gained a tiny amount of population last year. The losses in Chicagoland, which geographically includes part of Northwest Indiana and Southeast Wisconsin, mirror statewide losses reported earlier this year. Estimates for the city of Chicago proper won’t be released until May.

The Illinois Supreme Court declared unconstitutional a law pushed by Mayor Rahm Emanuel to increase city workers’ retirement contributions and lower the cost-of-living increases that retired workers get. The ruling provides part of an explanation for why people are fleeing Chicago and Illinois. Apart from a booming high-end sector concentrated in the Chicago Loop and select suburban locales, Illinois is much like the other Rust Belt states—they aren’t performing well demographically either, so it’s no surprise that Illinois is struggling. But Illinois and Chicago bear a bigger burden than their neighbors in the form of a long history of poor governance and mismanaged finances. Now, the Illinois Supreme Court has made fixing the pension problem—one of the affected funds will run out of money within ten to 15 years—nearly impossible without dramatically higher taxes. A city worker who shows up for just one day of work is entitled permanently to receive the benefits of the current regime, including future compounded increases.

Emanuel could have more forcefully addressed Chicago’s financial woes at the beginning of his first term. He decided instead to engage in years of negotiations with the city’s unions to reach a deal that everyone could live with. It’s hard to fault him for that, considering that he actually did reach agreements with 28 of 31 affected unions to raise both worker contributions and new city taxes. What he didn’t know at the time was that the Illinois Supremes would prove so hostile to reform. “As we have explained, under the clause, a public employee’s membership in a pension system is an enforceable contractual relationship, and the employee has a constitutionally protected right to the benefits of that contractual relationship,” the justices wrote. “Those constitutional protections attach at the time an individual begins employment and becomes a member of the public pension system.”

So long as reformers are constitutionally prevented from curtailing union power in Illinois and Chicago, the pension crisis will continue to worsen. And, so long as it does, the financial environment in Chicagoland will deteriorate and people will keep leaving. Because the current Illinois constitution acts as a one-way ratchet on retirement benefits, it’s hard to see a way out of this catastrophic situation.

Photo by Scott Olson/Getty Images

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