Did the City wait too long?
Wednesday, May 13, 2015 - Posted by Rich Miller
* Former AFSCME Council 31 Executive Director Henry Bayer still regularly blasts out e-mails to his friends and acquaintances. Here’s his latest missive…
Did the City wait too long to raise revenue? Shouldn’t it have moved before getting to junk bond status? CFO made it quite clear long ago what needed to be done, just chose not to do it
* From a January 10, 2014 Chicago Policy Review interview of now-former Chicago CFO Lois Scott…
“The reason that we have received the rating agency downgrades that we have is not because we can’t afford our pensions, but rather because we haven’t funded them. Chicago is a highly levered organization, and the issue that the rating agencies and investors have with Chicago is that we can resolve our issues, we just have chosen not to.
“What we know, however, is that the minute we pull the lever of increasing revenue, our ability to drive reform in the system will be gone. The city needs to implement reforms that will promote long-term health, even if it means short-term stress and discomfort for people in the financial community about the fact that we haven’t increased revenues at this point. We are balancing revenues with reforms. That’s what you saw with the recent Chicago Park District reform proposal. When we enact reforms, we increase revenues. When the employees increase what they pay into the system, the state increases its contribution multiplier.”
I have enormous respect for Lois Scott, and that seems like a reasonable approach. But the process dragged out far too long, so Moody’s eventually lost patience and now the City is in junk bond territory.
- frustrated GOP - Wednesday, May 13, 15 @ 9:11 am:
Knowing that Rahm can’t let and won’t let the city go into bankruptcy, now might be a good time to buy Chicago bonds. Rates are high, they are tax exempt from Federal taxes. It could be a good deal.
BTW, how about excepting muni bonds bought in the Illinois from State taxes. Keep the money here so to speak.
- Cold - Wednesday, May 13, 15 @ 9:20 am:
Deliberately refusing to raise taxes in order to extort the life savings from City employees is “reasonable?”
- DuPage - Wednesday, May 13, 15 @ 9:22 am:
Time for Rahm to raise city taxes. Should have been done sooner.
- Wordslinger - Wednesday, May 13, 15 @ 9:26 am:
– we can resolve our issues, we just have chosen not to –
Should have stopped right there.
- Anonymous - Wednesday, May 13, 15 @ 9:28 am:
Yes.
Rahm saw what Daley had left him. But he wasn’t willing to make a clean break four years ago when he had the chance. Part of making a clean break would have been being honest about the financial situation, biting the bullet, and raising the property tax.
- Cold - Wednesday, May 13, 15 @ 9:30 am:
If being forced into a runoff didn’t squash Rahm’s future national aspirations, the junk bond rating is the kiss of death.
- Norseman - Wednesday, May 13, 15 @ 9:34 am:
Her approach is only reasonable if they come up with legal reforms.
I also found Scott’s quote, “even if it means short-term stress and discomfort for people in the financial community,” to be somewhat naive. The financial community doesn’t like to be stressed and it can create a little stress for the city as well.
So the crisis that you wanted to leverage your illegal solutions has now turned into a tragedy.
- Dirty Red - Wednesday, May 13, 15 @ 9:37 am:
= how about excepting muni bonds bought in the Illinois from State taxes. Keep the money here so to speak. =
I asked the same question a couple years ago, and was told there were regulations meant to thwart potential conflicts of interest that prevent it from happening.
- archimedes - Wednesday, May 13, 15 @ 9:38 am:
And therein lies the key fulcrum to both the State and City (and probably other municipalities) financial imbalance. If you fix it, you have lost some (or all) of your leverage with the pension members to negotiate a cut in costs.
It can be fixed with more revenue - but then why would pension members bend?
Notice that any government entity with IMRF pension plan which required regular payments is not having these problems.
The State neglected regular payments and gave the municipalities, Chicago Schools, etc. the authority to do the same thing. Now here we are…
- Biker - Wednesday, May 13, 15 @ 9:39 am:
There is plenty left to cut. We can reduce police overtime and stop the 10,000 marijuana arrests every year before we increase taxes a penny.
- Just Me - Wednesday, May 13, 15 @ 9:41 am:
It is just embarrassing that our civic leaders have allowed this to happen. I’ve never been one to advocate for “just throw them all out of office” but I’m dangerously close to it.
- walker - Wednesday, May 13, 15 @ 9:41 am:
Rahm had to win another term first. Such is our democracy, that those kinds of choices present themselves.
- Frenchie Mendoza - Wednesday, May 13, 15 @ 9:52 am:
The larger issue is that while increased revenue does indeed mean the end of reform (for now, at least) — this incessant idea of “reform” has no end date. This goes for Chicago and State.
No one is brave enough to say, “We’ve reformed. Now let’s move forward.”
Rauner won’t because (according to Rauner) that’s a perceived loss in leverage. So long as we’re “reforming”, there’s always leverage. Stop reform, and the leverage is gone. In Rauner’s case — not Rahm’s — it’s clearly leverage in punishment. So long as there’s leverage, there’s always a way to punish.
- Crispy - Wednesday, May 13, 15 @ 9:53 am:
@archimedes and others: So, basically, one reason the city (like the state) chose to shirk its responsibility to provide needed additional operating revenue, was to retain leverage in its ongoing campaign to continue shirking its responsibility to fund pension obligations? Is that the gist of it? This is a serious question, btw.
Anyway, wow. Talk about “deep yogurt,” on a bunch of levels.
- frustrated GOP - Wednesday, May 13, 15 @ 9:58 am:
I asked the same question a couple years ago, and was told there were regulations meant to thwart potential conflicts of interest that prevent it from happening.
Except in New York City, bonds issued there are triple except, since they have an income tax for the City. it’s an incentive to get people to buy bonds who live here. Yes, our income tax is low, but since all the bonds sold by Illinois Muni’s have a premium because we live here, maybe time to review how to create a market for them.
to Rahm, what is it he says, “Don’t let a good crisis go unused.” Junk status and CPS contract expiring, hmmm, something going to have to give. Maybe it’s time to raise taxes, by the way, why is CPS 1/2 the tax rate of almost every other school district outside of Chicago. Maybe it’s time people start paying for the services, Just like the suburbs.
- Cold - Wednesday, May 13, 15 @ 10:13 am:
Her comments remind me of Raoul’s “expediency” admission discussed in the Supeme Court opinion. If the City pension lawsuit goes forward (doubtful), those statements by the CFO are Plaintiff’s exhibit A.
- VanillaMan - Wednesday, May 13, 15 @ 10:25 am:
People don’t live forever. There is no reason to force reforms upon a system that gets reformed every time a city pensioned retiree passes into that great heavenly bureaucracy.
This drumbeat for reform is being driven by old people with money who seem to think they can take it with them. The current system can survive long enough to see the last Boomer become worm food.
Ongoing reforms can be enacted which will impact current and future employees. These smaller generations will soon become retirees one day as well.
I’m a bit tired of hearing reformers claim the ship is sinking now, and we have to shove everyone onboard off of it. A bunch of nonsense.
- Six Degrees of Separation - Wednesday, May 13, 15 @ 10:50 am:
Notice that any government entity with IMRF pension plan which required regular payments is not having these problems.
Well, I agree with part of that in that the municipalities and counties are not worried about the IMRF fun going broke anytime soon. There are, however, some communities who are having difficulty coming up with their share of the normal IMRF cost, mandated by law to be paid in full every year, in these austere times.
- Catrike - Wednesday, May 13, 15 @ 11:14 am:
Just repeat the mantra: “Chicago is not (the banned word)”, “Chicago is not (the banned word)”, as it slips into bankruptcy. Of course, it’s not. The only similarity will be that they are both bankrupt.
- Carhartt Representative - Wednesday, May 13, 15 @ 11:17 am:
The Chicago Teachers Union has been arguing that Chicago is broke on purpose. In other words, they’re saying that Chicago has refused to increase revenue so that they can cry poor and then impose a draconian contract with 10% or great pay cut. That seems to be exactly what Lois Scott said they were doing at City Hall.
- Under Further Review - Wednesday, May 13, 15 @ 11:23 am:
Remember when Rahm faulted Chuy for not having a plan? Okay, Rahm where’s yours? Unlike Garcia, you had the books.
- Wordslinger - Wednesday, May 13, 15 @ 11:40 am:
Catrike, you can say “Detroit” all you want, it just demonstrates your….. a lot of recently banned things.
A more apt analogy would be Orange County, CA, which went bankrupt due to the neglect and incompetence of a bunch of elected screwups and the big money business community who bankrolled their elections.
But Newport Beach and Disneyland are still pretty sweet.
- A guy - Wednesday, May 13, 15 @ 12:02 pm:
====walker - Wednesday, May 13, 15 @ 9:41 am:
Rahm had to win another term first. Such is our democracy, that those kinds of choices present themselves.===
Exactly. This boat has a lot of oars and everyone is going to have to grab one to get it moving. The ISC ruling wasn’t the end of anything. It was the beginning of real crisis management. It’s getting clearer by the day that this remedy is going to be a bitter pill all the way around. If I’m labor, I grab an oar and start fresh.
Everyone’s got plenty of leverage and plenty to lose. The environment has truly defaulted to a place where something serious can get done.
- anon - Wednesday, May 13, 15 @ 1:05 pm:
=== we can resolve our issues, we just have chosen not to ===
That applies as well to Springfield and D.C. It is why Americans believe government is dysfunctional.
- Truthteller - Wednesday, May 13, 15 @ 1:20 pm:
It’s one thing to withhold your rent as leverage to get the landlord to fix something that’s broken. Quite another to use that leverage because you want him to lower the agreed upon rent.