Chicago might usefully adopt a policy born in Detroit. The Motor City has mainly led the country in such measures as population loss and vacant homes. And, on balance, the Windy City has thrived compared to its Great Lakes industrial brethren. But Detroit's 2013 municipal bankruptcy, as much as it stigmatized the city, also produced one of the country's most creative solutions to the problem with which Chicago is currently struggling: controlling public employee pension costs, which are diminishing the city's capacity to deliver vital services.
“Chicago's leading foundations have assets adequate to support a Detroit-style grand bargain... to reduce the city's pension debt, improve municipal services and spare the city further property tax increases.”
In Detroit, facing the same sort of labor-management issue paralyzing Chicago today, leadership on the pension problem emerged from an unexpected quarter: the city's philanthropic foundations. In a so-called “grand bargain,” some $360 million in contributions from leading foundations—including $125 million from the Ford Foundation alone—were matched by labor givebacks, including the forgoing of cost-of-living increases in pensions. As a result, the city of Detroit was able to gain a 10-year grace period from pension contributions, for which it had been on the hook for some $119 million a year—and climbing. In a city where more than 40 percent of the streetlights were literally out, the lights began to go back on.
Chicago foundations should pay attention.
In a new paper for the Manhattan Institute, “The Pension Grand Bargain: A New Reform Model for Cities,” I find that Chicago's leading foundations—as well as those in Cleveland, Buffalo, N.Y., and St. Louis—have assets adequate to support a Detroit-style grand bargain. This would also require contributions proportionally equivalent to those made by other Detroit interests (corporations, state government, and labor) to reduce the city's pension debt, improve municipal services and spare the city further property tax increases.
Doing so, in fact, would require less than 2 percent of the overall assets of the city's dozen leading foundations—many of which have long been committed to the sort of neighborhood economic revitalization that simply can't happen if city services continue to erode and property taxes continue to climb.
They also face a situation, as had been occurring in Detroit, in which appropriations for core city of Chicago services as a percentage of the annual budget have been roughly flat or declining.
To be sure, the Chicago and Illinois situation poses special hurdles for a “grand bargain.” Absent bankruptcy, the state constitution prohibits impairment of pensions. One can hope, however, that civic leadership on the part of famously farsighted foundations such as MacArthur and Pritzker might shift the political discussion in a constructive way. The effect could be dramatic, as modeled below, on the assumption that other cities would see contributions from various parties, including foundations, proportional to those seen in Detroit.
The effect is clear: Millions would become available for current city services, rather than being directed to pay for services previously delivered. In effect, it may offer Chicago a sort of “pre-bankruptcy” solution that would allow it to avoid the potentially more draconian effects of an actual bankruptcy. At a time when effective public services—such as policing—have never been more needed, a Detroit-style grand bargain, likely with local variations, may be just what Chicago needs.
This piece originally appeared at Crain's Chicago Business
This piece originally appeared in Crain's Chicago Business