26-May-16 – While it would seem that America’s large successful cities would have income to burn, the reality is that these metropolises struggle on a regular basis to stay solvent. It seems that the financial woes of one or more of America’s iconic cities is often featured in the media, and lately it is the Windy City’s turn.

Chicago’s money woes

Outwardly, Chicago looks to be in great shape. It has an enviable economy. Unlike other large older cities, it has a stable, healthy population, meaning a large tax base. But like many other big cities, it has a number of municipal employees, whose pensions the city must fund. As in many private businesses, these employees are now retiring, or are preparing to retire, in unprecedented numbers. While the city was warned more than two decades ago that it was entering a situation that would be hard to sustain without changes, these warnings were ignored. And now experts say that these pension demands on the city budget alone has been enough to place serious financial strains upon it.

Another great city budget drain has been its struggling public school system. Long plagued by violence, racism, and failing students, these schools have consumed huge amounts of funds in teachers’ pensions, and costly repairs to aging school buildings.

And on top of this, Chicago’s infamous police department has made national headlines with a couple of “wrongful death” civilian shootings, and lawsuits are looming.

Chicago’s “solutions”

After wrangling with city employee unions over reductions to pensions, Chicago turned its attentions to its beleaguered public school system, closing some buildings, and stripping millions of dollars from special school programs.

Ignoring suggestions to make modifications to its tax code, the city appealed to the Illinois legislature in 2015 for financial relief, which was declined. Chicago, the state’s governor explained, was going to have to come up with another plan.

Chicago’s “solutions” Part II

Chicago’s money woes didn’t just affect school and pension budgets. In spring 2016, Moody’s issued Chicago a negative credit rating, affecting the city’s ability to borrow money in the future. So on March 16, 2016, aldermen from the city’s Finance Committee approved an ordinance that required future city borrowings to follow “transparency and accountability” protocols.

Also approved at this meeting was a $600 million dollar borrowing plan, and the creation of a special “police misconduct” fund. The measures voted on would mean…

• Longer public hearings on use of public funds
• Closer scrutiny of use and borrowing methods of public funds
• Closer attention paid to mental health issues within Chicago Police Department

Under the terms of this new plan, all city financial transactions would have to be vetted thoroughly by multiple groups before being allowed to proceed. The practice would especially apply to risky or non-traditional approaches, such as variable rate or “interest swap” transactions like the ones the city has conducted with some recent real estate deals. While such increased scrutinizing will probably slow down private and public real estate transactions, it isn’t expected to affect title loans in Chicago.

The multi-million-dollar borrowing package will cover capital gains for the city through 2017, but experts warn that the city is delaying rather than dealing with its problems. In the meantime, Chicago has narrowly escaped being re-nicknamed “the New Detroit.“