Can Rahm Emanuel save Chicago from financial calamity?

In Washington, DC, Rahm Emanuel had such a tough-guy reputation that people called him "Rahmbo". Now the former White House enforcer, who has been mayor of Chicago since 2011, faces a challenge as hard as any he met in the nation’s capital.

After years of overpromising and underfunding, Chicago has the worst pension gap of any big American city (see chart 1). Its debts are rising even as its population shrinks (see chart 2). Rahmbo’s mission is to save Chicago from financial ruin. Unlike previous mayors, he is trying. It is not making him popular.

On June 9th Mr. Emanuel won a modest but encouraging victory when the governor of Illinois, Pat Quinn, signed a pension-reform bill the mayor had championed. It covers 61,000 city-government workers and retirees, out of a total of nearly 100,000. It will hurt: employees must chip in 29% more for a smaller pension, though the retirement age will not be raised. Taxpayers, meanwhile, must stump up an extra $50m a year for the next five years.

Some unions say they will sue to block the reform. Even if the bill survives, Mr. Emanuel’s hardest tasks lie ahead. He still has to complete a deal with Chicago’s teachers. (The boss of the teachers’ union, Karen Lewis, has called his reforms "theft".) Most difficult of all, he must deal with the police and firefighters. He will have to move quickly. He faces an election in February 2015; and in a recent poll only 29% of voters said they would support him. It’s enough to make a man curse — something Mr. Emanuel does often. He once said "Fuck you" to Ms. Lewis.

The two best-known mayors in America, Mr. Emanuel and New York’s Bill de Blasio, are both Democrats and both face long-term fiscal ills (though Chicago’s are far graver). Mr. de Blasio’s approach is to give city workers huge backdated pay hikes and hope that Wall Street, which pays the bills, never has a bad year. Mr. Emanuel’s approach is to try to make government leaner and more effective, while spreading the pain between public workers and taxpayers. It will be interesting to see which approach works better.

Mr. Emanuel has a long record of getting things done. As a young man, he went to work for Bill Clinton’s first presidential campaign. A Chicago native, he descended on Little Rock, Arkansas "like a tornado, berating local advisers and fundraisers for their small-town ways," writes Kari Lydersen, a hostile biographer. "He once jumped on a table to lecture the staff for forty-five minutes about their practice of not working on Sundays and other failings."

Mr. Clinton thought he was terrific. "I liked him because our campaign was broke and he was a genius at raising money," he told the Chicago Sun-Times, adding: "I liked him because people said I was too young to run for president and I was too ambitious and Rahm made me look laid-back and passive."

As a staffer in the Clinton White House, Mr Emanuel bullied lawmakers into passing big reforms, including the North American Free-Trade Agreement of 1994, after which trade between Mexico and the United States soared more than sixfold; and welfare reform, which nudged millions of Americans off the dole and into jobs.

As a member of Congress from 2003-2009, he helped orchestrate the Democrats’ thumping electoral victory in 2006. His strategy of running more conservative candidates in swing districts outraged the Left — but it worked. For two years he was Barack Obama’s chief of staff, helping to pass Obamacare.

When he ran for mayor, the approval of two Democratic presidents counted for a lot. Some people even liked the sound of his abrasive personality. "Many of us will take an ass-kicker who gets results over a cautious consensus-builder any day of the week. That’s why Chicago voters picked Rahm Emanuel," wrote Kristen McQueary in the Chicago Tribune last month. "The strutting. The finger-pointing. The swearing. Come on. We loved it." But no longer, it seems. Only one voter in five now thinks he is doing a better job than his predecessor, Richard Daley. Ms. McQueary thinks the problem is that "his audacity exceeds his accomplishments."

Dirty Mouth, Clean Government

That is unfair. Mr. Emanuel has been tireless — he gets up at 5:30 a.m. each day — and effective. He has tackled the old Chicago system of patronage. This month, a judge may rule that City Hall’s hiring no longer needs the federal oversight imposed on Mr. Daley’s watch. Downtown is booming: its population, unlike the city’s, grew 36% between 2000 and 2010. Companies such as Motorola Mobility and United Airlines have decamped from the suburbs to the city centre. The number of domestic tourists has jumped from 38m in 2010 to 47m in 2013. Rubbish collection, previously controlled by individual aldermen (city council members) in their respective wards, has been put onto a more rational grid-based system and partly privatised.

Mr. Emanuel is fond of data and receptive to new ideas. Kimbal Musk, an entrepreneur, recalls showing the mayor his designs for school "learning gardens" (places where pupils look at plants and learn about biology, among other things). Mr. Emanuel turned to him and said: "That is better than what I was going to do. This is now my plan." Since then 100 gardens have been installed in Chicago’s schools.

More broadly, Mr. Emanuel has pepped up education. He demanded merit pay for teachers and a longer school day (Chicago’s was only 5 hours 45 minutes). Teachers duly went on strike in 2012. In the end, Mr. Emanuel got the longer day, adding 2.5 years to each child’s schooling between kindergarten and high school, but the unions kept their seniority-based pay system.

He closed 50 schools last year: largely bad, half-empty ones in depopulated neighbourhoods. He ploughed more than $200 million of savings into other schools. He has also pushed for more charter (publicly-funded but independently run) schools, more accountability for teachers and more schooling for toddlers. Many parents were deeply upset about the closures. In some poor, black neighbourhoods, teaching was one of the few middle-class jobs.

Yet there are signs that, overall, the city’s schools are on the right track (see chart 3). The graduation rate rose from 58% in 2011 to 65% in 2013. Moreover, Mr. Emanuel has made a hefty investment to improve the city’s awful community colleges. Before his arrival, only 7% of first-time, full-time students graduated. After a reorganisation, they now focus more on teaching skills that local businesses need, and the graduation rate is expected to have hit 13% in 2013.

Mr. Emanuel’s record on crime is weaker. In 2012 Chicago saw more than 500 murders, up from 435 in 2011. In 2013 the official rate fell to 415, but some people think the figures were massaged. Chicago magazine cited at least ten deaths that looked like murder but had been classified as something else, including one of a young woman whose body was found bound and gagged in an abandoned warehouse.

After a slow start, the mayor is devoting more attention to crime. New strategies include schemes for keeping kids in school and increasing the number of summer jobs. A new programme called "Becoming a Man" helps boys to develop social skills, such as how to resolve disagreements without violence.

None of Mr. Emanuel’s reforms will count for much if he cannot get the city’s finances under control, however. Like Detroit, Chicago has been losing people but spending as if they were still there paying taxes. Its population is down from 3.6m in 1950 to 2.7m; some 200,000 people left in the first decade of the new millennium. The city ran a structural budget deficit for each of the ten years before Mr Emanuel became mayor, according to the Civic Federation, a watchdog, and plugged the gap with one-off sources of cash, such as the $1 billion Mr. Daley raised by selling the right to collect parking fees until 2084. The deficit in 2011 was estimated as $655m — about 11% of the budget. Chicago’s credit ratings have fallen to a few notches above junk.

And pensions for public workers are a time bomb, says Laurence Msall of the Civic Federation. Only 35% of the necessary cash has been set aside to pay for pensions already accrued, according to actuaries. The total unfunded liability is about $20 billion, more than five times the city’s operating budget. A state law passed before Mr. Emanuel was elected requires the city to stump up an extra $600m next year for police and firefighters’ pensions. If the problem is not dealt with, the city faces further credit downgrades and a savage cash crunch.

Let’s Not Be Detroit

Unions say the answer is for the city to borrow more, raise taxes and slap a levy on financial transactions. This is not a realistic cure. A 75% increase in property taxes would cover the police and firefighters’ pensions and little else, says Mr. Msall. The city will probably do a bit of everything: raise taxes, trim services and curb pension benefits. Asking citizens to pay more for less is risky, however; it didn’t work out in Detroit. People and businesses are mobile.

Mr. Emanuel described his first budget as "honest" — a novelty in the Windy City. He found $417m from redundancies, spending cuts, better debt collection and other reforms including consolidations of police and fire departments. Cuts to libraries and mental-health services were especially unpopular. He also raised fees, fines and rates but steered clear of property- and sales-tax increases.

To finish what he started, Mr. Emanuel must win re-election. By rubbing Chicago’s nose in reality, he has created a lot of enemies. The left calls him "Mayor 1%" for his supposed love of the rich and disregard for everyone else. "I don’t really like him, he does not do much for the city," says Tralanda Carter, a shopper at Nordstrom. He is certainly less affable than Mr. Daley, who seemed to know everyone’s name (and sat atop a machine that for decades doled out jobs, contracts and favours for campaign contributions, loyalty and votes.)

Mr. Emanuel’s most credible challenger is Toni Preckwinkle, the president of Cook County’s board. If she runs, Mr. Emanuel will have a fight on his hands. However, he has $7m in his campaign chest already, which may be enough to scare off serious rivals.

In one of the "Rambo" films, the muscle-bound hero has to shoot down a Russian helicopter-gunship with only a bow and explosive-tipped arrow. Mr. Emanuel’s mission is less improbable than that; but only somewhat.

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