John Maynard Keynes would be thrilled to hear about the brilliant solution Chicago has come up with to help solve its pension deficit: issue a $10 billion bond and take on more debt.

Chicago’s pension deficit has been a problem that we’ve been covering at length. The stunning funding gap, which comes in at about $28 billion, is an issue that Chicago Mayor Rahm Emanuel campaigned on fixing, along with the rest of the city’s finances.  “It’ll be a big test for sure,” said Vikram Rai, head of municipal strategy at  Citigroup Inc. “But if it works it’ll set a good precedent for the other cities and states that have pension problems.”

It won’t work.

Absent dramatic haircuts to pension promises, it’s simply impossible to resolve the third largest US city’s pension crisis: as we noted last month when looking at the broader pension problems faced by Illinois, in 1987, pension promises made to active workers and retirees in the state’s five state-run pension plans totaled just $18 billion. By 2016, they had ballooned to $208 billion. That’s a cumulative 1,067 percent increase.

Contrast that to the state’s budget (general fund revenues) which was up just 236 percent over the same time period. Or household incomes, which were up just 127 percent. Or inflation, up just 111 percent. Promised pension benefits have blown past any ability of the state, the economy or taxpayers to pay for them.

Which leaves only debt as the “solution”, one which reportedly came after Chicago leaders gave up on actual long-term economic solutions such as budget cuts, reductions in benefits and tax increases. With those pesky old “traditional” ways to shore up in the city’s finances seemingly causing too much austerity for America’s third largest city, they have instead embraced the new school of economics in the form of considering a $10 billion bond issuance, one which would push pension obligation bond issuance in Chicago to a 15 year high.

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