Chicago recently experienced a huge reality check. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings — the three major credit rating firms — downgraded some of the city’s debt to “junk” status. This means that the cost of borrowing is going to rise for the city, which will result in an unpopular diversion of scarce tax dollars.
What led to this disastrous debt? Austin Berg of the Illinois Policy Institute, an Atlas Network partner and 2014 Templeton Freedom Award finalist, provides “5 things you need to know about Chicago’s credit downgrades.” Is Chicago the new Detroit? Not quite, Berg says, but points out that they share similarities. Like many major municipalities across the nation, politically controlled pension systems are runaway trains that threaten to destroy budgets if drastic reforms are not enacted.
“To go bankrupt, a city doesn’t need to look and feel like Detroit,” said Ted Dabrowski, vice president of Policy at Illinois Policy Institute, in a Huffington Post column. “It just needs the lethal combination of too much debt and a dysfunctional government.”
There is no easy way to resolve this conundrum. Both tax increases and pension cuts are unpopular and politically unfeasible. Real change will only come if and when state lawmakers allow Chicago to face reality and enter bankruptcy proceedings. “Only then, perhaps, will politicians and government-union bosses be forced to negotiate a realistic cure for their self-inflicted wounds,” Berg concludes.