Here’s how Chicago plans to fix its $28B pension deficit

Chicago's plan to fix its pension problem

FBN's Jeff Flock on Chicago's plan to tackle the city's mounting pension problem.

Chicago has a major pension deficit, and it’s considering a somewhat unusual tactic to fix it: Taking on an additional $10 billion in debt.

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Short $28 billion in the pension fund that goes toward the police, firefighters and other municipal employees, Chicago Mayor Rahm Emanuel is weighing a $10 billion taxable bond offering. That bond would then be invested and, ideally, earn returns that surpass the interest the city has to pay on the money.

The city’s chief financial officer plans to give Emanuel her recommendation by the end of the month, or by early September, according to The Chicago Tribune. If they move forward with the plan, it would be the biggest pension obligation bond ever issued by an American city.

The problem? If Chicago’s gamble doesn’t work out, the Windy City may end up with more debt than it could afford to pay off. Pension obligation bonds contributed to the bankruptcy of other cities, including Detroit, Stockton, California, and San Bernardino, California.

But because of rising interest rates, it’s possible that Chicago could lock in a bond at a lower rate and then, going forward, make some money off of it.

And in other parts of the country -- like Houston, which approved a $1 billion pension obligation bond in 2017 -- it produced mostly positive results, according to The Wall Street Journal.

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