Tipping Point: Is Chicago on the same financial path as Detroit? - DC News FOX 5 DC WTTG

Tipping Point: Is Chicago on the same financial path as Detroit?

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CHICAGO (FOX 32 News) -

One of the reasons why many people wonder if Chicago is going to be the next Detroit is both cities have massive unfunded government pensions, but unlike the Motor City, Chicago has many things working in its favor. First and foremost: it has a very diverse economy.

Detroit was once a city that prided itself as the "automotive capital of the world" where good union jobs provided tens of thousands of people, with relatively low skills, a solid middle-class life style. Not anymore.

Now with Detroit's economy in shambles, and the city in bankruptcy, many neighborhoods are in ruin.

Streets are littered with abandoned homes; burned out, boarded up and left to decay. Packs of dogs can be seen roaming the rubble in search of food and young mothers have to push their babies in strollers past homes that have become havens for crime.

Bettie Buss just retired from the Citizens Research Council of Michigan-- a non-partisan, public policy research organization. She marvels at how far Detroit has fallen in the last 50 years.

"Detroit used to be a place where people made things, Buss explains. "They made big things, they made furnaces and stoves and they made cars and during the war they made tanks and artillery shells."

The Detroit decline turned disastrous in the last decade according to experts, culminating with the auto industry crisis of 2008-to-2010 which resulted in massive layoffs.

Wayne State University Urban Studies Chairman Robin Boyle describes Detroit's economic situation this way: "Troubled, remains troubled and has been troubled for a long time. We actually talk about a ten year recession that never ended."

As more people found themselves out of work and upside down on their mortgages, homes were lost to foreclosure and people just moved out.

Detroit's population, which peaked at more than 1.8 million in 1950 now stands at just over 700,000. The declining tax base hurt city services, forcing politicians to raise taxes, which contributed to even more people leaving the city for the suburbs. That meant more abandoned houses.

Chicago has its own problem with abandoned homes. Estimates put the number here at 80,000, just like Detroit. But Chicago's population is four times larger, meaning our city would have to have 320,000 vacant homes to be in the same shape as Detroit. So while the bad is not nearly as bad here, the good is much better.

"Chicago has a very diversified economy," Brian Battle of Performance Trust explains. "Besides being bigger it's also very diversified, I think the mayor said the biggest sector of employment is about 17 percent."

Unlike Detroit, which was almost entirely dependent on the auto industry like General Motors, Ford and Chrysler, Chicago's biggest private sector employers cover the spectrum, including banking, telecommunications, insurance and healthcare, just to name a few. It's a balance that provides a crucial economic buffer.

"It immunizes us in case something happens in one of those industries it won't take the town down," says Battle.

"But another element that I think is very different is Chicago retained and does retain a very strong central city, a strong downtown," Boyle adds.

Boyle calls Detroit "job poor" in the central city, and job rich in the suburbs.

"We have hemorrhaged, and I mean that quite literally, a lot of these central city functions to the suburbs, we are very suburbanized region, in contrast to Chicago where you have that strong central city," she says.

Boyle also points out Chicago's strong downtown retail climate--something he says Detroit does not have, although business leaders there have been working to turn that around and bring jobs and a renewed vitality to the heart of the city. They recently took out full page ads in major national papers touting a $250 billion commitment to rebuilding Detroit.

"Over the last, really, ten years we've seen a huge transformation in this core downtown area," says Downtown Detroit Partnership's Senior Vice President Bob Gregory. "Now with Quicken Loans coming on board, Blue Cross added jobs, General Motors added jobs, all of that within a few blocks of again, were we're sitting, has started to transform the downtown of the city."

So while the two cities seem on different economic paths, they share a problem that could haunt them both down the road: massive looming pension obligations that will have to be met. This year alone, Chicago has to make $400 million in pension payments because for the last two decades those payments were, by statute, largely deferred.

"Our payments just about triple next year in the city of Chicago," says Battle. "So we have to do something, because what will happen is all this money will go to pension payments and it will crowd out services for police, fire, schools, all the other things the city supposed to do, all that money will be devoted to paying pensions."

So Chicago is at a crossroads, where the overall economy may be healthy, but without some changes regarding current and future pension obligations the outlook may not continue to be so positive.

Experts say a look at Detroit's state of bankruptcy should serve as a wake up call.

"That's one of the things that's, one of the lesson's that's coming out of what's happening here in Detroit: if you have bills, pay them. If you can't pay them, figure out a way in the future not to accumulate those bills," Buss tells FOX 32. "While Chicago may not be the next Detroit, experts say the key for the city is to deal with the massive pension problems now, and to keep attracting new business and with them jobs, to keep the economy moving."

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