The University of Illinois-Chicago Urban Forum covers how local and state tax dollars are managed and mismanaged

On September 13, students, professors, stakeholders, and an impressive and notably diverse array of panelists came together for the University of Illinois-Chicago annual Urban Forum. The topic for 2018 was “The People’s Money: Pensions, Debt and Government Services.”

The massive conference in the UIC student center was dimly lit, with the the light buzz of conversation and camera crews setting up in the back. Though the topics of the day’s three panels were hefty, the question on everyone’s mind was the Chicago Mayor’s race. The opening speaker for the conference was Toni Preckwinkle, longtime activist, Chicago politician, president of the Cook County Board, and University of Chicago grad. Rumors had been floating around that she was looking into a mayoral bid, and people were curious to see if she would drop any hints today.

After an introduction by the UIC Chancellor Michael D. Amiridis, Preckwinkle asked everyone in the audience to move forward to fill in the first few rows of seats. She then acknowledged the one elected official who had come to the event, a member of the Chicago City Council.

Preckwinkle proceed to point out that the most important issues for public officials to face are fiscal challenges, and their most important obligation is to craft and pass a budget. These comments seemed to be directed at the Illinois State Legislature, which in 2016 failed to do just that. She then delved into the measures that the Cook County Board—overseeing a population of 5.2 million, including the city of Chicago—has taken to become more fiscally responsible.

According to Preckwinkle, since 2010 Cook County has closed a $486 million budget gap, established a Bureau of Economic Development, audited all of its space (there was no list of all county buildings), reduced energy costs in county buildings, increased pension payments for county employees to meet the $6 billion dollar shortfall, implemented a 1 percent sales tax increase to make those pension payment increases, implemented a 2 percent cap on bond interest payments, and started collecting data on the programs instituted in departments so they could “set targets and achieve results.” Preckwinkle called these changes “structural fixes” to the fiscal functioning of local government.

Preckwinkle also discussed changes at the Cook County Jail. 90 percent of Cook county’s $5 billion dollar budget is allocated for health and safety. In 2011, stakeholders were gathered to see what reforms could be made regarding the massive number of people incarcerated, 93 percent of whom are pretrial detainees. The result of these meetings was the passage of bond reform, thereby reducing the number of detainees from ten thousand to six thousand by removing non-violent offenders who could not afford to pay bond. “Jails in this country are poor houses,” said Preckwinkle.

When an audience member asked if she would be running for mayor, the response was “nice try.” But Preckwinkle did say that the priorities for the next mayor of Chicago should be “public schools, economic development, police-community relations, and the fiscal issues underlying all of it.” She also made it clear that she thinks closing mental health clinics—which was done by the current mayoral administration—is not cost-saving, but cost-shifting, because many mental health patients end up either in jail or the emergency room once the clinics are closed.

After Preckwinkle's opening speech came the first panel of the conference, “Who gets What and Why? Cities and the People’s Money.” The panelists were Samantha Fields, Budget Director for the City of Chicago, and Melanie Hartzog, Director for the New York City Mayor’s Office of Management and Budget. These two women are in charge of creating the budgets for the third and first largest cities in the United States, respectively. They handled themselves with the great poise and professionalism that their jobs require and outlining the priorities and values of their cities through budgeting.

Moderated by The Washington Post writer Heather Gillers, Fields and Hartzog discussed commonalities in their processes, as well as differences between Chicago and New York in the cities’ budgets. Both must examine the levels of cash reserves of their respective city, as well as revenue and debt estimates. They both must answer to their city council members: Chicago has fifty; New York, fifty-one. Additionally, they must negotiate with organized labor—especially Chicago, since all of the city’s collective bargaining agreements expired in July of 2017.

Some notable differences between the two cities include the size of their budgets: New York has $89 billion for this fiscal year, while Chicago has $10 billion. Part of this discrepancy is because Chicago does not budget for its “sister agencies,” which are the Chicago Public School system, the Transit Authority, and the Police Department. These agencies have separate revenue streams and budgeting processes. In New York, only the Metropolitan Transit authority has an independent budget, with a $2 billion subsidy from the city budget.  

Another notable difference between New York and Chicago is how the state government and state funding impacts these two major cities. When Illinois failed to pass a budget in 2016, Chicago did not receive funding for many important infrastructure projects. Additionally, Chicago relies on a diverse revenue stream from taxes to pay its bills, while New York relies more on state and federal funding.

The second panel was “When Governments Go Broke: Lessons from Puerto Rico and Detroit,” featuring Ana J. Matosantos, member of the Puerto Rican Oversight and Financial Management Committee—who was also the director of California Department of Finance during the Schwarzenegger and Brown administrations-—and Boysie Jackson, Chief Procurement Officer for the City of Detroit.

Both Manosantos and Jackson emphasized that long term financial stability is brought about by having a full annual budget year to year. Jackson elaborated about how Detroit's credibility with its workers and suppliers was severely damaged when the city could not pay them, and a part of Detroit's comeback has been in part re-establishing that credibility and proving that the city is fiscally stable.

Manosantos was able to shed light on how Puerto Rico’s status as a territory impacts its people. For example, there is a 44 percent poverty rate. If Puerto Rico were a state, 83 percent of Medicaid would be covered by the Federal Government. However, only 20 percent of Medicaid funding is covered. Needless to say, people lack basic services and there is not much of a tax base. These problems have been grossly intensified by Hurricane Maria.

When moderator Richard Greene, an expert in state and local government, asked the panelists what political decisions led Puerto Rico and Detroit to such dire financial situations, an answer was that it was easier to take the path of least resistance and borrow money instead of creating a set of priorities.

The third panel, and the most ominous, was the pension panel. Featuring Chris Morrill, CEO Government Finance Officers Association, and Laurence Msall, President of the Civic Federation, the panel made apparent the underlying and ignored domination of the pension crisis.

Illinois and Chicago were the primary focus of this panel—Illinois has $137 billion in unfunded pension liability, and Chicago has approximately $28 billion. These entities have agreed to ensure retired public employees financial security. While this sounds great, policy makers have put no money aside to make these payments when they come due. This results in a scramble to make constitutionally mandated pension payments, therefore cutting into payments for other services, such as schools and infrastructure, and putting the burden on taxpayers.

Illinois has been shorting its pension fund for years. According to data from Center for State and Local Government, pensions were funded at 87 percent pre-recession nationally. Illinois, however, only made 33 percent of its pension payments during this time. When the recession hit in 2008, states and local governments across the country stopped making pension payments and focused on immediate expenses. Additionally, the equity market tanked, and the pension funds lost money. One can imagine where this left pension funds that were underfunded from the start.

One of Msall’s biggest qualms with the pension situation was that the state of Illinois fails to do an actuarial analysis on much of its legislation—actuarial analysis entails running a future cost projection of any proposed spending cut or increase. Currently, little to no predictions are made about how much policies will cost down the road. He emphasized evaluating concrete policy proposals instead of implementing “ideas.”

Both Msall and Morrill agreed that finding solutions to the pension crisis involves bringing stakeholders to the table and deciding where sacrifices would be made in order to make payments. There also needs to be a move to endorse best practices, and Morrill cited Toni Preckwinkle’s reforms on the Cook County Board as a step toward long term fiscal responsibility and stability. They also agreed that elected officials and the general public need to understand the issue and how it impacts them in order to propose long term solutions.

The closing speaker for the forum was Richard Ravich, former Lieutenant Governor of New York, whose extensive history of service includes being CEO and Chairman of the Metropolitan Transit Authority. He charmed the audience with his firsthand account of how New York City almost went bankrupt in the 1970’s because the city borrowed too much money. The city was saved by a federal bailout, and a federal bailout was only offered because the world financial markets would have been destabilized if New York City went bankrupt. The bailout was offered one hour before the city filed.

Throughout his years of working in state and local government, Ravich said he has seen too few politicians who are willing to take the politically suicidal steps to solve fiscal issues. They would much rather “kick the can down the road” and get away with it, because the public has little to no knowledge of how deep the issue of pensions and improper budgeting really runs. He, like Msall, advocated for governments to budget on an actuarial instead of a cash basis, so they would have to account for debt and pension payments.

The forum ended, and the audience wandered out into a glorious September afternoon, munching on the sandwiches provided and mulling over the implications of what they had just heard.

The white papers for this event are provided here. Photo is courtesy of the author.