The Economic Fallout of the Chicago Way

Many large American cities are hurting from the recent recession. Unrealistic revenue assumptions based on ever higher real estate prices and sales tax receipts have left cities unable to pay their basic bills. As asset and consumer prices deflate, from a lack of demand, those cities with “sticky” costs – the result of overly powerful unions and excessive business regulations – are stuck in an economic quagmire.

Chicago has become a leading poster child for recent urban economic malaise. With the election of Barack Obama, 2009 was supposed to be a year in which the Windy City basked in glory. The world was supposed to see the benefits of an administration run by Chicago Machine operatives such as David Axelrod, Rahm Emanuel, Valeria Jarret and Desiree Rogers.

Yet despite the new power in Washington, the Chicago Way has not turned out well back home. A series of events has put Chicago in a funk, along with structural economic problems. In June, Chicago’s unemployment rate peaked at 11.3%, far outpacing the national unemployment rate.

Since 2007 the region has lost more jobs than Detroit, and more than twice as many as New York. Over the decade that is about to end Chicagoland’s total loss was greater than any region outside Detroit. It has lost about as many jobs – 250,000 – as up and comer Houston has gained.

Columnist Mary Schmich of the Chicago Tribune, usually a reliable booster, has described the situation:

Chicago has a mood problem.

It seems edgy lately, a little sullen and scared, verging on depressed. Some days, it feels more like the angry, confused place I moved to in 1985 than the exuberant city that has swaggered through the past two decades.

One can question Schmich’s past description of Chicago as “exuberant”. But recently there’s been many Chicago problems.

Chicago’s bid for the 2016 Olympics failed. Even with Chicago’s most prominent citizens, President Obama and Oprah Winfrey, making a pitch to the International Olympic Committee, the Windy City came up short, behind all the finalists.

Oprah’s recent announcement that she’s ending her long run talk show will end Chicago’s most visible export. It appears much of the Oprah’s empire is moving to California to be closer to America’s entertainment capital, more celebrities and, of course, better weather.

On a more serious note, Chicago also has had to deal with two high profile political suicides. Chicago Board of Education President Michael Scott committed suicide in November. Scott was subpoenaed before a federal grand jury that was investigating the sale of admissions to magnet schools.

In September, a prolific Chicago fundraiser, Chris Kelley, committed suicide after pleading guilty to felony charges concerning the Blagojevich federal case. Kelly’s death was another reminder of the fallout of Chicago corruption.

But it’s just the top of the social heap that’s hurting. The national recession also has been particularly harsh for union-dominated Chicago. The loss of employment has put pressure on Chicago’s politicians to allow Wal-Mart to expand their number of stores in the city. With only one Wal-Mart store in the city, the thousands of potential new jobs could be just what Chicago needs right now. Mayor Daley wants to let Wal-Mart open several more stores but faces stiff opposition in City Council. Alderman Burke, the Chairman of the Finance Committee, is the key decision maker concerning Wal-Mart, whose local expansion is anathema to the unions. Mayor Daley said this concerning when Alderman Burke is going to hold hearings on Wal-Mart:

“That’s up to him. He could have had it six months ago or two months ago.”

The other big union problem can be found in Chicago’s fast-eroding convention business. The union run McCormick Place has been making big news lately because of its loss of three major conventions. In November when two major conventions announced they were leaving Chicago, Crain’s Chicago Business made this stunning indictment:

The chief executive officer won his post after raising campaign cash for disgraced Gov. Rod Blagojevich. The just-departed human resources director owed her job to a powerful state senator. Other top executives have long ties to Mayor Richard M. Daley's political machine.

That's what clout looks like at the Metropolitan Pier and Exposition Authority, known as McPier, a little-understood government entity that operates the city's primary convention venue, the vast McCormick Place complex; the adjacent McCormick Hyatt Regency Hotel, and the lakefront tourist center Navy Pier.

The loss of two major trade shows this month and a deepening financial crisis raise questions of how the Chicago Way can compete with more efficient, warm-weather convention centers such as Orlando, Fla., and Las Vegas.

With labor costs much cheaper in other venues, competing becomes very difficult, particularly in tough times.

Fiscal incompetence has made the problems worse. To help with Chicago’s downturn a “rainy day” fund was set up by leasing major city assets. Chicago leased its parking meters to a private company. This controversial move was supposed to yield generous revenue up front. When Chicago recently passed the new city budget, the Chicago Sun-Times reported:

Chicago’s 75-year, $1.15 billion parking meter windfall would be nearly drained in just one year to provide token property tax relief and stave off tax increases, thanks to a $6.1 billion 2010 budget approved Wednesday.

Despite complaints that Chicago’s future was being mortgaged, the City Council voted 38-to-12 to approve Mayor Daley’s plan to drain reserves generated by asset sales to solve the city’s worst budget crisis in modern history.

Chicago’s recent economic decline is also affecting the state of Illinois' budget. It may be unfair to blame the Chicago Machine for Illinois’ budget situation, but they certainly have played their role. Just days ago Moody's and S&P downgraded the state of Illinois debt. Only California now has a lower debt rating.

Worse may be in the offing. Chicago’s recent economic malaise has been revealed in the stunning new documentary on the coming elimination of futures floor trading:

The exchange, a critical element of Chicago’s economy, may be on the way to downsizing if not oblivion. That’s more bad news for a city that seems to be falling apart even as its operatives try to run the country.

Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.