Eide highlights that cities like Chicago and New York are straining under unsustainable pension commitments made to public employees. These obligations, while legally binding, are politically unappealing to address and financially crippling to maintain. Cities can’t print money like the federal government, leaving them with few options other than raising taxes, cutting services, or borrowing more—all of which drive residents and businesses away.
According to Eide, pension liabilities are uniquely challenging because they’re not just debts but promises to real people, including current employees and retirees. As he notes, “Most governments calculate these liabilities assuming annual investment returns that are much higher than what a prudent investor should expect.” This overly optimistic accounting makes the problem seem smaller than it is and delays the day of reckoning.
A critical example is Chicago, where pension costs now consume nearly 25% of the city’s budget, leaving less funding for essential services like public safety, infrastructure, and schools. The strain worsens the urban doom loop by undermining the quality of life for residents who are still paying high taxes but receiving fewer benefits. Eide observes that “one way or another, city residents must pay for these promises.”
Eide’s prescription is straightforward but politically fraught. He advocates for states to reform their pension systems to prevent further fiscal catastrophe. This includes adjusting overly optimistic return assumptions, renegotiating benefit structures, and implementing more sustainable contribution practices. Yet as he points out, “Any reform will be fiercely resisted by public-sector unions, who view such changes as attacks on their members’ livelihoods.”
This essay underscores a broader theme in urban governance: the tension between short-term political expediency and long-term financial sustainability. The urban doom loop isn’t inevitable, but it requires leaders willing to make difficult, unpopular decisions to break the cycle.
Eide’s essay is a sobering reminder of how fiscal mismanagement, especially around pensions, can trigger a downward spiral for cities. As he argues, without urgent reforms, many urban centers risk losing not just their financial stability but their ability to provide a livable environment for their residents. For policymakers, the challenge is clear: Address pension liabilities now or watch the urban doom loop tighten its grip.
