Marathon Pundit: Will Big Labor turn Chicago into Detroit?

Friday, August 23, 2013

Will Big Labor turn Chicago into Detroit?

Writing for RealClearPolicy, Fred Wszolek of the Workforce Fairness Institute wonders if the Detroit disease will spread east.

In Detroit, for instance, unions fiercely tried to block every attempt at pension reform. The city's union bosses sought to amend Michigan's constitution to protect public-sector employees' right to collectively bargain with the politicians they had elected to office, and even tried to enshrine in Michigan's constitution language that would have blocked bills they opposed (such as right-to-work legislation) from being passed in the legislature. When these attempts failed, union-labor lawyers tried to thwart pension reform -- and even bankruptcy proceedings -- by citing a provision in Michigan's constitution holding that government-employee benefits are a "contractual obligation" that "shall not be diminished or impaired" by government action.

That brings us to Chicago, the third-largest American city and home to President Obama. Currently, the Windy City has unfunded pension debts totaling $19 billion, and its credit rating has been repeatedly downgraded. Just last month, Moody's downgraded Chicago's Aa3 rating, citing the city's "very large and growing" pension liability, which is expected to put a "tremendous strain" on its future budget.

Currently, out of the five largest American cities, Chicago has the lowest funding level for its looming pension obligations. To address the problem, the state of Illinois recently passed a law that requires the city to increase pension payments starting in 2015. The payments must rise from $479.5 million in 2014 to more than $1 billion the following year.

But Chicago's problems don't end there. For instance, the city's average annual cost per employee, which includes benefits, has increased from $58,299 to $95,406 since 2003. In addition, the pension fund for the city's teachers is already at risk of collapsing; it will require meaningful reform or significant tax increases. Chicago will face shortfalls that could lead the city down the same road that led to Detroit's bankruptcy.