Statecraft Should the Feds Bail Out Chicago?
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Nov 25, 2025 David Schleicher, a Yale Law School professor and expert in local government finance, joins to tackle the pressing issues surrounding municipal pensions and potential bailouts. He discusses why many pension funds are struggling, using Chicago's unique situation as a focal point. The conversation dives into the morality of bailouts, the hidden debt tactics cities employ, and how pension crises impact public services. Schleicher also proposes what a federal response could look like, blending bailouts with necessary reforms to avoid moral hazard.
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Accounting Assumptions Mask Risk
- Governments hide pension shortfalls by assuming optimistic investment returns in accounting.
- Economically, legally guaranteed payments should be discounted at safe rates, not risky expected returns.
Different Legal Paths For States And Cities
- States rarely default because they have broad taxing power and sovereign immunity.
- Cities can use bankruptcy (Chapter 9) but courts struggle to define insolvency practically.
Book Sales As A (Joking) Short
- Schleicher joked his book shorted municipal bonds because a Chicago default would boost sales.
- He used the quip to illustrate public attention to municipal crises.
