By: David A. Smith
“— in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.”
Charles Dickens, A Tale of Two Cities
As we’ve seen so far, somewhere between 1945 and 1965, Chicago lost its value-proposition mojo:
Extracted just before
The expansion mojo vanished first in the city’s inability to make a case that outlying unincorporated areas should join into the expanding city, despite compelling geographic and infrastructure logic; second from its uber-urbanization, whereby the city’s growth are has compressed back to its original core, the Loop District around the Chicago River and Lake Michigan, where it is far more profitable to create white-collar job space in the sky than to pioneer blue-collar ground-level jobs in the periphery.
Sources referenced in this post
Reuters (February 27, 2015; gray-blue font)
National Journal (March 28, 2015; black font, main source)
Encyclopedia of Chicago’s History; Georgia sepia)
Previous AHI blog posts on related subjects
A century ago, Chicago’s growth (and its economic-development business case) derived from hard-asset infrastructure – roads, railways, and especially its water/ sewer systems. Today’s new Chicago economy doesn’t need that old infrastructure, and it doesn’t need (or want) the outer boroughs:
The city’s key industries, primarily centered in and around the Loop, are financial services, tourism, transportation, logistics, health care, and education.
With the decline of manufacturing, the outer boroughs, as one might dub the nineteenth-century annexations, no longer have a business model and no longer generate net profit for the infrastructure maintenance.
2005: The last remaining building in Robert Taylor Homes, Building 22
I suspect the business model for the outer boroughs was already failing even fifty years ago when Chicago built its enormous public housing estates – among them Robert Taylor Homes (with more than 4,000 apartments), Cabrini Green (3,607 apartments, demolished 2011), Henry Horner Homes (built 1957, demolished 2008), Harold Ickes Homes (demolished 2011)
Robert Taylor Homes fro0m the air, after several buildings had been demolished
Ironically, the decline of American northern urban manufacturing coincided with the Great Migration of blacks from the south to the north.
Northern, urban, and black: the Great Migration
However it happened, the jobs that today’s Chicagoans’ parents and grandparents immigrated to work no longer exist, though the mayor has taken actions to create jobs:
Emanuel has also made some effort to secure investments in the South and West Sides. He got Method, a company that makes cleaning products, to build a small factory on the far South Side that will create about 100 jobs.
The South Side Soapbox, expected to open in April, 2015
That’s important less for the jobs than for the demonstrated commitment to the South Side.
And with tax breaks, he induced upscale Whole Foods to put a store in Englewood, which, like many African-American neighborhoods, lacked grocery stores. Still, it’s unclear how much these small-scale investments, coupled with the city’s educational initiatives, can really do to ameliorate the gap between the South and West Sides and the rest of the city.
For the city as a whole, the goal should be jobs as a whole, and it will be easier to create them where they are already plentiful:
In March 2012, a report of the city’s main planning group warned that “the demand for low-skilled workers continues to decrease” and that “in the years ahead, the demand for high-skilled employees will increase twice as fast the demand for lower-skilled workers.” It also predicted growing demand for “jobs that require mid-skilled workers,” but these are generally workers who at least have associate degrees from community colleges. The upshot is that those without high school degrees, or with only high school degrees, will increasingly be unable to find jobs –
Hence the mayor’s emphasis on education, including free community colleges.
– and it will be very difficult to persuade businesses, almost all of which now require some familiarity with computer technology, to set up shop in Chicago’s poor neighborhoods.
Okay, but that’s worse than a scale problem, that’s a death sentence for some neighborhoods.
One of Garcia’s criticisms of Emanuel is that he has focused on economic development downtown, rather than in the poorer neighborhoods. Emanuel has responded by saying that it’s “a false choice to pit one part of the city against another. No great city does not have a thriving central city that supports jobs where all parts of the city go to.”
Mayor Emanuel is right: while some cities – Sao Paulo and Los Angeles come to mind – have multiple downtowns, every city must have at least one job-generating magnet neighborhood. Chicago’s job center, like that of New Orleans, has always been where the city was founded, where the land was best and the water most accessible. In Chicago, that means the Loop.
Remember, you can take the El between your home and the Loop
It’s also true that he has squandered tax breaks intended for blighted areas –
Squandered? Or used to lever private capital:
– on luxury hotels, high rises, and an arena for DePaul’s basketball team in the South and West Loop –
To keep major employers in the city, to attract new ones:
– all while luring Yelp and Motorola Mobility to downtown Chicago –
To increase tourism:
– and putting money into McCormick Place and Navy Pier, two key tourist destinations.
And maybe to keep richer boroughs happy to remain in Chicago?
Bingo; that’s politics 101
Meanwhile, despite the mayor’s efforts, Chicago kept spending as if revenues were plentiful, with the result that Chicago has been following Detroit’s downward slope, as I wrote two and a quarter years ago in A fool and his bond market (December 4, 2013; forest green font):
In Next up: Chicago, I spent three posts (Part 1, Part 2, and Part 3) documenting how the Windy City was following Detroit into certain municipal insolvency, and presented the prevaricating evasions offered by Chicago’s former chief auditor (now under indictment);
Last year, now-retiring City Comptroller Amer Ahmad argued that the city’s debt load was not “troubling” because, “We still have a very strong bond rating.”
Too bad for him, Mr. Ahmad (who since that quote was indicted for money laundering, conspiracy, wire fraud, and more) no longer has that explanation. As reported in Investors’ Business Daily (November 13, 2013), an unlikely guardian of integrity has emerged:
As Chicago’s public pension costs mount, the municipal bond market is starting to penalize the city for its inability to grapple with the problem.
Finally somebody is. And somebody has to, because the system of governance used in running large American cities is not up to the financial and economic business the cities run. Here are some tidbits:
The City of Chicago, with a population of 2,715,000, has an annual budget of $8.75 billion. It employs 47,000 people, 90% of whom are unionized and covered by collective bargaining agreements, and pays them $3.25 billion annually in wages and benefits (page 22), meaning they average $70,000 apiece in total compensation; and it has at least $18 billion in general obligation bonds. To put those numbers in context, Chicago:
1. Employs 1 out of 57 city residents. With a typical household being 2½ people, that means 1 employee for every 24 city households. That is a lot of employees.
When they’re working, that is
2. Spends roughly $3,225 per capita, equivalent to $8,000 per household. With the median sales price of a Chicago home at roughly $225,000, if the full revenue were provided by real estate taxes (it isn’t), that would be 3.75% of assessed value, a huge tax rate.
Faced with an under-performing private sector and an over-extended public sector, mayor Emanuel tackled the costs:
In April 2014, Emanuel finally put forth a comprehensive strategy for reducing the deficits on two of the city’s main pension plans. He sought to increase city workers’ contributions and reduce the benefits paid out to retirees, while increasing the taxpayer contribution by raising property taxes. Everyone had to make sacrifices, he argued.
By Illinois law, he had to seek approval from the state government for any modification of the benefit or contributor formulas. Then-Governor Pat Quinn, facing reelection, refused to approve a property-tax hike –
Why Governor Quinn vetoed a city’s property tax increase can be explained less by policy than by politics, especially, because if Chicago politics is rotten, Illinois politics is equally rotten. Mr. Quinn became governor on the impeachment (and eventual conviction on public corruption charges, for attempting to sell the about-to-be-vacated U S Senate seat held by Barack Obama when he was elected president) of his governor and former running mate, Rod Blagojevich.
You didn’t pay enough for me not to veto it
– and Emanuel had to compromise on a bill that kept the benefit cuts and increases in worker contributions but limited revenue increases to a telephone tax.
Through his actions, Mayor Emanuel has shown that he understands what is at stake in a way that I suspect few Chicagoans do. The cuts must be retained at any cost, and if that forces desperate taxes, so be it.
He supplemented this telephone tax with various fees and fines – including those from expanded use of red-light and speeding cameras – that have proved exceedingly unpopular.
If voter backlash forces the mayor to back off on these charges, then he can say, Where do you want me to get the savings from?
Complicating matters further, some unions, citing a state constitutional provision that prohibits benefit cuts without the beneficiaries’ approval, got the deal thrown out in a lower court. It is now being considered by the Illinois Supreme Court, and it is very possible that it will completely collapse.
While this post won’t be about the legal ramifications – I’m not qualified and speculation is moot, as the judges will decide one way or another soon enough – it’s worth sufficient exposition so that you understand it, because the issue is a critical and representative hinge for many cities in similar straits.
I no longer remember how to open the economy’s hinges
[Continued next week in Part 6.]