By Aaron M. Renn
Chicago’s leaders tout it as a global city.
In the 1990s, Chicago enthusiastically
joined the urban renaissance that swept through many of America’s major
cities. Emerging from the squalor and decay of the seventies and
eighties, Chicago grew for the first time since 1950—by more than
100,000 people over the decade. The unemployment rate in the nation’s
third-biggest city was lower than in its two larger rivals, and
per-capita income growth was higher. Chicago’s metropolitan area racked
up 560,000 new jobs, more than either New York’s or Los Angeles’s in raw
numbers and over twice as many on a percentage basis. A rising Chicago
spent lavishly to improve itself, investing in a new elevated line to
Midway Airport, a major street-beautification program, and new cultural
facilities costing hundreds of millions of dollars. The capstone was
Millennium Park, a $450 million showplace featuring work by such
celebrities as architect Frank Gehry and sculptor Anish Kapoor.
The idea was to portray Chicago as a “global city,” and it was
successful, to judge from the responses in the national media. As
Millennium Park opened (a few years late) in the mid-2000s,
The Economist
celebrated Chicago as “a city buzzing with life, humming with
prosperity, sparkling with new buildings, new sculptures, new parks, and
generally exuding vitality.” The
Washington Post dubbed Chicago “the Milan of the Midwest.”
Newsweek
added, “From a music scene powered by the underground footwork energy
of juke to adventurous three-star restaurants, high-stepping fashion,
and hot artists, Chicago is not only ‘the city that works,’ in Mayor
Daley’s slogan, but also an exciting, excited city in which all these
glittery worlds shine.”
But despite the chorus of praise, it’s becoming evident that the city
took a serious turn for the worse during the first decade of the new
century. The gleaming towers, swank restaurants, and smart shops remain,
but Chicago is experiencing a steep decline quite different from that
of many other large cities. It is a deeply troubled place, one
increasingly falling behind its large urban brethren and presenting a
host of challenges for new mayor Rahm Emanuel.
Begin with Chicago’s population decline
during the 2000s, an exodus of more than 200,000 people that wiped out
the previous decade’s gains. Of the 15 largest cities in the United
States in 2010, Chicago was the only one that lost population; indeed,
it suffered the second-highest total loss of
any city, sandwiched
between first-place Detroit and third-place, hurricane-wrecked New
Orleans. While New York’s and L.A.’s populations clocked in at record
highs in 2010, Chicago’s dropped to a level not seen since 1910. Chicago
is also being “Europeanized,” with poorer minorities leaving the center
of the city and forced to its inner suburbs: 175,000 of those 200,000
lost people were black.
The demographic disaster extends beyond city limits. Cook County as a
whole lost population during the 2000s; among America’s 15 largest
counties, the only other one to lose population was Detroit’s Wayne
County. The larger Chicago metropolitan area grew just 4 percent—less
than half the national average. What little growth Chicagoland had,
then, was concentrated in its exurban fringes, belying the popular
narrative of a return to the city. And even that meager growth resulted
almost entirely from new births and immigrants, rather than domestic
migration: over the decade, the Chicago metro area suffered a net loss
of more than 550,000 people to other parts of the country.
Chicago’s economy also performed poorly during the first decade of
the century. That was a tough decade all over the United States, of
course, but the Chicago region lost 7.1 percent of its jobs—the worst
performance of any of the country’s ten largest metro areas. Chicago’s
vaunted Loop, the second-largest central business district in the
nation, did even worse, losing 18.6 percent of its private-sector jobs,
according to the Chicago Loop Alliance. Per-capita GDP grew faster in
New York and L.A. than in Chicago; today, Chicago’s real per-capita GDP
ranks eighth out of the country’s ten largest metros.
Fiscal problems are commonplace these days among local governments,
but Chicago’s are particularly grim and far predate the Great Recession.
Cook County treasurer Maria Pappas estimates that within the city of
Chicago, there’s a stunning $63,525 in total local government
liabilities per household. Not all of this is city debt; the region’s
byzantine political structure includes many layers of government,
including hundreds of local taxing districts. But pensions for city
workers alone are $12 billion underfunded. If benefits aren’t reduced,
the city will have to increase its contributions to the pension fund by
$710 million a year for the next 50 years, according to the Civic
Federation. Chicago’s annual budget, too, has been structurally out of
balance, running an annual deficit of about $650 million in recent
years.
As dire as Chicago’s finances are, those of Illinois are in even
worse shape. The primary cause, once again, is pensions, which are
underfunded to the tune of $83 billion. Retirees’ future health care is
underfunded an additional $43 billion. There’s a lot of regular debt,
too—about $44 billion of it. And Illinois, like Chicago, has run large
deficits for some time. Despite raising the individual income tax 66
percent and the corporate tax 46 percent in 2011, the state is projected
to end the current fiscal year with an accumulated deficit of $5.2
billion. While California has made headlines by issuing IOUs to
companies to which it owes money, Illinois has taken an easier route: it
just stopped paying its bills, at one point last year racking up
208,000 of them, totaling $4.5 billion. Some businesses have gone unpaid
for nine months or even longer. Unsurprisingly, Illinois has the worst
credit rating of any state. Unable to pay its bills, it is de facto
bankrupt.
What accounts for Chicago’s miserable
performance in the 2000s? The fiscal mess is the easiest part to account
for: it is the result of poor leadership and powerful interest groups
that benefit from the status quo. Public-union clout is literally
written into the state constitution, which prohibits the diminution of
state employees’ retirement benefits. Tales of abuse abound, such as the
recent story of two lobbyists for a local teachers’ union who, though
they had never held government jobs, obtained full government pensions
by doing a single day of substitute teaching apiece.
If the state and city had honestly funded the obligations they were
taking on, their generosity to their workers would be less of a problem.
But they didn’t. As
City Journal senior editor Steven Malanga
has written for RealClearMarkets, Illinois “essentially wanted to be a
low-tax (or at least a moderate-tax) state with high services and rich
employee pensions.” That’s an obviously unsustainable policy formula.
The state has also employed a series of gimmicks to cover up persistent
deficits—for example, using borrowed money to shore up its pension
system and even to pay for current operations. At the city level, Mayor
Richard M. Daley papered over deficits with such tricks as a
now-infamous parking-meter lease. The city sold the right to parking
revenues for 75 years to get $1.1 billion up front. Just two years into
the deal, all but $180 million had been spent.
The debt and obligations begin to explain why jobs are leaving
Chicago. It isn’t a matter, as in many cities, of high taxes driving
away businesses and residents. Though Chicago has the nation’s highest
sales tax, Illinois isn’t a high-tax state; it scores 28th in the Tax
Foundation’s ranking of the best state tax climates. But the sheer scale
of the state’s debts means that last year’s income-tax hikes are
probably just a taste of what’s to come. (Cutting costs is another
option, but that may be tricky, since Illinois is surprisingly lean in
some areas already; it has the lowest number of state government
employees per capita of any state, for example.) The expectation of
higher future taxes has cast a cloud over the state’s business climate
and contributed to the bleak economic numbers.
But that isn’t the whole story. Many of
Chicago’s woes derive from the way it has thrown itself into being a
“global city” and the uncomfortable fact that its enthusiasm may be
delusional. Most true global cities are a dominant location of a major
industry: finance in New York, entertainment in Los Angeles, government
in Washington, and so on. That position lets them harvest outsize tax
revenues that can be fed back into sustaining the region. Thus New York
uses Wall Street money, perhaps to too great an extent, to pay its bills
(see “Wall Street Isn’t Enough,” page 12).
Chicago, however, isn’t the epicenter of any important
macro-industry, so it lacks this wealth-generation engine. It has some
specialties, such as financial derivatives and the design of supertall
skyscrapers, but they’re too small to drive the city. The lack of a
calling-card industry that can generate huge returns is perhaps one
reason Chicago’s per-capita GDP is so low. It also means that there
aren’t many people who
have to be in Chicago to do business.
Plenty of financiers have to settle in New York, lots of software
engineers must move to Silicon Valley, but few people will pay any price
or bear any burden for the privilege of doing business in Chicago.
Chicago’s history militates against its transforming itself into a
global city on the scale of New York, London, or Hong Kong. Yes, its
wealth was built by dominating America’s agro-industrial complex—leading
the way in such industries as railroads, meatpacking, lumber
processing, and grain processing—but that is long gone, and the high-end
services jobs that remain to support those sectors aren’t a
replacement. Chicago as a whole is less a global city than the
unofficial capital of the Midwest, and its economy may still be more
tied to that troubled region than it would like to admit. Like the
Midwest generally, parts of Chicago suffer from a legacy of
deindustrialization: blighted neighborhoods, few jobs, a lack of
investment, and persistent poverty. Chicago is also the “business
service center of the Midwest, serving regional markets and industries,”
Chicago Fed economist Bill Testa wrote in 2007; as a result, “Chicago
companies’ prospects for growth are somewhat limited.”
It’s easy to understand why being a global city is the focus of civic
leadership. Who wouldn’t want the cachet of being a “command node” of
the global economy, as urbanists put it? It’s difficult, too, to think
of a different template for Chicago to follow; its structural costs are
too high for it easily to emulate Texas cities and become a low-cost
location. But just because the challenge is stiff doesn’t mean that it
shouldn’t be tackled. Chicago isn’t even trying; rather, it’s doubling
down on the global-city square. Senator Mark Kirk wants to make O’Hare
the most “Asia-friendly” airport in America and lure flights to central
China, for example. A prominent civic leader suggests that the city
should avoid branding itself as part of the Midwest. One of Mayor
Emanuel’s signature moves to date has been luring the NATO summit to
Chicago.
Another reason for Chicago’s troubles is
that its business climate is terrible, especially for small firms. When
the state pushed through the recent tax increases, certain big
businesses had the clout to negotiate better deals for themselves. For
example, the financial exchanges threatened to leave town until the
state legislature gave them a special tax break, with an extension of a
tax break for Sears thrown in for good measure. And so the deck seems to
be stacked against the little guys, who get stuck with the bill while
the big boys are plied with favors and subsidies.
It also hurts small businesses that Chicago operates under a system
called “aldermanic privilege.” Matters handled administratively in many
cities require a special ordinance in Chicago, and ordinances affecting a
specific council district—called a “ward” in Chicago—can’t be passed
unless the city council member for that ward, its “alderman,” signs off.
One downside of the system is that, as the
Chicago Reader
reported, over 95 percent of city council legislation is consumed by
“ward housekeeping” tasks. More important is that it hands the 50
aldermen nearly dictatorial control over what happens in their wards,
from zoning changes to sidewalk café permits. This dumps political risk
onto the shoulders of every would-be entrepreneur, who knows that he
must stay on the alderman’s good side to be in business. It’s also a
recipe for sleaze: 31 aldermen have been convicted of corruption since
1970.
Red tape is another problem for small businesses. Outrages are
legion. Scooter’s Frozen Custard was cited by the city for illegally
providing outdoor chairs for customers—after being told by the local
alderman that it didn’t need a permit. Logan Square Kitchen, a licensed
and inspected shared-kitchen operation for upscale food entrepreneurs,
has had to clear numerous regulatory hurdles: each of the companies
using its kitchen space had to get and pay for a separate license and
reinspection, for example, and after the city retroactively classified
the kitchen as a banquet hall, its application for various other
licenses was rejected until it provided parking spaces. An entrepreneur
who wanted to open a children’s playroom to serve families visiting
Northwestern Memorial Hospital was told that he needed to get a Public
Place of Amusement license—which he couldn’t get, it turned out, because
the proposed playroom was too close to a hospital!
And these are exactly the kind of hip, high-end businesses that the
city claims to want. Who else stands a chance if even they get caught in
a regulatory quagmire? As Chicagoland Chamber of Commerce CEO Jerry
Roper has noted, “unnecessary and burdensome regulation” puts Chicago
“at a competitive disadvantage with other cities.” Companies also fear
Cook County’s litigation environment, which the U.S. Chamber of Commerce
has called the most unfair and unreasonable in the country. It’s not
hard to figure out why
Chief Executive ranked Illinois 48th on its list of best states in which to do business.
Chicago’s notorious corruption interferes
with attempts to fix things. Since 1970, 340 officials in Chicago and
Cook County have been convicted of corruption. So have three governors.
The corruption has been bipartisan: both Governor George Ryan, a
Republican, and Governor Rod Blagojevich, a Democrat, are currently in
federal prison. A recent study named Chicago the most corrupt city in
the United States.
But an even greater problem than outright corruption is Chicago’s
culture of clout, a system of personal loyalty and influence radiating
from city hall. Influencing the mayor, and influencing the influencers
on down the line, is how you get things done. There is only one power
structure in the city—including not just politicians but the business
and social elite and their hangers-on—and it brings to mind the court of
Louis XIV: when conflicts do arise, they are palace intrigues. One’s
standing is generally not, as in most cities, the result of having an
independent power base that others must respect; it is the result of
personal favor from on high. One drawback with this system is that it
practically demands what columnist Greg Hinz calls a “Big Daddy”–style
leader to sustain itself.
Another is that fear of being kicked out of the circle looms large in
the minds of important Chicagoans. Beginning in 2007, Mayor Daley
launched an ultimately unsuccessful bid for the 2016 Olympics. Later,
commentator Ramsin Canon observed that Daley “was able to get everybody
that mattered—everybody—on board behind the push. . . . Nobody, from the
largest, most conservative institutions to the most active progressive
advocacy group, was willing to step out against him.”
These organizations have good reason to fear reprisal for not toeing
the line. When Daley signed his disastrous parking-meter deal, an
advocacy group called the Active Transportation Alliance issued a
critical report. After a furious reaction by the Daley administration,
the organization issued a groveling retraction. “I would like to simply
state that we should not have published this report,” said executive
director Rob Sadowsky. “I am embarrassed that it not only contains
factual errors, but that it also paints an incorrect interpretation of
the lease’s overall goals.” Sadowsky is no longer in Chicago.
It’s easy to see how fiascoes like the parking-meter lease happen
where civic culture is rotten and new ideas can’t get a hearing.
Chicago’s location already isolates it somewhat from outside views.
Combine that with the culture of clout, and you get a city that’s too
often an echo chamber of boosterism lacking a candid assessment of the
challenges it faces.
Some of those challenges defy easy
solutions: no government can conjure up a calling-card industry, and it
isn’t obvious how Chicago could turn around the Midwest. Mayor Emanuel
is hobbled by some of the deals of the past—the parking-meter lease, for
example, and various union contracts that don’t expire until 2017 and
that Daley signed to guarantee labor peace during the city’s failed
Olympic bid.
But there’s a lot that Emanuel and Chicago
can do, starting
with facing the fiscal mess head-on. Emanuel has vowed to balance the
budget without gimmicks. He cut spending in his 2012 budget by 5.4
percent. He wants to save money by letting private companies bid to
provide city services. He’s found some small savings by better
coordination with Cook County. Major surgery remains to be done,
however, including a tough renegotiation of union contracts, merging
some functions with county government, and some significant
restructuring of certain agencies, such as the fire department. By far
the most important item for both the city and state is pension reform
for existing workers—a politically and legally challenging project, to
say the least. To date, only limited reforms have passed: the state
changed its retirement age, but only for new hires.
Next is to improve the business climate by reforming governance and
rules. This includes curtailing aldermanic privilege, shrinking the
overly large city council, and radically pruning regulations. Emanuel
has already gotten some votes of confidence from the city’s business
community, recently announcing business expansions with more than 8,000
jobs, though they’re mostly from big corporate players.
Chicago also needs something even harder to achieve: wholesale
cultural change. It needs to end its obsession with being solely a
global city, look for ways to reinvigorate its role as capital of the
Midwest, and provide opportunities for its neglected middle and working
classes, not just the elites. This means more focus on the basics of
good governance and less focus on glamour. Chicago must also forge a
culture of greater civic participation and debate.
You can’t address
your problems if everyone is terrified of stepping out of line and
admitting that they exist. Here, at least, Emanuel can set the tone. In
March, he publicly admitted that Chicago had suffered a “lost decade,” a
promisingly candid assessment, and he has tapped former D.C.
transportation chief Gabe Klein to run Chicago’s transportation
department, rather than picking a Chicago insider. Continuing to welcome
outsiders and dissident voices will help dilute the culture of clout.
Fixing Chicago will be a big, difficult project, but it’s necessary.
The city’s sparkling core may continue to shine, and magazines may
continue to applaud the global city on Lake Michigan—but without a major
change in direction, Chicago can expect to see still more people and
jobs fleeing for more hospitable locales.
Aaron M. Renn is an urban analyst, consultant, and publisher of the urban policy website The Urbanophile.
In The Ghetto - Elvis Presley
As the snow flies
On a cold and gray Chicago mornin'
A poor little baby child is born
In the ghetto
And his mama cries
'cause if there's one thing that she don't need
it's another little hungry mouth to feed
In the ghetto
in the ghetto
People, don't you understand
the child needs a helping hand
or he'll grow to be an angry young man some day
Take a look at you and me,
are we too blind to see,
do we simply turn our heads
and look the other way
Well the world turns
and a hungry little boy with a runny nose
plays in the street as the cold wind blows
In the ghetto
in the ghetto
And his hunger burns
so he starts to roam the streets at night
and he learns how to steal
and he learns how to fight
In the ghetto
in the ghetto
Then one night in desperation
the young man breaks away
He buys a gun, steals a car,
tries to run, but he don't get far
And his mama cries
As a crowd gathers 'round an angry young man
face down on the street with a gun in his hand
In the ghetto
As her young man dies,
on a cold and gray Chicago mornin',
another little baby child is born
In the ghetto
And his mama cries
