Chicago has not seen the population losses Detroit did and its business and commercial real estate markets remain healthy, but its current circumstances are more dire than any other major American city today, with aggregate debt of $21.4 billion, up 60 percent since 2004.
“The fact is there needs to be some day of reckoning in Chicago.” BANKRUPTCY SCENARIO Chicago’s dire circumstances have led to comparisons with Detroit, which filed for bankruptcy in 2013 after years of steep declines in population and economic activity. “On a scale of 1 to 10, it’s going to be an 11,” Brandt said. William Brandt, former chairman of the Illinois Finance Authority and head of the economic restructuring firm Development Associates, said Emanuel’s task will be remarkably complex, with little room for error. But Illinois Governor Bruce Rauner has vowed not to raise taxes without major government restructuring, and though a Chicago casino could crank out $140 million a year in revenues for the city, it would be years before it would open and reach that level. As alternatives, Emanuel has offered options including setting up a city-run casino and imposing a new tax on services performed by lawyers and other professionals, both of which would require state approval. Emanuel himself has said any tax increase would be a “last resort.” “The higher taxes are, the more people leave the state so there are less people to pay the taxes," said Ty Fahner, a former Illinois Attorney General and a partner at law firm Mayer Brown in Chicago in a recent interview. Emanuel’s most obvious immediate fix - raising property taxes - is a long-shot amid fears it could trigger a population exodus to lower-tax states. "From my perspective I'm hoping that once the election gets out of the way there might be more of an ability to push through some things that might be needed to get (changes) done," said Daniel Solender, municipal bond portfolio manager at fund management group Lord Abbett, which is underweight Chicago debt due to uncertainty over how the city will address its problems. One credit rating agency, Moody's, has Chicago's credit rating near junk status, and the city's yawning deficit is concerning investors who want evidence of reform. Next year, it faces a looming $550 million increase in its pension payment for firefighters and cops. According to the Civic Federation, an independent fiscal watchdog group, the unfunded pension liabilities for Chicago, its Board of Education and other local governments that draw taxes from Chicago total a stunning $35.05 billion. city's pension liabilities are its main problem.
"The day there's no more dollars in the kitty, the day that the city is not going to be able to pay the next set of payrolls, that's the day everyone will all of a sudden understand: ‘Wow, we really have to address this because there is no longer an option,’” said David Tawil, president of hedge fund Maglan Capital which invests in distressed situations but does not own Chicago debt. The failure over many years to address the hole the city has dug for itself will finally catch up with Chicago if radical action isn’t taken soon to resolve the budget and pension problems, warn bankers, investors and fiscal policy experts. While voters appear to have seen President Barack Obama's former chief of staff as more able than labor union-backed challenger Jesus “Chuy” Garcia to deal with Chicago’s massive public pension liabilities, neither candidate squarely addressed what could be a fiscal nightmare for the city. By Karen Pierog and Megan Davies CHICAGO/NEW YORK (Reuters) - Rahm Emanuel may have been elected to a second term as Chicago's mayor on Tuesday but now he faces a stark choice: inflict pain on the city's population in the form of unpopular measures such as higher taxes or kick its problems further down the road and risk a fiscal crisis that could even lead to bankruptcy later.
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