After Chicago, The DelugeWendy McElroy It is the third largest city in the US with a population of 2,714,856 as of mid-2012. It is the economic engine of Illinois. If Chicago falls, especially into bankruptcy, then the entire state is likely to do so as well. Illinois wont declare bankruptcy because federal law prohibits the option. But insolvency would raise many of the same questions as bankruptcy. For example, who gets paid first, or at all? And how much on the dollar? If other cities stumble, as they would, then whether Illinois officially declares bankruptcy may be a matter of semantics. The fiscal land mine of Chicago In early March, Moodys Investors Service downgraded Chicagos credit rating from A3 to Baa1. The rating is just three rungs above junk-bond. With the exception of Detroit, Chicago now has the worst credit rating of any large US city. The reason cited by Moodys: unfunded pension liabilities for city employees. A March 7th Wall Street Journal article announced that Chicagos 2015 balloon payment on its $19.4 billion pension debt will be $1.07 billion. The payment is one-third of Chicagos entire operating budget. According to WSJ, The pension payment could cover salaries for 4,300 police officers or the resurfacing of 16,000 blocks of roads in the city Meantime, the required pension contribution for Chicago schools this year is tripling to $613 million Chicagos pension funds are only half as well-funded as even Detroits, if you can believe it, and could run dry by 2020. The pension shortfall amounts to $7,100 per Chicagoan. Cutting expenses means cutting jobs or reducing benefits, or both. The average city employee receives wages and benefits that the average private worker only dreams about. The watchdog Illinois Policy Institute reported that teachers who retired between July 1, 2011, and June 30, 2012, after 30 or more years on the job could expect starting average annual benefit payments of $72,693 After 10 years of cost-of-living adjustments, this pension is $97,693 annually. Raising revenues is what remains. On March 12th, Breitbart ran the headline, Mayor Rahm Emanuel Warns of Doubled Property Taxes to Fund Spiraling Pension Costs. Emanuel added, if something else isnt done. A variety of something else has already been tried; the situation gets worse. For example, in February, Chicagos city council approved a $500 million issuance of commercial paper and $900 million of general-obligation bonds. The WSJ article commented, Theres little to stop politicians from pouring the proceeds into pensionsor later reneging on this unsecured debt if it were to file for bankruptcy. There is precedent; Detroit intends to repay similar bonds at 20 cents on the dollar. As Chicago goes, so goes Illinois Chicago is only one of many cash-strapped cities in Illinois, which are choking on their pension liabilities. According to an Illinois Policy Institute report the capital city of Springfield now dedicates all property taxes to pay the pensions of police, teachers and other city workers; and that after slashing its police department by almost 15 percent. Other cities are raising taxes. Peoria, for example, added new water and utility taxes, and doubled its garbage fees. Quite apart from the cities of Illinois, there is the state as a whole. A February 8th, 2013 article in Business Insider explained, Illinoiss five state-level pensionsreport current accrued liabilities at $146 billion, but the state has set aside only $63 billion to cover future benefits [T]he $83 billion shortfall in unfunded liabilities leaves the states pensions only 43% funded, on average. Unfortunately, the real numbers are far worse. (Note: those official estimates are a year old and the situation worsens daily.) Illinois tops various other lists as the worst state in the Union, or close to it. Illinois dubious distinctions include: Illinois: Run Far, Run Fast According to Forbes (Feb. 8, 2013), Most of the top-10 states people are leaving are located in the Northeast and Great Lakes regions, including Illinois (60%), New York (58%), Michigan (58%), Maine (56%), Connecticut (56%) and Wisconsin (55%). Illinois is first in the raw numbers of people leaving and second to New Jersey in the ratio of those leaving to total population. This ranking occurred in 2012 as well. Southern and western states are the most popular destinations for a variety of reasons including greater economic opportunity and personal freedom, lower taxes and better climate. But those leaving should ask themselves: is anywhere in the US far enough away from Chicago if the city and then the state collapse financially? Taxpayers United President Jim Tobin predicts, Illinois will be the first state to go bankrupt, unless pension reforms are implemented. Only it cannot legally declare bankruptcy and escape its debts. Whatever will happen, Tobin believes will occur sometime about 2015. Whatever the timing, whichever patches are slapped on the system, Chicagos economic meltdown would affect not only Illinois but all of America. Chicago is also the economic engine of the MidWest. The federal government is unlikely to abandon an entire region, especially one dominated by Democrats. Obama is unlikely to abandon Chicago as long as Emanuel, his former White House Head of Staff and close friend, is mayor. What does unlikely to abandon mean in specific terms? Probably bailouts, in some form. The flood of money and legal privilege will be a further drag on those islands of opportunity to which economic refugees have fled. Other cities teetering on the same fiscal cliff will fall. It is an exaggeration, but not an outrageous one, to say: as Chicago goes, so goes America. In any case, if something else isnt done, Mayor Emanuel is warning that hell have to double property taxes to fund the payment. The municipal pension fund isnt the only pension in failure in Chicago. The citys teachers pensions are also widely understood to be one of the worst funded in the country. The teachers pension fund will require a tripling of its required contribution. Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, though, warns that just raising taxes and cutting services wont fix the problem. I dont think either one is even a possibility. Everybodys going to have to give something, Pagano said in December. Meanwhile, the State of Illinois already comes in at second place in the number of citizens moving out of state. Outward migration for The Land of Lincoln ranked second only to New Jersey in 2013. Wendy McElroy is a regular contributor to the Dollar Vigilante, and a renowned individualist anarchist and individualist feminist. She was a co-founder along with Carl Watner and George H. Smith of The Voluntaryist in 1982, and is the author/editor of twelve books, the latest of which is The Art of Being Free. Follow her work at www.wendymcelroy.com. 