The city of Chicago has long been regarded as an economic engine of the Midwest. It is home to some of the country’s largest industries and more than 30 of the nation’s Fortune 500 companies. Chicago is accessible by road, rail and water, and is located in a state that boasts an abundance of natural resources.

But decades of fiscal mismanagement by government agencies in Chicago have put the metropolis at a crossroads. In July 2013, the city of Chicago released a grim budget report that showed that the city owed billions of dollars in debt and unfunded pension and health insurance liabilities.

But the city Chicago is not the only government agency that city residents pay taxes to – taxpayers also fund the operations Chicago Public Schools, the Chicago Transit Authority, the Chicago Park District and a large share of Cook County.

This is the first report that adds together all the debts and liabilities of the major government units operating in Chicago — a necessary step in fully understanding how much debt Chicago taxpayers are expected to shoulder.

All told, Chicago residents are officially on the hook for $63.2 billion in government pensions, health insurance and other debt. This staggering figure totals more than $23,000 per Chicago resident, or more than $61,000 per household.

Even these figures grossly understate the severity of the problem.

That’s because the official pension liabilities are underestimated. Pension funds have long assumed unrealistically high investment returns, which make the funds look healthier than they actually are. Moody’s Investors Service now calculates unfunded pension liabilities using more appropriate discount rates.

Under new Moody’s methodology, Chicago’s unfunded pension liabilities are at least $23 billion higher than what’s officially reported. Today, the systems have only 31 cents for every dollar they should have to make necessary pension payouts in the future.

When summing up Chicago’s total debt, it’s necessary to use the Moody’s calculation of unfunded pension liabilities instead of those officially reported by the city. That’s because the municipal bond market depends heavily on Moody’s ratings when investing in Chicago bonds.

Moody’s based its recent triple-notch downgrade of the city’s debt on the agency’s new methodology for valuing pension shortfalls. The downgrade has led to a collapse in Chicago’s bond prices and a significant increase in its borrowing rates.

Chicago’s credit rating is now only four notches away from junk-bond status. Many institutional investors are not allowed to invest in junk bonds, meaning the city will face significant pressure in accessing the bond market going forward if this downward trend continues.

Ignoring the Moody’s pension calculation not only understates the severity of Chicago’s debt crisis, but also the true burden that Chicago taxpayers may be forced to shoulder.

Chicago taxpayers face $86.9 billion in debt and unfunded liabilities under new Moody’s methodology. That’s $32,000 per Chicago resident and more than $84,000 for every Chicago household.

Chicago also faces the risk that subsidies from the state of Illinois – which is nearing insolvency — may be reduced or eliminated. The units of government that operate within Chicago’s borders depend on billions of dollars in state funds. Chicago Public Schools, or CPS, receives more than $1.8 billion in state education support, and Chicago Transit Authority, or CTA, receives millions more. Any cuts in those funds will only increase the pressure on Chicago’s finances.

Chicago’s fiscal squeeze is already threatening the city’s ability to provide core services. CPS has laid off thousands of staff and closed nearly 50 schools, while the city’s crime rate is among the highest in the nation. When taxpayers stop receiving the services they are paying for, they’ll leave. Chicago has already lost nearly 200,000 people since the 2000 census — meaning there are fewer taxpayers left to pick up the city’s growing debt. Taxpayers should be worried. They’ll need to see big and bold reforms to know they’re not taken for granted.

Governments in the state, county and city of Chicago can change course. It will take bold reforms to stabilize Chicago’s finances, protect the city’s taxpayers and restore confidence in the city’s future.

A necessary starting point is to fix the city’s pension crises. Chicago needs comprehensive pension reform that ends the accrual of defined benefit liabilities, protects what workers have already earned and empowers government workers with 401(k)-style retirement plans. It must also cap the growing debt burden and pay down existing debts in a responsible manner. Finally, each unit of government in Chicago must rein in spending and open up union contracts to renegotiate affordable levels of benefits and wages — bringing labor costs, which are the key driver of the city’s costs, in line with what its taxpayers can afford.