Chicago’s pension funds hold 28 cents for every dollar they owe, the worst of any big American city

About fifty billion owed to retired cops, firefighters, laborers and clerks. About fourteen billion on hand.

Chicago · 12 September 2026

That is twenty-eight cents on the dollar. It is the worst number of its kind among big American cities, and it is the wall every other number in this column leans against.

Start with the headline, because the headline is going to get sold to you.

The friendly number

On September 3 the mayor’s office said the city faces an $882.4 million hole in the 2027 budget. That is $283.9 million better than the same forecast made a year earlier, and about $268 million better than the $1.15 billion gap the city faced going into 2026.

Good news, and it was delivered as good news.

Expenses are going up about 8 percent next year, more than $500 million. The single biggest new line is $401 million for police misconduct settlements. Bond payments are up. Cost-of-living adjustments are up. And the money the city sweeps out of its development districts, which it has come to rely on, is coming in lower.

So the gap shrank because revenue ran hot, not because the load got lighter. A lease-transaction tax came in about $41 million over plan. That is the kind of thing that happens in a good year and unhappens in a bad one.

For more than a decade, Chicago’s finances have tended to look better in the months right before the mayor and all fifty alderpeople go on the ballot. The election is in February. Read the calendar next to the forecast and decide for yourself how much of the improvement is arithmetic and how much is timing.

Fifty billion against fourteen

There are four city pension funds. Police, fire, municipal employees, and laborers. About 55,000 people are in them.

At the end of 2025 those four funds held $14.20 billion in assets against $50.63 billion in obligations. That is 28.1 percent funded, and a net shortfall of $36.43 billion. Police is at 25.5 percent. Fire is at 25.2 percent.

A pension fund is generally called healthy at 80 percent. Chicago’s four are the lowest-funded big-city plans in the country. Not among the lowest. The lowest.

And here is the part that should stop you. The last three years were good years. Investment returns averaged better than 11 percent. Three straight strong years moved the funded rate from about 22 percent to about 28 percent. That is what winning looks like. One ordinary bad market erases a chunk of it.

The four funds report what actuaries call normal cost, which is what the city would owe each year if there were no hole at all. It is about $438 million. Everything the city pays above that figure is not buying today’s police officer a pension. It is paying for pensions the city already promised and did not fund, going back decades.

Chicago booked the benefit when it was cheap and popular, skipped the payment, called the budget balanced, and handed the invoice to people who were not in the room. Mostly that happened under the Daleys. All of it is being paid now.

In 1901 a room bundled the steel mills and sold more paper than the mills were worth. A city government underfunding a pension is the same move with the signs reversed. Promise more than you fund. Book it as balanced. Let the gap show up on somebody else’s watch.

Nobody who made those calls is holding the bill.

The part nobody can vote away

People talk about pension reform in Chicago as if it is a policy choice somebody keeps refusing to make. It mostly is not.

In 2015 the Illinois Supreme Court threw out a state pension overhaul. Within weeks Moody’s cut Chicago to junk. The constitutional protection on earned public pensions in this state is about as solid as legal protections get. The city cannot vote its way out of the obligation. It can only pay it, stretch it, or fail.

It went the other direction last year. In August 2025 the governor signed a law aligning Chicago police and fire pensions with what first responders get in the rest of the state. The mayor objected. It passed anyway. It added $300.4 million to the city’s liability in one stroke, $157.9 million on the police side and $142.5 million on fire.

The city has been making extra payments. More than $1 billion in advance pension contributions since 2023, above what the statute requires. That is the single most responsible thing in this entire column.

The rating agencies called it credit positive and then warned that it may be crowding out everything else in the operating budget and draining what little cushion the city has. That is what it looks like when there is no good option left, only slower and faster versions of the same bill.

What the bond market says

Ratings are not a scolding. They are a price. A lower rating means every future dollar Chicago borrows costs more, and that surcharge comes out of the same budget as the potholes.

The run of the last two years. S&P cut Chicago from BBB+ to BBB in January 2025. Kroll cut it the same month. Fitch moved its outlook to negative in May. S&P moved its outlook to negative in November. Then on February 25 and 26, 2026, Fitch and Kroll both downgraded the city’s general obligation bonds from A-minus to BBB-plus, and both kept a negative outlook. The timing was not subtle. It landed right before the city went to market with about $502 million in new bonds.

Read what they actually wrote, because it is plainer than most city press releases. Kroll cited a deteriorating fund balance, narrowing liquidity, and an exceptionally high and rising fixed cost burden. Fitch cited operating deficits every year since 2023, continued dependence on non-structural fixes, persistent gaps in the out years, and the ongoing fight between the mayor and the Council.

Kroll also put a tripwire in writing. It said further downgrades could follow if the city reaches into the Skyway or parking meter reserves to plug a budget hole.

The last two mayors-worth of long-term asset deals are now being watched as a sign of distress rather than a source of cash. The seventy-five-year parking meter lease is still the most famous thing Chicago ever sold, and the agencies are treating whatever is left of it as a fire alarm.

Who gets paid first

This is the fitting most people never see, and it is the one that decides everything else.

Chicago has a thing called the Sales Tax Securitization Corporation. The city assigned its sales tax stream to a separate legal entity, which pays bondholders out of that stream before the money reaches the city’s operating budget. It was set up to get a better interest rate, and it worked. It also means that when you buy a coat on 63rd Street, the first claim on that tax is not the city. It is a bond payment.

So the line forms like this. Bondholders are first, by contract and by structure. Pensioners are second, by constitution, and they are owed money that is decades late. City workers and city services are third. And underneath all of it, paying for all of it, is whoever is standing at the register.

The flattest tax there is

On August 1, 2026, Chicago’s combined sales tax went from 10.25 percent to 10.5 percent. That is the highest of any major city in the United States.

The quarter-point came from the transit rescue the legislature passed and the governor signed in December 2025. The regional transit agencies were staring at a shortfall of about $230 million in 2026, growing to roughly $834 million in 2027 and $937 million in 2028 as the last federal pandemic money ran out. Without a fix they were talking about cutting up to 40 percent of service. The new law raised the regional sales tax, raised tolls by 45 cents, created a new authority to replace the RTA, and lowered the share of transit’s cost that riders themselves have to cover from 50 percent to 25 percent.

The quarter-point is expected to bring in about $200 million this year and about $553 million in 2027.

I am not going to pretend gutting the buses and trains would have been better. It would not have been. People get to work on those trains.

But say plainly what got picked. In the six-county region, the higher rate applies to groceries, to medicine, and to medical appliances. A sales tax does not ask what you earn. A person who spends every dollar they make pays the full rate on every dollar. A person who saves half their income pays it on half. That is the flattest, bluntest tax on the menu, and it is the one that got raised, in the same stretch of years that a corporate head tax was rejected twice and a real estate transfer tax on high-end property was voted down at referendum.

None of that is hidden. All of it is on the record. It just never gets printed in the same paragraph.

Nine months of speculative revenue

The 2026 budget is worth walking through because it shows what the room actually does when the wall gets close.

In December 2025, for the first time in the city’s history, the City Council wrote and passed a budget over the mayor’s objection. It came to $16.6 billion. It closed the $1.15 billion gap with about $535 million in tax increases, plus one-time money, borrowing, and assumed efficiencies. Out went the mayor’s head tax on large employers. In came a first-in-the-nation social media tax, a cloud computing increase, a liquor increase, a wider rideshare congestion charge, a bigger bag tax, video gambling terminals, and a record sweep of more than $1 billion out of the development districts. The mayor neither signed it nor vetoed it.

The city’s own budget director and chief financial officer said at the time that under conservative estimates the plan would still come up about $163 million short.

By August it had come up short. The remaining hole was $85.1 million. Among the revenue lines that had not produced. Selling $89.6 million of old city-owned debt to a private collector, selling advertising space on city bridges, and selling virtual advertising inside augmented reality games. On the debt sale, the administration said it approached more than twenty banks, got two responses, and watched a preliminary deal with Bank of America fall apart.

The fix announced on August 25 was to refinance up to $525 million in bonds for an estimated $65 to $71 million in savings this year, and to scrape the last $6 to $10 million of federal pandemic money out of the drawer.

The city is refinancing long-term debt to cover this year’s operating costs, and spending the last of the emergency money from a pandemic that ended years ago.

At least one independent analysis figures that after transaction costs the real upfront savings land closer to $15 to $30 million, well short of $85 million, and that closing the rest means extending maturities. Extending maturities is the thing City Hall used to call scoop and toss. You skip a principal payment by stretching the loan, which lowers this year’s bill and raises the total. Mayors have promised to end the practice, ended it, and come back to it. The city has $112 million in general obligation principal and $253 million in sales-tax-bond principal due on January 1, 2027.

The TIF circle

One more fitting, and it connects to the last column.

Tax increment financing takes a slice of future property tax growth in a designated district and locks it away for development instead of sending it to schools, parks and the city’s general operations. In August, UIC’s Great Cities Institute put the running total past $16 billion over roughly forty years.

Chicago now balances its budget by sweeping money back out of those districts. The 2026 budget swept more than a billion. The 2027 forecast assumes roughly $340 million declared surplus, with about $75 million returning to the city and about $181.5 million going to the schools.

Follow that in a circle. The city diverts property tax into development districts. Then it runs short. Then it sweeps the districts to fill the shortfall. Then it books the sweep as revenue, which means next year’s budget needs the sweep to happen again. And this year it is shrinking, which is one reason the 2027 gap exists at all.

A tool built to capture money from the general fund is now structural steel under the general fund.

What this is not

It is not the retirees’ fault. A police officer who worked thirty years and paid into that fund out of every check did their part. The city did not do its part. Blaming the person who is owed money for the size of the debt is a con, and it gets run in this town every budget season.

It is not one mayor’s fault. The hole predates Johnson by decades and it predates Lightfoot and Emanuel. What each administration owns is what it did once the hole was visible.

It is not one Council’s fault either, although a Council that passed a budget its own finance officials said was short by $163 million, on revenue that included ads inside video games, does not get to act surprised in August.

And it is not a reason to stop paying. The advance pension contributions are the right call, and they are the only line in this entire column that makes the hole smaller instead of later.

It is also not a story with a villain in a cape. It is a seating chart, same as 1913. Some people in those chairs get paid first because a contract says so. Some get paid because a constitution says so. Everybody else gets whatever is left, and pays for it at the register on the way home.

Where’s mine

Twenty-eight cents on the dollar. The worst of any big city in America. Three good market years to move it six points. A city that has to refinance to make it to December and spend the last of the COVID money to get there. Two downgrades in one week. A sales tax on groceries and medicine that is now the highest in the country. And a development tool the budget cannot balance without raiding.

That is the steel frame. Every argument in this city about schools, police, parks, garbage and street repair is really an argument about what is left after that frame takes its cut.

My people worked for a company that promised a pension and a paycheck and delivered on one of them longer than the other. So I do not enjoy writing this. But the deal is the deal, and the deal is written down, and it is going to be paid by somebody.

Ubi est mea. Where’s mine.

Ask it every October, when the budget comes out. Ask who is first in line and who is last. The answer has not changed in a hundred years, and it is not hidden. It is published.

Sources

The RulesThe RecordArchive