Opinion: Bankruptcy is the only way out

More than 600 local governments and municipal corporations have filed for protection from creditors under Chapter 9 of the U. S. Bankruptcy Code. Detroit is merely the biggest (so far). Why not Chicago, the Chicago Public Schools and other Illinois municipal units that have unconscionably overcommitted local taxpayers, in particular over-promising and shamefully underfunding their employees’ pensions?

The Sun-Times’ recent mention of the feared but often realistic word bankruptcy (Editorial, August 10) wasn’t inappropriate, it was courageous. Of course no civic leader wants to resort to bankruptcy, but it offers a legal, rational way to reduce debt to a manageable level and allow the city or town or special district to start over with a clean slate.

Is there any Chicago or Cook County taxpayer out there who truly believes we’re actually going to pay the city’s bonded indebtedness of $8 billion, the CPS debt of $6 billion, the Cook County debt of $7 billion, and so on? Their annual budgets are less than these obligations.

Not to mention the pension shortfalls. The city of Chicago, Chicago Public Schools, Cook County and seven other local public entities owed their employee pension funds a colossal $37 billion at the end of 2012, the latest total figures available, according to the respected Civic Federation. That amounts to a cool $19,000 for each resident of Chicago.

Which takes is to still another bit of important business left undone by the Illinois legislature: HB 0298. Now gathering dust in the House Rules Committee, this bill would allow the state’s local governments, including municipalities, school districts, etc., to file for protection under the federal Bankruptcy Code.

Not that all of the 7,000 local units in the state need or want to file bankruptcy. But most suburban and downstate municipal governments are also seriously delinquent in funding their police and fire pension plans, according to data in a recent report by the Illinois Commission on Government Forecasting and Accountability.

(Of course all this public debt is apart from the State of Illinois’s unpaid pension fund obligations exceeding $100 billion. A subject for another day.)

These staggering obligations dumped on the taxpayers by our legislators are growing each year as governments callously borrow, at high rates, to finance current operations, passing the overwhelming burdens on to our children and grandchildren. That’s what the politicians gleefully call “kicking the can down the road.” Irresponsible office-holders in paid positions, like our state legislators and county commissioners, still get their monthly checks, and smugly look forward to enjoying the ever-greater pension benefits that they’ve quietly voted themselves time after time.

So who would be hurt by a municipal bankruptcy that trims public debt? Investors in our municipal bonds have bought them knowing full well that the issuers, many if not all Illinois cities and towns and special districts, are shamelessly borrowing to pay current bills, and aren’t ponying up their required annual contributions to their employee pension funds. Issuers resorting to such irresponsible financing must offer investors high interest rates to compensate them for the risk of default.

Now the investors, be they high-income individuals who cherish tax-free income, or professionally-managed funds seeking above-average yields, must face the music.

Perhaps Rep. Barbara Flynn Currie, chair of the House Rules Committee, will explain why she’s sitting on HB 0298?

Joe Mathewson teaches journalism at Northwestern University and is the author of “The Supreme Court and the Press: The Indispensable Conflict.” He formerly practiced commercial law in Chicago and served a term on the Cook County Board of Commissioners in the 1980s.