Whether citing corruption, mismanagement, depopulation, the plight of the American auto industry, income inequality, or any of a host of other explanations, the bottom line for Detroit has been a financial catastrophe and inability to function that has resulted in the largest municipal Chapter 9 filing in America to date. Some experts and bankruptcy lawyers think that other cities could follow suit.
Bankruptcy Lawyer Says Chicago Could Be Next
A significant piece of Detroit’s Chapter 9 puzzle involves pension funds and benefits for retired city employees, estimated at anywhere from $600 million to $3.5 billion owed. The city had been self-reporting this debt, resulting in a much lower number, and bankruptcy lawyer Kevyn Orr, the city’s emergency manager, has since determined that the unfunded pension debt is much higher than thought.
Some experts believe the city of Chicago is hovering on the same brink of financial disaster. They cite the recent downgrading of the city’s Moody’s rating from A3 to Aa3. The investment rating downgrade reflects Chicago’s growing pension liabilities and increased budgetary pressures.
The city reports its unfunded liabilities at $27 million, but some think the number could in actuality be as high as a whopping $54 billion, over $20,000 for each resident of the city. If these numbers turn out to be correct, it could be a major factor pushing the city toward necessary structural reformatting, or even in the worst case scenario to a Chapter 9 filing like that of its neighbor in Michigan.
Major pension reform is a necessity in order to avoid tragic consequences in Chicago according to the experts – whether the needed change gets enacted remains to be seen.