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Old 03-03-2015, 09:51 AM   #1
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Chicago in financial doo doo (pensions)

Quote :
Chicago drew closer to a fiscal free fall on Friday with a rating downgrade from Moody's Investors Service that could trigger the immediate termination of four interest-rate swap agreements, costing the city about $58 million and raising the prospect of more broken swaps contracts.

The downgrade to Baa2, just two steps above junk, and a warning the rating could fall further still, means the third-biggest U.S. city could face even higher costs in the future if banks choose to terminate other interest-rate hedges against fluctuations in interest rates. All told, Chicago holds swaps contracts covering $2.67 billion in debt, according to a disclosure late last year.

"This is an unfortunate wake-up call for anyone still asleep over the fiscal cliff facing the city of Chicago," said Laurence Msall, president of the Chicago-based government finance watchdog, The Civic Federation.

Chicago's finances are already sagging under an unfunded pension liability Moody's has pegged at $32 billion and that is equal to eight times the city's operating revenue. The city has a $300 million structural deficit in its $3.53 billion operating budget and is required by an Illinois law to boost the 2016 contribution to its police and fire pension funds by $550 million.

Cost-saving reforms for the city's other two pension funds, which face insolvency in a matter of years, are being challenged in court by labor unions and retirees.

State funding due Chicago would drop by $210 million between July 1 and the end of 2016 under a plan proposed by Illinois Governor Bruce Rauner.

Given all the financial pressures, both Moody's and Standard & Poor's, which affirmed the city's A-plus rating, warned on Friday that Chicago's credit ratings have room to sink.

Moody's said Chicago's rating could be cut if Illinois courts find pension reform laws enacted to shore up the state's financially ailing pension system and for two of Chicago's retirement systems are unconstitutional. A ruling by the Illinois Supreme Court on one of the laws could come as early as this spring.

S&P warned of a multi-notch downgrade if the city fails to come up with a sustainable plan this year to pay its escalating pension contributions.

In a report, Moody's noted that the downgrade to Baa2 moves the city closer to termination of 11 more swaps deals. Termination on those contracts would potentially cost Chicago an additional $133 million, Moody's noted.

Chicago has the financial resources at hand to cover the initial $58 million termination payments on the four swaps if the city is unable to renegotiate terms, Moody's said.
...
http://www.reuters.com/article/2015/...0LV26020150227

Much like Greece, Chicago has an unsustainable math problem with their operational model. In this case, Chicago can't afford those fabulous union pensions.
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Old 03-03-2015, 03:36 PM   #2
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I really, really want to see the fireworks when they go all Detroit on those pensioners they promised the moon.
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Old 03-03-2015, 05:36 PM   #3
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today PA governor annoucned plans for a 4.6 billion $ tax increase.
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Old 01-21-2016, 09:27 AM   #4
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Illinois Governor Proposes Bankruptcy for Chicago Public School System
...
More: http://globaleconomicanalysis.blogsp...-governor.html
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Old 05-14-2018, 09:18 AM   #5
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Yeah, so Illinois kicked the can a little bit, but the problem not only hasn't gone away, it's growing much, much worse. It's like a parallel for the global debt issue ...

Quote :
Three years ago Tuesday, the Illinois Supreme Court struck down the state's attempt to cut its employees' pension benefits to chip away at a retirement-system debt that's swelled to almost $11,000 for every man, woman and child.

Since then, Illinois's credit rating was downgraded to the verge of junk, its bonds have tumbled and its largest city, Chicago, was stripped of its investment-grade status by Moody's Investors Service. And Gov. Bruce Rauner, R, and the Democrat-led legislature have made no real progress toward a new plan that doesn't violate the state constitution's ban on reducing benefits.

"Illinois failure to address its pension crisis has resulted in further deterioration of the state and cities' financial condition, exorbitantly high borrowing costs, and an inability to address other critical needs at the state and local level," said Laurence Msall, president of the Civic Federation, a Chicago nonprofit that tracks state and municipal finances. "Time is not your friend when your liabilities are compounding and your revenues are not."

The funding shortfall across Illinois's five retirement systems climbed to $137 billion by last June, a jump of about $17.8 billion since 2015, after the government for years failed to made adequate contributions. That pension deficit -- more than four times larger that its debt to general-obligation bondholders -- is adding hundreds of millions of dollars in costs to Illinois's budget each year as the government plows more money in to catch up.
...
Even as the state is set to pay $8.5 billion to the five retirement systems in 2019, it's still not enough. Unfunded liabilities keep growing. And the 2019 contribution is more than three times the state's payment a decade earlier: Illinois paid $2.8 billion to pensions in 2009. By 2045, the projected contribution will be $19.6 billion, according to a March report, based on actuarial valuations.

Illinois has actually made the problem worse since its highest court's ruling in 2015. In the past, if a pension fund's assumed rate of investment return got lowered, the state would step up its contribution. But last year lawmakers approved so-called smoothing, allowing the state to phase in hundreds of millions of dollars of those increased contributions. It helped the state ease its budget shortfall temporarily but will be costly over the longer term.

The longer the state doesn't address the pension crisis, the closer Illinois gets to taxes that are overly burdensome, to credit downgrades, to not paying pensions or even bond defaults, said Richard Ciccarone, president of Merritt Research Services.

... The state cannot grow its way out of this problem, Martwick said.
...
More: http://www.chicagotribune.com/busine...story,amp.html

(bold emphasis is mine - I like that quote)

The Chicago Fed floated a proposal. It appears to have gone over like a lead balloon...

Quote :
An audible gasp went out in the breakout room I was in at last month’s pension event cosponsored by The Civic Federation and the Federal Reserve Bank of Chicago. That was when a speaker from the Chicago Fed proposed levying, across the state and in addition to current property taxes, a special property assessment they estimate would be about 1% of actual property value each year for 30 years.

Evidently, that wasn’t reality-shock enough. This week the Chicago Fed published that proposal formally. It’s linked here.

It surely ranks among the most blatantly inhumane and foolish ideas we’ve seen yet.
...
More: http://www.wirepoints.com/chicago-fe...ints-original/

Since the math is inescapable, I predict that Illinois will at some point amend their constitution to allow a reduction in benefits and the unions will howl as they gut the system.
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Old 05-14-2018, 09:58 AM   #6
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While its only the worst funds failing theres probably a view that Gov will step in with some freshly printed.
Quite how it goes if / when Gov caves in on one will be interesting ..........

Theres not a lot of votes in allowing reality to manifest.
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Old 05-14-2018, 03:29 PM   #7
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the Russians did it...

"Moscow is now receiving more in taxes than it’s spending. This is producing something called a “budget surplus,”"

https://www.zerohedge.com/news/2018-...budget-surplus
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Old 05-14-2018, 03:34 PM   #8
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So, they're financially bankrupt, murdering each other at a rate you'd expect to see in Mogadishu and nobody knows why the progressive political policies are not bringing peace on Earth and prosperity to everybody?

the gubmint should do sumpn' 'bout dat
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Old 05-15-2018, 08:37 AM   #9
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Originally Posted by rblong2us View Post:
...
Quite how it goes if / when Gov caves in on one will be interesting ....
Oh yeah, Illinois/Chicago isn't the only locale in this situation. New Jersey and California have similarly underfunded pension issues. Illinois is hamstrung by a (state level) Constitutional restraint on reducing benefits though. So unless something changes, they are going to have to make some really painful choices in cutting other aspects of the budget (not likely) or raising already high taxes through the roof (and watch the population exodus from state erode the tax base at an accelerated rate which feeds a death spiral). From what I've read, they have already passed the math Rubicon on being able to address the issue with reasonable solutions.

Who knows, maybe they will embrace legalizing new industries (drugs/marijuana, gambling) in a big way to try and raise revenues.
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Old 12-17-2018, 12:07 PM   #10
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Originally Posted by PMBug View Post:
...
Since the math is inescapable, I predict that Illinois will at some point amend their constitution to allow a reduction in benefits and the unions will howl as they gut the system.
Yeah, so about that...

Quote :
Mayor Rahm Emanuel on Wednesday delivered his proposals for improving Chicago’s public pension system, which is only 26 percent funded. Emanuel diverted from Democratic Party orthodoxy by calling for an amendment to the Illinois Constitution that would allow easing a rigid clause stating that public pension benefits “shall not be diminished or impaired.” ...
https://www.chicagotribune.com/news/...story,amp.html
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Old 12-17-2018, 12:16 PM   #11
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Originally Posted by PMBug View Post:
...
Who knows, maybe they will embrace legalizing new industries (drugs/marijuana, gambling) in a big way to try and raise revenues.
Oh shit! Hahahaha.... Maybe Rahm is reading pmbug...

Quote :
Chicago’s outgoing Democrat mayor, Rahm Emanuel, says the way to defuse the Windy City’s pension bomb is to legalize and tax marijuana and build a city-owned casino.
...
https://www.breitbart.com/economy/20...n-casinos-pot/
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Old 12-19-2018, 08:45 AM   #12
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Quote :
As of the 2017 City of Chicago Actuarial Report, each Chicagoan would have to pony up $140,000 to make pensions solvent.
...
I have a far simpler approach that is 100% certain to work, and work faster.
  1. Illinois can allow municipal bankruptcies
  2. The Federal government can pass national legislation allowing municipal and even state bankruptcies

Q. How does that fix the problem?

A. As we have seen in Detroit, Michigan; Central Falls, Rhode Island; and numerous cities in California, pension promises are not sacrosanct in bankruptcy.

As it stands, states can allow or prohibit municipal bankruptcies, but if allowed, Federal laws take precedence over state rules. In bankruptcy, pension obligations can be reduced. They were hammered in Central Falls.

In Illinois, I would expect the City of Rockford to file bankruptcy the moment it could. Rockford is Illinois' third largest city.

Such a bankruptcy would send shock waves through the bond markets, but also where reform is needed most: Illinois pension plans.

Bankruptcy reform would put huge pressure on unions to reduce demands in a fair manner (highest pensioners get the biggest cuts), rather than leaving matters to the courts to decide where the cuts happen.

Bankruptcy reform would in and of itself likely ensure that the state would get around to fixing, via constitutional amendments, its other pension problems.

The advantage of my approach is we would not have to wait for a constitutional amendment. It would come later.
https://moneymaven.io/mishtalk/econo...ECEbwQXoC2TvQ/

$140,000 per person you say? No problem... I'll just grab that from the petty cash stash over by the fireplace.
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Old 01-10-2019, 10:41 AM   #13
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Quote :
...
Court records show that proprietors of Polekatz Gentlemen's Club, a strip club in Bridgeview, Illinois, a suburb of Chicago, are suing Cook County, alleging its revenue department is illegally demanding $1.7 million for lap dances under its “amusement tax.” That figure includes interest and penalties, according to The Cook County Record.
...
https://fee.org/articles/cash-desper...-legal-battle/
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Old 01-22-2019, 08:42 AM   #14
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Penn hasn't been around in a long time, or he might have been the one to post the following (it's two months old, but I just saw it):
Quote :
Pressured by police pension costs, Norridge trustees voted to hike the village’s property tax levy by more than 35 percent.

Homeowners in the Cook County village of Norridge could soon be looking at higher property tax bills – for reasons a growing number of Illinoisans find familiar.

On Nov. 14, Norridge trustees voted to approve a property tax levy 35.5 percent higher than the previous year’s, or to $1.6 million from just less than $1.2 million. The cause? The growing cost of the village’s police pensions and a new state law dictating the pension funding level.
...
Norridge is far from the first municipality to see pension costs spike the property tax levy. The small southern Illinois city of Carterville hiked its levy upwards of 30 percent – its largest in history – to keep up with rising public safety pension costs. Peoria, Rockford and Chicago all face pension crises.

In the nearby suburb of Harvey, growth in public safety pension costs has plunged the city into fiscal crisis. After failing to maintain required pension funding levels, the Illinois state comptroller intercepted $3.3 million in Harvey’s tax revenue. The suburb has sent layoff notices to dozens of police and fire employees, compromising today’s public services to pay for yesterday’s pensioners.
...
https://www.illinoispolicy.org/norri...-for-pensions/
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Old 01-22-2019, 09:24 AM   #15
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Not going to help property prices or encouraging population influx to generate more tax.

But because the individual with property is the softest target, reckon on this being the 'fix' for all those pension funds with a shortfall.

Could make the concept of property ownership a lot less attractive and more places end up like Detroit.
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Old 01-22-2019, 10:18 AM   #16
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They don't really have much choice. Their hands are tied with respect to altering the pension obligations (can't without a change to the state's Constitution). They have to raise revenue to comply with law. They don't have any good options.
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Old 02-07-2019, 08:44 AM   #17
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Quote :
...
Moody’s calls it a “conundrum” for Illinois. From their report: “… the population loss and relatively sluggish employment trends suggest a degree of economic vulnerability that poses a conundrum: revenue growth from existing sources will be too tepid to offset escalating fixed costs, while new taxes could threaten to increase the outflow of residents.”

These new comments are significant because Moody’s has long considered tax hikes a budget-balancing option for the state. That’s not surprising since Moody’s priority is the well-being of bondholders, not taxpayers. The agency’s ratings reflect the likelihood that bondholders get repaid – and tax hikes make repayment more likely.

But that’s only true as long as tax hikes don’t destroy the tax base and, ultimately, make the repayment of bonds less likely. It appears the flight of Illinoisans has gotten so big that Moody’s can no longer ignore it.
...
https://www.wirepoints.com/moodys-to...ois-residents/
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Old 02-08-2019, 12:06 PM   #18
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Illinois as a whole is screwed. They can never fulfill the pension promises they have made. Their taxes and absurd laws have and are causing population flight that is destabilizing the economy there faster than they can tax the people to repair it.
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Old 02-09-2019, 12:54 PM   #19
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Wherever dem/prog/soc/comm's are in power is or will be a s%#&hole.
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Old 02-19-2019, 11:06 AM   #20
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Quote :
CHICAGO, Feb. 19, 2019 /PRNewswire/ -- For every retiree taking money out of a public pension fund in Cook County, there is barely one current employee putting money in, a sign of growing demographic pressure on underfunded retirement plans, according to the Debt Disclosure Report issued today by Cook County Treasurer Maria Pappas.
  • There are 135,757 local government employees, compared with 126,528 retirees, a ratio of just 1.07 to 1, according to an analysis of 384 governments in Cook County by the Office of Cook County Treasurer Maria Pappas.
  • The City of Chicago reports 35,655 employees and 47,592 retirees.
...
https://www.prnewswire.com/news-rele...300797677.html
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