Photo by Joshua Lott/Getty Images

After years of warnings, financial reality is hitting home in Chicago, clouding Mayor Rahm Emanuel’s hope for a transformational legacy. In March, Moody’s downgraded the city’s credit rating to junk, but Chicago’s financial hole long predates its ratings slide. The trouble began emerging at least as far back as 2003, albeit under the radar. Then, as the Great Recession pummeled municipal budgets around the country, former Mayor Richard M. Daley engaged in dubious deals, such as the city’s parking-meter lease. In 2010, as Daley’s tenure neared its close, Crain’s Chicago Business published an exposé on the troubling levels of debt that the mayor’s administration had accumulated. In 2013, after Daley had left office, the Chicago Tribune ran a series further detailing the city’s questionable debt practices, such as “scoop and toss”—that is, rolling over debt at higher cost as it came due, rather than paying it off. Chicago’s pension woes, along with Illinois’, started attracting media coverage—as did financial can-kicking by agencies like the Chicago Public Schools (CPS), which drained its reserves in 2012 and created a 2015 budget showing 14 months of revenue (“loopy,” said the Tribune). So for several years now, the media have been telling Chicagoans that there’s a financial crisis. But it hasn’t really felt like one, at least not in the booming Loop and on the North Side.

The Moody’s downgrade triggered termination clauses in swaps contracts that the city and CPS had been using as part of their financial juggling act, creating a liquidity crisis. To deal with the downgrade fallout, the city plans to issue $1.1 billion in long-term bonds. While some sort of refinancing may be required, the proposed debt issue contains maneuvers similar to those that helped get Chicago into trouble in the first place—including more scoop and toss deferrals, $75 million for police back pay, $62 million to pay a judgment related to the city’s lakefront parking-garage lease, and $35 million to pay debt on the acquisition of the former Michael Reese Hospital site (an architecturally significant complex Daley acquired and razed for an ill-fated Olympic bid). The debt-issue proposal also includes $170 million in so-called “capitalized interest” for the first two years. That is, Chicago is actually borrowing the money to pay the first two years of interest payments on these bonds. In true Chicago style, the proposal passed the city council on a 45-3 vote. Hey, at least the city is getting out of the swaps business.

Even with no further gimmicks, Emanuel will be six years into his mayoralty before the city can stop borrowing just to pay the interest on its debt. And without accounting for pensions, it will take the full eight years of both his terms to get the city to a balanced budget, where it can pay for the regular debt it has already accumulated.

Then there’s the crisis engulfing the city’s schools, which are facing 1,000 layoffs and numerous other cuts to avoid running out of cash. Forced by a state mandate to start paying its pensions, CPS coughed up $634 million as required last week. A recent Ernst & Young report said that even if CPS got another five-year pension-contribution holiday, it would still rack up an additional $2.4 billion in accumulated deficits by 2020. Meanwhile, the Chicago Teachers Union, hostile to any reform that would affect teacher salaries and benefits, says that the district is “broke on purpose.” And CPS has no permanent CEO in place after Barbara Byrd-Bennett resigned last month amid a federal investigation into no-bid contracts.

Emanuel wants Springfield to pay for Chicago’s teacher pensions going forward, as it does for every other school district. He has a legitimate gripe here, but the state is in a deep financial hole of its own, with its teacher-pension fund in even worse shape than the city’s—and a government shutdown looming over the failure to pass a budget.

It’s not just the teachers’ pensions that are in trouble in Chicago; pensions for all municipal workers are woefully underfunded. (Separately, Cook County plans to raise its sales tax by one percentage point to start dealing with its own yawning pension gap.) Emanuel is willing to raise taxes by instituting a $175 million annual pension levy for the schools, but even his best-case scenario for pensions leaves a structural deficit in the CPS operating budget. And an Illinois Supreme Court ruling puts the previously negotiated city reforms in jeopardy. The court struck down state-level pension reform, saying that even future pension accruals for public employees can’t be reduced—a ruling that triggered the Moody’s downgrade. Emanuel denounced the Moody’s decision while strongly defending the legality of his reform. He makes good arguments, but he’s up against an extremely pro-union court. Perhaps recognizing this, he isn’t even trying to reform the police and fire pension funds. Instead, he proposes simply to defer and extend payments. If adopted, it would mean that the city wouldn’t be on track to funding its pensions until 2021—a decade after Emanuel was first elected. Even so, Crain’s projects that this would raise the city’s slice of property taxes next year by 31 percent—and by more than 50 percent if the deferrals aren’t approved.

Add it up and Chicago residents face another five to six years of pain just to get into a position where they might begin climbing out of the hole. This surely isn’t where Rahm Emanuel envisioned himself back in 2011. One wonders whether he fully understood the true financial condition of Chicago when he decided to pursue the mayor’s office—or grasped the lack of power even the most autocratic mayors have compared with the president or a governor.

Even if all of Emanuel’s reforms go through, the best that he could hope for is that after nearly a decade in office, he will have put out Chicago’s financial fire. There is one thing he can do, however, truly to change the trajectory: partner with Illinois governor Bruce Rauner to get legislation passed requiring that all future local-government employees get 401k-style defined-contribution pensions. This would make it much harder for future administrations to create another pension disaster.

Of course, getting such a law passed wouldn’t be easy, which is precisely why a tough guy like Emanuel should take a shot at it. If he succeeded, he could yet leave a legacy that future generations of Chicagoans would look back on with gratitude.