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Hurray, Chicago is saved!

The city of Chicago has a $36 billion shortfall for their city employee pensions. Basically, Chicago’s 4 pensions are in a death spiral to insolvency. But not to worry, Mayor Rahm Emanuel and his crack team are on the case. His latest solution is: a city-owned gambling casino and legalizing recreational marijuana. This is even sillier that his prior pension solution ideas. So instead of dealing with financial reality in city budgeting, he wants to roll the dice on two tactics that won’t add up to anything of note.

1. Let’s see… a city that has never been able to manage its own budget is going to successfully manage a casino without breaking its budget as well? Chicago is one of the epicenters of government corruption, and he wants to introduce additional trough of casino cash under the control of politicians? First consider that no city owns and runs businesses. Aside from legal reasons; they are not qualified or capable of neither running it; nor managing the company that does operate it on the city’s behalf. Already, they can’t successfully manage simple towing companies. Chicago city officials are already trying to find a loophole to get out of paying any state taxes on their new fictional casino, which would be an illegal advantage over other casinos in the area. Local casinos have already been experiencing a softening of the gambling market – so Chicago might be jumping in as the industry languishes. A new casino is planned just across the border in Wisconsin and Indiana is considering one too.

Presuming Chicago builds out and manages the greatest casino in the Midwest, it would earn $27 million per year. That is just 0.0135% of their annual pension bill, and not nearly large enough to slow the shortfall that continues to grow exponentially large reach year. So Chicago would need the profits from 92 casinos to make a tiniest dent in the pension problem. An average large casino costs $1-7 billion to build out. Let’s take the low end of $1 billion, times 92 casinos and so how is Chicago going to come up with an additional $92 billion when they cannot come close to making a $2 billion pension payment? They have no credit to borrow at a reasonable rate. To provide an idea of how many casinos 92 are, the entire city of Las Vegas has around 122 casinos.

2. How about that marijuana legalization? Well, what has Colorado’s experience been?

Tax revenue is up but there are plenty of deductions that have to be made:

  • Colorado had to double their car insurance rates because of increased accidents from marijuana-impaired drivers.
  • The Mexican drug cartels moved in, taking over the black market and growers for export to other states. So law enforcement is busier with illegal activity from more dangerous outlaws than when all marijuana was illegal.
  • Emergency room visits from drug overdoses are up 300%, too many of these are children or teenagers that accidentally ate edible marijuana products like cookies and chocolates.

Presuming Chicago expertly rolls out the perfect balance of laws and regulations over legalized recreational marijuana, it could take in additional taxes of roughly $10-40 million per year in the first few years. Let’s be overly optimistic and say Chicago will take in $150 million a year. Chicago’s annual pension obligation requires an annual payment of $2 billion. So drowning the city in marijuana will only contribute a tiny 10% of the annual pension payment, and do absolutely nothing to catch-up with the escalating shortfall.

My 3-minute back-of-the-napkin analysis = Mayor Emanuel needs $2.00 per year just to slow pension solvency and his brilliant solution is to: start a casino that will earn 3 cents per year and new tax revenue from legalizing marijuana that may produce 4 cents. Reducing your $2.00 pension bill by 7 cents isn’t an idea worth the napkin it was written upon.   

This post first appeared on Financial Literacy Book, please read the originial post: here

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Hurray, Chicago is saved!


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