It's only a matter of time
First comes moral bankruptcy. Then comes fiscal bankruptcy. That’s the order of things, and if you’re looking for a real-time case study, look no further than the City of Chicago.
Chicago has been morally bankrupt at least since the advent of the Lightfoot administration, when ideology, incompetence, and cowardice collided to produce one of the most disastrous mayoralties in city history. But in fairness to Lori Lightfoot, she was just one link in a long chain of political cowardice. Her predecessors and their compliant City Councils laid the groundwork: authorizing pension holidays, underfunding obligations, kicking the can down the road, and pretending the math would never catch up to them.
It has. And the bottom of the cliff is now in sight.
The road to ruin was paved by public sector union politics
The seeds of Chicago’s fiscal collapse were planted decades ago with a deadly cocktail of irresponsible promises to public-sector unions — especially around pensions — made in exchange for political loyalty. The dirty secret nobody in City Hall wants to admit is this: The entire system is structurally rigged to fail.
Public sector unions should never have been legalized in the first place. When private-sector unions negotiate for better wages or benefits, they negotiate with profit-driven companies that ultimately have to remain competitive or go bankrupt. When public-sector unions negotiate, they’re bargaining with politicians who are spending other people’s money — taxpayer money — and who have every incentive to buy peace today at the expense of fiscal catastrophe tomorrow.
And nowhere is this problem more evident than in Chicago’s pension mess.
Most government employees don’t participate in Social Security. That might’ve made sense in 1935 when the New Deal created Social Security, and local governments were given the option to opt out. The idea was that they would manage their own pensions. But that was a bad deal then, and it’s a worse one now. The federal government can print money. Cities and states can’t. They rely on tax revenue, and in Chicago’s case, a shrinking tax base.
Compounding the problem is a mountain of chicanery: padded payrolls, early retirements, double-dipping retirees, and a benefits structure completely divorced from fiscal reality.
The numbers don’t lie — they scream
As of 2025, Chicago’s five major pension funds have a combined unfunded liability of over $35 billion. The fire and police pensions are funded at around 24–25 percent, while the municipal and laborers’ funds aren’t much better. These are among the worst-funded large public pension systems in the country — on par with Detroit before it went bankrupt.
According to the city’s own actuarial reports, without massive new infusions of cash or benefit cuts (which are legally blocked under the Illinois Constitution), the funds will become insolvent within the next seven to 12 years, depending on market performance and contribution levels. In plain English: the money will run out.
The city has already been borrowing money to make pension payments. That’s like taking out a payday loan to pay your mortgage. It’s not a solution. It’s a warning sign.
Bankruptcy isn’t legal — yet
Under federal law (Chapter 9 of the U.S. Bankruptcy Code), municipalities can declare bankruptcy and restructure their obligations—including pensions. But here’s the catch: they need state authorization to do it. And Illinois, in its infinite wisdom, does not allow Chicago — or any city besides the Illinois Power Agency — to file for Chapter 9.
So technically, Chicago cannot go bankrupt. Not until the Illinois General Assembly passes legislation authorizing it.
And why hasn’t that happened? Simple. Because allowing cities to declare bankruptcy would be an admission of failure — an acknowledgment that the house of cards is collapsing. It would also threaten the pensions of hundreds of thousands of politically powerful union members. And because this is Illinois, where political cowardice is practically a constitutional principle, it hasn’t happened yet.
But it might have to.
If and when Chicago runs out of cash to meet its pension obligations, and courts begin ordering the city to pay benefits it literally cannot afford, lawmakers will face a stark choice: rewrite the Illinois Constitution (a multi-year legal and political minefield), authorize bankruptcy (and face the wrath of public-sector unions), or beg the federal government for a bailout.
Don’t count on a federal bailout
For years, Chicago politicians have lived under the delusion that when the fiscal dam breaks, Washington will come to the rescue. But that’s looking more and more like a fantasy.
The Trump administration — like the Reagan administration before it — made clear that municipal bailouts are political non-starters. And it’s not just Trump. Over the past 25 years, Republicans have controlled either the White House or one chamber of Congress roughly half the time. Do you really think a future GOP-led Congress is going to vote to send federal money to rescue a corrupt, mismanaged Democratic stronghold like Chicago?
Even centrist Democrats are leery of setting that precedent. A federal bailout of Chicago would open the floodgates to New York, Philadelphia, Baltimore, and countless smaller cities. The political appetite just isn’t there.
So what happens?
If nothing changes, the endgame plays out in one of three ways:
- Massive service cuts and tax hikes:
The city could raise property taxes — again — and cut services to the bone to try to keep the pension funds afloat. But there’s a limit to how much blood you can squeeze from the turnip. The exodus of middle-class families and businesses from the city will only accelerate.
- Judicial crisis:
At some point, a judge may order Chicago to pay benefits it cannot afford. If the city simply doesn’t have the money, it could force a constitutional crisis—or a legal reinterpretation of Illinois’ pension protections under the supremacy of federal law.
- Bankruptcy enabled by state law:
The legislature could finally face reality and pass a bill allowing Chicago to file under Chapter 9. That would let a federal judge impose a restructuring plan, possibly cutting pension benefits, bondholder obligations, or union contracts. But that move will be fought tooth and nail by the political class that helped create the mess.
Hemingway had it right
As Ernest Hemingway famously said, bankruptcy happens two ways: “gradually, then suddenly.” Chicago is still in the gradual stage — but we are rapidly approaching the tipping point where “suddenly” begins.
How long can a city survive with pension funds that are only 25 percent funded? With $35 billion in debt that grows every year? With a shrinking tax base and no legal way to restructure its obligations?
The truth is, no one knows. But the day of reckoning is coming. And when it does, it won’t be an accident. It will be the inevitable consequence of decades of cowardice, corruption, and unsustainable promises made to win elections.
Chicago’s moral bankruptcy is already behind us. Its fiscal bankruptcy is right around the corner.
And unlike pension math, that’s not hard to calculate.
