Will Big Labor Turn Chicago Into Detroit?

Striking Chicago teachers in September of 2012. Photo: Brad Perkins/Flickr

 

With Detroit's bankruptcy, many are wondering how one of America's great cities could have fallen so far, so fast. The Motor City was once our nation's fourth-largest municipality, and it once had America's highest per capita income. But its population has declined over 60 percent since the 1950s and 25 percent in the last ten years alone, and today it has liabilities totaling well over $15 billion.

Americans are beginning to realize that other great municipalities are walking down the same path. Many of these governments have little to no hope of resolving their fiscal situations, due to unsustainable costs associated with union contracts and pension obligations. An outsider might think that, faced with the insolvency of their members' employers, labor organizations would be open to renegotiating contract terms. Unfortunately, just the opposite is true.

In Detroit, for instance, unions fiercely tried to block every attempt at pension reform. The city's union bosses sought to amend Michigan's constitution to protect public-sector employees' right to collectively bargain with the politicians they had elected to office, and even tried to enshrine in Michigan's constitution language that would have blocked bills they opposed (such as right-to-work legislation) from being passed in the legislature. When these attempts failed, union-labor lawyers tried to thwart pension reform -- and even bankruptcy proceedings -- by citing a provision in Michigan's constitution holding that government-employee benefits are a "contractual obligation" that "shall not be diminished or impaired" by government action.

That brings us to Chicago, the third-largest American city and home to President Obama. Currently, the Windy City has unfunded pension debts totaling $19 billion, and its credit rating has been repeatedly downgraded. Just last month, Moody's downgraded Chicago's Aa3 rating, citing the city's "very large and growing" pension liability, which is expected to put a "tremendous strain" on its future budget.

Currently, out of the five largest American cities, Chicago has the lowest funding level for its looming pension obligations. To address the problem, the state of Illinois recently passed a law that requires the city to increase pension payments starting in 2015. The payments must rise from $479.5 million in 2014 to more than $1 billion the following year. 

But Chicago's problems don't end there. For instance, the city's average annual cost per employee, which includes benefits, has increased from $58,299 to $95,406 since 2003. In addition, the pension fund for the city's teachers is already at risk of collapsing; it will require meaningful reform or significant tax increases. Chicago will face shortfalls that could lead the city down the same road that led to Detroit's bankruptcy.

At the turn of the last century, the labor objective was "a fair day's wage for a fair day's work," but that goal was gradually replaced by constant demands for more. Large manufacturers succumbed to these demands in order to prevent crippling strikes. States and municipalities, whose workforces had become increasingly unionized, followed suit -- not to maintain or improve production, but to keep the politicians the union bosses supported in elected office. 

But global competition and the realities of the marketplace have brought to an end the ability of employers to pay high wages and benefits simply because unions demand them. In the private sector, this has forced a significant decline in the unionization rate. But in the public sector, instead of realizing the new dynamics at play and adapting to the realities of a 21st-century economy, labor bosses have dug in to maintain their slice of a shrinking pie.

Chicago's teachers' unions struck at the commencement of the last school year to prevent any contract cuts, despite the Windy City's billion-dollar shortfall, a move that Mayor Rahm Emanuel said "endanger[ed] the health and safety of our children." Any big-city mayor in today's world must view the demands of union bosses as a threat to the continued economic viability of the municipality.

Detroit offers a real-life example of what can happen when the greater good is traded in for unreasonable payouts to a special interest, and Chicago appears to be following in Detroit's footsteps. Unless Chicago's leaders break the chains that bind them to Big Labor on their own, the city will be forced to declare bankruptcy to achieve that end. Only by scaling back the out-of-control obligations paid to the city's workforce can Chicago remain the great American city it is today.

Fred Wszolek is a spokesperson for the Workforce Fairness Institute.

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