"These big cities like Chicago never had these problems until Wall Street Hedge Fund "
Sorry, you are out of your depth here. Pension fund investment rules have not changed and are all guided by very conservative asset allocation models. Even if you want to blame private equity, etc - that is a very, very small portion of their portfolios.
"------------ convinced state legislatures to scrap old traditional SAFE pensions for riskier hybrid style pensions that offer the promise of higher returns but are susceptible to downturns in the economy."
This is just plain incorrect. Let's use CalPERS - California's pension fund - as a proxy as I know much more about their operations. The pension funds MUST invest in risky assets as a risk free return of 2-3% annually is not sufficient to pay for the future obligations. Unlike Social Security, these pension funds have very large amounts of assets invested and that capital appreciation is what goes a long way to paying the obligations as opposed to simply taking money from young employees to pay retirees (like SS does once the trust fund is exhausted).
"So when things like the Great Recession happened in 2007 thru 2009, these pensions become next to worthless"
Not even close to being true. Most lost 20-25% of their value as ALL asset classes were re-priced downwards but they were never close to being wiped out completely. However, even with the downturn, most as still yielding 8%+ over their lifetimes.
"yet state laws still require these pensions to be paid out"
True, they need massive restructuring as they drive cities into bankruptcy by promising increased payouts for government worker unions without increasing required contributions - Vallejo, Stockton, San Bernadino, etc in CA alone. However, the problem has nothing to due with underperformance of the pension fund's investing activities - it is a problem caused by promised benefits in exchange for votes.
"resulting in the burden of doing so passed onto taxpayers thru higher taxes."
yes, the taxpayers get soaked - but pension fund holder collect 100 cents on the dollar.