Chicago Pension Reform

[JPatrick]

Sounds like it's a good time to peak into the content of those muni funds.
Probably want to banish paper from PR, CA, IL, and Motown.
A smart guy once told me to go for those waste treatment bonds--they may be stinky but they are safe (er.)

 

[pb4uski]

The shame is that the situation is effectively a transfer of wealth from the current/next generation to past generations (and past Illinoisans who have moved out) in that the past underpaid their fair share of the cost of these promises. Very unfair IMO, though on could assert that all states are that way to some degree as funding levels have dropped over time.

Lots of blame to be shared with stupid politicians who agreed to promises without appreciation the cost and unions who advocated for these benefits knowing that the employers couldn't afford them and allowing them to be underfunded.

IMO, if these promises had been required to be fully funded then the taxpayers would have put on the brakes long ago.

 

[capjak]

IMO, if these promises had been required to be fully funded then the taxpayers would have put on the brakes long ago.

Politicians do not get union votes unless they deliver these. The same guy has been in charge of the state house for 40 years.....

Teachers deserve to be paid. Pensions are not taxed by the state but they do not get Social Security and they pay for the pension annually while teaching.

The median annual pension is $55,000 and the mode (most common payment total is 11,000 retirees) is $68,000 annually making them millionaires....God Bless....

 

[pb4uski]

Very confusing article. Why would a state retirement system be on the hook for a private company not making contractual bond payments?

I wonder if the studio sold a bond to the retirement fund, defaulted on the payments and the fund had a loss and the author is twisting the loss into the retirement fund paying the studio's bills.

 

[imoldernu]

Tonight's paper just came... Front page....

 

[LARS]

MISH is Chicago based and as written extensively on IL pension issues. His conclusion is court's ruling will lead to bankruptcy of Chicago as only solution.

http://mishtalk.com/2016/03/24/illi...gainst-chicago-mayor-rahm-emanuel/#more-36443


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[pb4uski]

Tonight's paper just came... Front page....

No surprise... the ship is sinking.

 

[Running_Man]

The State of Illinois and Chicago took pension holidays for several years while the employees were paying their fair share all along. Agreed there is some fat cats and double dippers but that is in private industry as well. They just need to bite the bullet and pay up.

Do you have any links that prove this about the City of Chicago?, I believe the State of Illinois did take pension holidays but the City of Chicago has always in every year funded the legal minimum. The City of Chicago's problem was in the way they invested the funds and the drop in assumed return rates due to ZIRP, in the year 2000 the pension funds were 83% funded after the dotcom bust it dropped to 50sh rose to 67 percent in 2007 but then by 2009 dropped to just 36 percent funded. Presently they are at between 47 percent and 55 % depending on who you believe.

 

[Senator]

I would think at some point, the Federal government would issue a bailout. The liability can then be on the Fed balance sheet, not the State of IL.

There is only so much money out there at the State level, but an unlimited amount st the Federal level.

Even so, when you look at how many companies that still do business in downtown Chicago, you can see they are willing to pay whatever it takes to be there.

 

[Sandman62]

Most voters do pay taxes, do not like huge tax increases and do not have large pensions, so I can guess how the public pension issue will ultimately play out across the U.S. In California the voters did not like a Supreme Court Justice's stance on the death penalty and she was removed from office by the voters.

This is a problem. Just because a majority of people don't have something doesn't mean they should get to vote it away for those that do. Maybe alter it for the future (like my private mega crop did 18 years into my career), but not undo contracts that were already honored by one party.

My DW is a RI teacher and got screwed by our government, who added 7 years to her retirement age, reduced her benefits and increased her contributions. This sets a terrible precedent about being able to vote away contracted obligations just because the angry mob is jealous.

 

[JoeWras]

Sounds like it's a good time to peak into the content of those muni funds.
Probably want to banish paper from PR, CA, IL, and Motown.
A smart guy once told me to go for those waste treatment bonds--they may be stinky but they are safe (er.)

Except in Alabama:
https://en.wikipedia.org/wiki/Jefferson_County,_Alabama#Sewer_construction_and_bond_swap_controversy

Two extremely controversial undertakings by county officials in the 2000s left the county in extreme debt, eventually leading to a 2011 bankruptcy. In the 1990s, the county authorized and financed a massive overhaul of the county-owned sewer system, beginning in 1996. Sewerage and water rates had increased more than 300% in the 15 years before 2011, causing severe problems for the poor in Birmingham and the county.

Actually, when you read the whole thing, it sounds like Jefferson County took a cue from Chicago politics.

I'm out of Illinois and not looking back. I loved my childhood there, but have no stomach to go back and pay for all the corruption I witnessed in that childhood. Yes, I actually witnessed some of it. It is hard to not see it happen when you live in the midst of it.

Examples:
- Polling places with shady "polling judges" run out of people's basements
- Inspection pay-offs

 

[LARS]

This is a problem. Just because a majority of people don't have something doesn't mean they should get to vote it away for those that do. Maybe alter it for the future (like my private mega crop did 18 years into my career), but not undo contracts that were already honored by one party.

My DW is a RI teacher and got screwed by our government, who added 7 years to her retirement age, reduced her benefits and increased her contributions. This sets a terrible precedent about being able to vote away contracted obligations just because the angry mob is jealous.

What you call "voting away" in another world it is called BANKRUPTCY. If something can't be paid, contract or not, it won't. Municipalities, and states for that matter, are as susceptible to bad decisions and economic down drafts as companies, which is what causes bankruptcies. There is no logical reason why municipalities, or states, therefore in extreme instances of economic distress ought not to extinguish/reorder its financial obligations. Quite frankly, the real threat of bankruptcy might make all future parties more realistic.


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[Sandman62]

Fine. Then substitute "social security and Medicare" for pension, and see how the shoe feels on the other foot. Oh wait though, that will never happen simply because the majority of citizens would be impacted. So it's ok to vote away anything the majority doesn't benefit from. Gotcha.

Bankruptcy shouldn't be a way to run away from debts. Raising taxes and cutting government jobs and expenses is an alternative - just not palatable to those without pensions. But doing so would make ALL taxpayers share in the burden of fixing what their elected officials messed up instead of unfairly forcing that burden to be carried only by pensioners - who did their share by working decades and contributing in many cases around 10% of their lifetime income.

 

[marko]

There is only so much money out there at the State level, but an unlimited amount st the Federal level.

Reminds me of a conversation I once had with a well educated lady. She was telling me about how she got sick in England and it was 'completely free!'.

I said: "Well, someone was paying for it"

She said "Yes, the government"

 

[LARS]

Fine. Then substitute "social security and Medicare" for pension, and see how the shoe feels on the other foot. Oh wait though, that will never happen simply because the majority of citizens would be impacted. So it's ok to vote away anything the majority doesn't benefit from. Gotcha.



Bankruptcy shouldn't be a way to run away from debts. Raising taxes and cutting government jobs and expenses is an alternative - just not palatable to those without pensions. But doing so would make ALL taxpayers share in the burden of fixing what their elected officials messed up instead of unfairly forcing that burden to be carried only by pensioners - who did their share by working decades and contributing in many cases around 10% of their lifetime income.

Staying focused on the issue of bankruptcy (so as to avoid Porky), generally speaking bankruptcy is not "a way to run away from debts". It is, however, a legal process that acknowledges the fact that the debts cannot be paid (again what can't be paid, won't); and, thus a legal mechanism (bankruptcy) is in place to orderly deal with fairly satisfying/extinguishing financial obligations.

Honestly, I would add that personally I do not think it an issue for most voters of "pension jealousy" as tax fatigue. Moreover, Social Security and Medicare, which while benefitting from the fact that they are obligations of the Federal government who has a printing press (which states and municipalities do not) will be susceptible to changes as well. Again what can't be paid, won't equally applies to Federal governments even with their printing presses (as printing presses only forestall but do not eliminate the laws of economics).


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[MichaelB]

This is a tough issue and many members are personally affected, so keeping the thread free of snark and political characterizations is greatly appreciated by all.

 

[pb4uski]

I would think at some point, the Federal government would issue a bailout. ....

Very unlikely IMO. The other 49 states residents are not going to be willing to pay for Illinois lack of fiscal discipline. I think bankruptcy is more likely and creditors will incur losses.

 

[Senator]

Reminds me of a conversation I once had with a well educated lady. She was telling me about how she got sick in England and it was 'completely free!'.

I said: "Well, someone was paying for it"

She said "Yes, the government"

Exactly. The beauty that the USA has is that when the USD gets printed, the rest of the world, helps pay for it too. It's actually pretty fair. The USA subsidizes almost the entire world, so it doesn't make me feel bad at all. When you hear the word trade deficit, translate that to subsidy.

Chicago pensions got into trouble by under-funding and/or overpaying obligations. The city of CHI cannot print money, and raising taxes gets people to vote for others. People have figured out that they can vote to increase their entitlements, by electing politicians that promise more. At some point, they reach the end, and that end is getting close.

Getting a federal bailout, and having the rest of the world help pay, makes sense. SS will get bailouts, PR will get bailouts, most healthcare plans need subsidies, businesses get subsidies, etc.

The CHI pensions will be fixed behind the scenes, and most people will never know, or care, what happened.

 

[pb4uski]

....Getting a federal bailout, and having the rest of the world help pay, makes sense. ....

Totally disagree. That makes no sense at all and sets a precedent where states could be irresponsible knowing that the federal government will bail them out. It would be better to let them go through bankruptcy where other states and municipalities would see that there are adverse consequences to bad decisions.

 

[LARS]

Totally disagree. That makes no sense at all and sets a precedent where states could be irresponsible knowing that the federal government will bail them out. It would be better to let them go through bankruptcy where other states and municipalities would see that there are adverse consequences to bad decisions.

Ding, ding, ding. We have a winner. Couldn't agree more.


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[Greencheese]

Overall you're going to see the issue of capital mobility. Now more than ever people and corporations are mobile and they can/will move to more favorable areas when push comes to shove. Sure they could fix the budget issues by increasing taxes to 50% of income (unreal I know), but people and businesses will react accordingly. Greece is trying to do that and now companies have moved across the border to Bulgaria to avoid the new taxes. In order to save Chicago and Illinois the government needs to make their location more attractive and worth the cost of staying. Better transportation, more safety, clean water, faster internet, good education opportunities, etc... you know, the things talk about wanting when they move to the big city. Getting people to want to be in Chicago and ultimately pay taxes is the way to get out of this fiscal mess. Cutting services and increasing taxes is increasing cash flow short term at the extreme detriment of growth and future money tomorrow.

[Mod Edit]

 

[ripper1]

This is a problem. Just because a majority of people don't have something doesn't mean they should get to vote it away for those that do. Maybe alter it for the future (like my private mega crop did 18 years into my career), but not undo contracts that were already honored by one party.

My DW is a RI teacher and got screwed by our government, who added 7 years to her retirement age, reduced her benefits and increased her contributions. This sets a terrible precedent about being able to vote away contracted obligations just because the angry mob is jealous.

A statute in the Illinois Legislation dating back 1970 was created as a pension clause in the constitution that stated pensions of public employees could not be diminished or impaired. The did this because they were shorting the pensions back then and even before. Now that the rooster has come home to roost they want to put it all on the backs of the employees that never missed funding their part. Instead of raising taxes a little at a time they were continually shorting the pensions to pay for services. It made them look good and they kept getting elected.

 

[Texas Proud]

This is a problem. Just because a majority of people don't have something doesn't mean they should get to vote it away for those that do. Maybe alter it for the future (like my private mega crop did 18 years into my career), but not undo contracts that were already honored by one party.

My DW is a RI teacher and got screwed by our government, who added 7 years to her retirement age, reduced her benefits and increased her contributions. This sets a terrible precedent about being able to vote away contracted obligations just because the angry mob is jealous.

If you DW's plan is like any of the ones that I have seen, that change is a 'go forward' change.... IOW, she can get what she was promised up to that change...

When Texas changed their plan, one of my sisters was on the edge... but was able to buy in and get under the old rules.... however, she could have quit and been under the old rules and gotten 100% of what she had earned to date...

 

[Texas Proud]

A statute in the Illinois Legislation dating back 1970 was created as a pension clause in the constitution that stated pensions of public employees could not be diminished or impaired. The did this because they were shorting the pensions back then and even before. Now that the rooster has come home to roost they want to put it all on the backs of the employees that never missed funding their part. Instead of raising taxes a little at a time they were continually shorting the pensions to pay for services. It made them look good and they kept getting elected.

I do not disagree.... but others have said (do not know if true) that the plan was funded just a few years back (IIRC, in the 80% range).... so what has happened in the last decade? I do not know if it is all due to not funding their part or not... could be...


However, it also does appear that the funding was not properly thought out as there is no money to make up the difference.... and that if nothing is done then all people with pensions will not get anything.... so something has to give... but hey, there is that pesky law (which I remember Texas passing a few years back and I thought it was very stupid to pass)....

So, you cannot tax enough to pay for the shortfall.... you cannot change the rules to make it where it can last.... so what do you do Seems to me that the only thing left is BK... as that is a federal law and the Illinois law is then mute....

Sorry to say that not all contracts work out... I would hate to be on the short end of this problem and do feel sorry for the people who are.... but life happens....


BTW, look at Greece.... they had to cut much more than Illinois and Chi will have too.... and they still are a basket case....

 

[Sandman62]

If you DW's plan is like any of the ones that I have seen, that change is a 'go forward' change.... IOW, she can get what she was promised up to that change...

When Texas changed their plan, one of my sisters was on the edge... but was able to buy in and get under the old rules.... however, she could have quit and been under the old rules and gotten 100% of what she had earned to date...

You're right that it was "go-forward" as far as the money. But her retirement age went from 28/30/35 years of service - by which she could've retired at the earliest at age 50 - to a new formula that pushed her to a minimum age 59. This was when she was already age 48+! Talk about being near the finish line and having it moved?!