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* Bloomberg…
Puerto Rico, Atlantic City and Chicago school district bondholders have reason to fear a fight in court if the ailing governments collapse financially: recent cases show that when municipalities go broke, investors lose when pitted against municipal retirees.
The latest example is San Bernardino, California, which saddled bondholders with a 60 percent loss while keeping retirement benefits intact under a settlement last month aimed at ending its nearly four years in bankruptcy. That’s in line with the outcome of the local-government bankruptcies filed since the onset of the Great Recession, all but one of which sheltered pensioners from the deeper cuts extracted from investors who bought their debt.
“The more cases that come to light like this in favor of pensioners, the odds of breaking those precedents become lower and lower,” said Howard Cure, director of municipal research in New York at Evercore Wealth Management, which oversees $6.2 billion of assets. […]
“Pensions are faring far better than other creditors under Chapter 9,” analysts led by Peter Hayes, BlackRock’s head of municipal bonds, wrote in an note Monday. “This reinforces the view that bondholders need to be extremely cautious dealing with distressed municipalities.” […]
In every recent bankruptcy nationwide except for Central Falls, Rhode Island, pensioners have fared better than bondholders, according to Moody’s. In Detroit’s, the biggest, pensioners recovered about 82 percent of what they were owed, compared with 25 percent for bondholders, according to the rating company.
The dream of using bk as a tool to get out of paying pensions probably won’t work, although it could reduce pension costs. And it could still be used to bust up union contracts (which may be the real point here), although AFSCME is still alive in the Motor City.
…Adding… Squeeze the beast…
Gov. Bruce Rauner has all but sealed the fate of legislation pushed by Mayor Rahm Emanuel that would put off nearly $220 million in payments to the city’s police and fire pension funds, saying “there’s no way” he’d sign the bill without action on his pro-business, union weakening agenda.
posted by Rich Miller
Wednesday, Apr 13, 16 @ 12:33 pm
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Don’t forget all those contracts like the parking meters in Chicago.You are right the retirees will be the least hurt if the state allowed Chapter 9
Comment by illinois manufacturer Wednesday, Apr 13, 16 @ 12:38 pm
I think I’ve made that point one or two hundred times …
Comment by RNUG Wednesday, Apr 13, 16 @ 12:50 pm
Those that want the destruction probably think it’s worth it, in order to punish the retired government workers. There’s a good reason why bankruptcy hasn’t been permitted in Illinois, in the long run it’d be more costly.
Comment by AC Wednesday, Apr 13, 16 @ 12:52 pm
Those bond holders should sue. How is this not a violation of the 14th Amendment?
Comment by Robert the 1st Wednesday, Apr 13, 16 @ 12:55 pm
Who cares, the point is there will be debt relief. Why would I care if a bond holder loses money. Risk/reward.
Comment by Tone Wednesday, Apr 13, 16 @ 1:01 pm
The BigBrains probably had this all figured out all along right?
Nope
They have no clear.
Comment by Annonin' Wednesday, Apr 13, 16 @ 1:02 pm
at least they are strtic to say union weakening instead of turnaround when describing it. but its not weakening its elmination. when you remove the right to bargain over wages, benefits etc its pretty much union elimination. now if they would just call it what it is the budget battle would be properly framed.
Comment by Ghost Wednesday, Apr 13, 16 @ 1:04 pm
Tone + 1
Comment by blue dog dem Wednesday, Apr 13, 16 @ 1:05 pm
Yes! This is why I’m always so amused at those who think bankruptcy is the way to destroy public pensions. I enjoy pointing the exact above facts and telling whoever it is who thinks bancruptcy is a good idea that it would be fine with me. Better than laying the entire mess on public employees. Let everyone take a hit. It already is precedent that pensions are the most protected class in public bankruptcies. If officials want to declare bankruptcy in some misguided effort to shed pension obligations, they should be aware of the full consequences.
Comment by RIJ Wednesday, Apr 13, 16 @ 1:06 pm
Taxpayers should not be obligated to guarantee investment returns.
Comment by Tone Wednesday, Apr 13, 16 @ 1:12 pm
And, in Illinois its not just a contractual issue, it is a Constitutional one, retirees win, bondholders lose. End of story. Why should we care? The cost of future credit will be super high, the landlords and suppliers may refuse to deal with the state at all if they are zeroed out or take a huge hit.
Not a 14th amendment issue the bankruptcy proceeding is the due process of law.
Comment by burbanite Wednesday, Apr 13, 16 @ 1:14 pm
=How is this not a violation of the 14th Amendment?=
I’m not a lawyer and I didn’t sleep at a Holiday Inn Express last night, but I’m guessing there is no “equal protection” issue here because there is a big difference between a pensioner’s contract (and IL Constitutional protection) and the inherent and known risk of investing in municipal bonds.
Comment by MSIX Wednesday, Apr 13, 16 @ 1:20 pm
Any comment from Sandack the bankruptcy man?
Comment by Norseman Wednesday, Apr 13, 16 @ 1:25 pm
Does anyone know if Detroit pensioners still get a COLA under this BK settlement?
Comment by blue dog dem Wednesday, Apr 13, 16 @ 1:29 pm
Could bondholders claim such a loss for tax purposes? Pensioners?
Comment by Anon Wednesday, Apr 13, 16 @ 1:35 pm
=Does anyone know if Detroit pensioners still get a COLA under this BK settlement?=
I believe they took a 4.5% cut and lost their entire 2.5% COLA.
Comment by Robert the 1st Wednesday, Apr 13, 16 @ 1:43 pm
The state of Illinois needs to push pension obligations of teachers to the respective municipalities that created the obligations. It must also, allow municipal bankruptcy. Constitutions can’t protect anyone from math.
Comment by Tone Wednesday, Apr 13, 16 @ 1:44 pm
Started going down this path with the automaker bankruptcy. 200 years of bankruptcy law was turned on it’s head when the bond holders were moved to the back of the line in favor of the unions.
Comment by Downstate Wednesday, Apr 13, 16 @ 1:44 pm
–I think I’ve made that point one or two hundred times …–
LOL, try harder, RNUG. Maybe the governor and the Twitter Man will catch on yet.
–Who cares, the point is there will be debt relief. Why would I care if a bond holder loses money. Risk/reward.–
The Deadbeat Caucus is heard from.
What’s whack, Tone, is I bet you consider yourself a conservative, pro-business “climate” kind of guy. Just a conservative, pro-business climate kind of guy who doesn’t want to pay his bills for goods and services rendered.
When I came up, people worked themselves to death to pay what they owed.You know what? People of honor still do.
Back in the day on Illinois Main Street, being a deadbeat was a mark of shame. Now, it’s the central governing philosophy of the Illinois Republican Party.
Geez, I just depressed myself. Sox and Cubs at seven, Hawks at 8:30. Stay thirsty, my friends.
Comment by wordslinger Wednesday, Apr 13, 16 @ 1:46 pm
Under the city’s plan, the pensions of police and firefighters are not being cut, but their annual 2.25 percent cost-of-living adjustment is reduced to about 1 percent.
General workers will endure a 4.5 percent base cut in pensions and the elimination of an annual cost-of-living increase.
Comment by Tsavo Wednesday, Apr 13, 16 @ 1:47 pm
“when the bond holders were moved to the back of the line in favor of unions.” Was it in favor of unions, or of workers who may rely on public welfare if pensions are not paid?
Comment by NoGifts Wednesday, Apr 13, 16 @ 1:47 pm
Bond investments are a gamble and pensions are a contract.
Comment by Seymourkid Wednesday, Apr 13, 16 @ 1:59 pm
No gifts -
My point is that bankruptcy law up until a few years ago was pretty exacting. That’s why bond holders were able to judge the risk and rewards. The auto bankruptcy/bailout unfortunately inserted subjective standards into the process. That is a very slippery slope.
As an example, should a bankruptcy be judged differently because the creditor is a large credit card company versus a Mom and Pop store?
Comment by Downstate Wednesday, Apr 13, 16 @ 2:00 pm
==when the bond holders were moved to the back of the line in favor of the unions==
In favor of the employees. Bondholders take risks when they invest. That’s the difference.
Comment by Demoralized Wednesday, Apr 13, 16 @ 2:01 pm
=In favor of the employees. Bondholders take risks when they invest.=
Choosing an employer involves risk too. I remember a college professor telling my class over and over that you need to consider an employer’s financial health just as much as pay and benefits when considering working for them.
Comment by Robert the 1st Wednesday, Apr 13, 16 @ 2:03 pm
Again, Constitutions can’t stop risk and math from happening. Detroit is a clear example.
Comment by Tone Wednesday, Apr 13, 16 @ 2:07 pm
Word@1:46. I feel your pain a bit, but let me pose you a question. “assuming there will be no millionaires tax, do you support raising the income tax on the working poor and middle class back to the 5% rate?”
Comment by blue dog dem Wednesday, Apr 13, 16 @ 2:08 pm
Demoralized,
===In favor of the employees. Bondholders take risks when they invest. That’s the difference.===
Before the auto bailout, bondholders were considered “secured creditors”. I don’t think judges should be making a subjective call on whether employees should get 40% or 70% of the assets. It completely negates contractual law.
Carry that forward, and mortgages are essentially worthless.
Comment by Downstate Wednesday, Apr 13, 16 @ 2:12 pm
If the state passed a bankruptcy law that didn’t exempt pensions it would not pass IL supreme court rulings.
The unions in Detroit did not continue their lawsuits and settled, agreeing not to sue. The unions had demanded the sale of the Detroit Museum artworks and corporations coughed up millions to prevent that.
Comment by Liberty Wednesday, Apr 13, 16 @ 2:35 pm
Tone:
You keep droning on about constitutions and math as if somehow that droning absolves the state of payment of its pension obligation. The Court has made it clear - multiple times - that they have to be paid. That means a whole lot of things go to the back of the line. Unless the state completely stops collecting revenue the pensions will be paid. Instead of your constant droning about constitutions and math maybe you should work on accepting that the math will eventually have to work and that the solution is to work on a plan to pay those pensions. We’ve spent more time as a state figuring out how not to pay pensions than we have on paying them.
Comment by Demoralized Wednesday, Apr 13, 16 @ 2:40 pm
I don’t even want to think how costly it would be for the state to sell bonds if it went through bankruptcy.
Comment by SAP Wednesday, Apr 13, 16 @ 2:49 pm
Demoralized:
Tone still has a point. Obligations or not, if there is no money to pay a debt there is no money regardless of what the constitution says. I’m presuming Detroit had some form of pension guarantee clause and yet they still took a haircut on cola and monthly check amount.
Comment by Maximus Wednesday, Apr 13, 16 @ 3:23 pm
–Word@1:46. I feel your pain a bit, but let me pose you a question. “assuming there will be no millionaires tax, do you support raising the income tax on the working poor and middle class back to the 5% rate?”–
What pain is that?
I’m a white man who was born at St. Anthony’s Hospital in Rockford, Illinois, USA, in 1963.
Take a quick look around the planet, and the history of the planet, and you’ll see that’s about the sweetest deal, ever.
Once we get past these brainteaser questions as to whether or not we should pay our bills, I’ll tell you that I’ve got dues to pay and that the universal emancipation of women, children and people of color is the whole freaking ballgame.
To your specific question, I expect to get paid for my labor and I am scrupulous about paying my bills on time. Just your average run-of-the-mill progressive-liberal-commie. Whatever it takes, baby.
Comment by Anonymous Wednesday, Apr 13, 16 @ 3:32 pm
“Who cares, the point is there will be debt relief. Why would I care if a bond holder loses money. Risk/reward.”
——–
Rather direct, but essentially accurate.
Btw, if you really take a hard look at many of those bond issues, you are going to find a lot of ‘crony capitalism’ at play. Just look at some of the details in the most recent CPS bond issue.
Link is: https://medium.com/@munilass/chicago-public-schools-and-antisocial-behavior-in-the-capital-markets-3dea9a83ec03#.4tngyvuav
IF the purchasors of the bonds enter into a contractual agreement to buy the bonds with (a) their eyes closed, and (b) their ear plugs in so they can’t hear any warnings, that’s on them.
It’s called failing to perform ‘due diligence’ to protect the funds entrusted to you.
Have no sympathy for those bond investors.
———–
“I don’t even want to think how costly it would be for the state to sell bonds if it went through bankruptcy.”
———
Depends. First off, there would have to be enabling legislation, and regarding bankruptcy, nothing currently exists for State governments. Now, the situation could be radically changed due to Puerto Rico.
But that’s completely speculative at this point in time. It is likely something will happen there, we just don’t know what ‘that’ will be. Or when.
There’s a whole lot of moves still to play out on that particular (Puerto Rico) chessboard, and more of it is political related than financial.
We’ll see what happens.
Comment by Judgment Day Wednesday, Apr 13, 16 @ 3:56 pm
== if there is no money to pay a debt there is no money regardless of what the constitution says. ==
- Maximus -, the courts have been crystal clear. Right now, bonds and pensions get paid before everyone else, including municipalities, schools, employees, and regular state debtors. I suspect even tax refunds fall into that second tier but haven’t checked. There is always revenue coming in from all the taxes; currently the bonds and pensions (should the pension funds run dry) have first claim on it.
Comment by RNUG Wednesday, Apr 13, 16 @ 4:43 pm
===Why would I care if a bond holder loses money. Risk/reward.===
If you live in IL, your tax money goes to guarantee bonds of all types. If IL is a risky bond climate, the bonds get more expensive and the taxpayer’s dollar doesn’t go as far. Maybe it’s an argument for “pay as you go” government, with a bare bones paycheck-to-paycheck existence, and renting instead of owning.
Comment by Six Degrees of Separation Wednesday, Apr 13, 16 @ 4:52 pm
It should be noted that the state has all kinds of assets that previous generations of taxpayers paid for, that could be liquidated if things go that far. Some would call that “eating the seed corn”.
Comment by Six Degrees of Separation Wednesday, Apr 13, 16 @ 4:54 pm
“Who cares, the point is there will be debt relief. Why would I care if a bond holder loses money. Risk/reward”
If you are an Illinois taxpayer you should care very much unless you think the State will never again have to borrow money.
Comment by CapnCrunch Wednesday, Apr 13, 16 @ 5:09 pm
I tried to google an interpretation of anonymous@3:32 but had no luck. Could someone cipher that for old blue dog?
Comment by blue dog dem Wednesday, Apr 13, 16 @ 5:46 pm
Robert the 1st @ 12:55 ==Those bond holders should sue. How is this not a violation of the 14th Amendment?==
Do you mean the part where it says, “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”? Maybe if you read it, you could answer the question yourself.
Comment by Whatever Wednesday, Apr 13, 16 @ 8:29 pm
All the facts are correct, but it is also a fact that if there is no money, the pensions will still get shorted.
It will come down to a simple decision, accept a reduced payment or no payment.
It is my belief that all naming rights should be revoked from past politicians who created and contributed to this mess, i.e. no more Maggie Daley Park.
Comment by Rhino Slider Wednesday, Apr 13, 16 @ 8:50 pm
== All the facts are correct, but it is also a fact that if there is no money, the pensions will still get shorted. ==
see 4:43pm
Comment by RNUG Wednesday, Apr 13, 16 @ 9:05 pm
Any chance there is a circular reference (i.e. pension funds contain investments in bonds)?
Comment by Logic not emotion Thursday, Apr 14, 16 @ 6:19 am
The Illinois constitution prohibits the reduction of public employee pension. It’s a small segment of the population that’s “favored” for this advantageous provision. Thus all other are excluded from such protection. This is contrary to the U.S. Constitution Amendment 14 (equal treatment under the law). Thus that provision of the Illinois constitution is in conflict with the U.S. constitution and is UNCONSTITUIONAL. This approach should be used to challenge and change the Illinois constitution.
Comment by ZAnalyst Thursday, Apr 14, 16 @ 7:07 am
ZAnalyst is correct. Our state Constitution is an abomination. Scrap it.
Comment by Tone Thursday, Apr 14, 16 @ 7:35 am
Private sector workers in Illinois are second class citizens.
Comment by Tone Thursday, Apr 14, 16 @ 7:36 am
Michigan has “Constitutional protections” of pensions. Didn’t help Detroit pensioners.
Comment by Tone Thursday, Apr 14, 16 @ 7:39 am
== Michigan has “Constitutional protections” of pensions. Didn’t help Detroit pensioners. ==
Detroit pensioners mostly walked away almost whole. Bond holders walked way with 40%.
Comment by RNUG Thursday, Apr 14, 16 @ 7:58 am
== Any chance there is a circular reference (i.e. pension funds contain investments in bonds)? ==
I’m sure the pension funds hold some bonds along with stocks, etc.
Comment by RNUG Thursday, Apr 14, 16 @ 7:59 am
ZAnalyst:
I laughed out loud when I read your comment.
Stop and think about what you just argued. You just argued that anything that gives anyone something that everyone else does not have is unconstitutional. You better start going through the Constitution and laws of the State of Illinois, as well as the rest of the United States, and make a list of instances where that happens. You better have a lot of paper to write on because your list will be long.
Comment by Demoralized Thursday, Apr 14, 16 @ 8:39 am
Re 14th
In other words, the laws of a state must treat an individual in the same manner as others in SIMILAR CONDITIONS and CIRCUMSTANCES. (Emphasis added)
Generally, the question of whether the equal protection clause has been violated arises when a state grants a particular class of individuals the right to engage in an activity yet denies other individuals the same right. There is no clear rule for deciding when a classification is unconstitutional. The Supreme Court has dictated the application of different tests depending on the type of classification and its effect on fundamental rights. Traditionally, the Court finds a state classification constitutional if it has “a rational basis” to a “legitimate state purpose.” The Supreme Court, however, has applied more stringent analysis in certain cases. It will “strictly scrutinize” a distinction when it embodies a “suspect classification.” In order for a classification to be subject to strict scrutiny, it must be shown that the state law or its administration is meant to discriminate.
It’s clear from the minutes of the 1970 Con-Con the intention was NOT to discriminate; the intention was to AVOID discrimination against state retirees and make sure the State paid the pensions.
Think you would have a tough time making a case under the 14th amendment
Comment by RNUG Thursday, Apr 14, 16 @ 8:46 am
I think the problem that is not seen by most, is that any
Action taken will not be one and done. The world is coming
to the the greatest margin call in history, and Illinoisans
are rearranging the deck chairs on the Titanic. Look outside
and see that negative interest rates are becoming the order of
The day, and while you may fool the bondholders once, how
do you get cash once they’ve gone. Read IMF docs, look what’s happening in Japan and China or the Eurozone and
if you spend a little time I think you’ll realize how futile and darkly humorous the situation is. That is, trying to produce
cash where none exists. Ask Central States Teamsters.
Comment by Keynes Thursday, Apr 14, 16 @ 11:23 pm
I don’t understand why anyone could expect to be guaranteed earnings of 80%-100%+ of their salary in retirement plus 3% raises each year unless they plan to work in retirement. I graduated in the top 5% of my class in college, have a great job and income, work many more hours a year than any of my teacher friends, and max my 401K, but my 401K even with it maxed plus social security won’t guarantee the retirement income a teacher receives. We need to put the constitutional amendment to a vote and move teachers out of this welfare state and into a real world 401K-type of retirement program.
Comment by Jay Tuesday, Apr 26, 16 @ 9:01 pm