No easy way out
Wednesday, May 11, 2016 - Posted by Rich Miller
* I still disagree with it, but this is just one of many reasons why Gov. Rauner and others are pushing municipal bankruptcy legislation…
(G)iven the [Illinois Supreme Court’s] rulings on the sanctity of government worker pension benefits, some believe the city has no choice but to simply start paying the $11.2 billion owed to the two funds.
Among them is the Municipal Employees and Benefit Fund of Chicago, which is nearly $10 billion in the hole and at risk of going broke within eight years, according to a recent analysis it commissioned. The smaller Laborers Annuity and Benefit Fund has about $1.2 billion in red ink and is projected to run out of money in 11 years, according to its most recent audit.
Both pension funds backed the proposed benefit cuts the Supreme Court struck down. Now that a different approach is required, the municipal workers are pitching state lawmakers on proposals to shore up the fund by dramatically increasing the amount of taxpayer money going into it.
Under the proposal, the city would be required to come up with at least $509 million more in annual contributions to the funds within the next five years and at least $1.6 billion over the long haul. Where would the money come from? A Chicago casino, which still doesn’t exist despite two decades of city efforts. It’s the same money machine Emanuel is eyeing for the police and fire pension funds.
Even with a casino, the city would have to cut spending, raise hundreds of millions of more dollars each year or both to make the contributions required under each of the payment schedules under four different versions of the municipal workers’ plan. With Chicago’s sales tax already the highest among big cities in the nation, the one place the city can turn for new revenue without help from state government is the property tax — a particularly difficult political prospect given that taxpayers already are being hit up for the police and fire pension funds.
Ugh.
And for even more depressing news, go read the whole thing.
- weltschmerz - Wednesday, May 11, 16 @ 9:41 am:
Anyone else ever eat Spam? Tuna noodle casserole? Now they’re good for a trip down nostalgia lane. Then they were dinner. Cut the number of alderpeople in half. Eliminate their slush funds and find the guts to say no to the little prince.
- Ahoy! - Wednesday, May 11, 16 @ 9:42 am:
I have come full circle on the municipal bankruptcy for a couple reasons.
1. I hope it will stop unions from the old “we can just raise taxes to spend more.”
2. It makes lenders a lot more accountable and careful before lending governments massive amounts of money since millionaire/billionaire bond holders are the first paid.
Overall if bankrupt was an option, I think a lot more people would be careful and it would help bring accountability to government and the bondholders.
- wordslinger - Wednesday, May 11, 16 @ 9:43 am:
Boy, that Daley and Emanuel, they sure had financial gravitas — plus, City Councils and Boards of Education that exercised less independence than the North Korean Supreme People’s Assembly.
I thought dictatorships were supposed to be efficient?
- RNUG - Wednesday, May 11, 16 @ 9:53 am:
Three take-aways from the Trib story:
1) the writer still doesn’t understand the pension is an individual right and the unions can’t negotiate it away
2) It has been clear for along time that Chicago was going to need a massive property tax hike, not the quarter measure they did pass. If Rahm and company say they belived that was all the tax increase they needed, they are either lying or can’t do math.
3) Most of the people quoted misunderstand the consideration model and, like Cullerton, want to offer a choice between two diminishment.
- Blooms of Spring - Wednesday, May 11, 16 @ 9:54 am:
Story leads with “some think” they should pay what they owe. Only some? Methinks entities should pay what they owe.
- Hit or Miss - Wednesday, May 11, 16 @ 9:55 am:
===one place the city can turn for new revenue without help from state government is the property tax — a particularly difficult political prospect===
A property tax increase would be my first choice to find the money required to fund the pension debt for Chicago’s city workers. Considering the ‘political prospects’ in this matter is yet another instance of putting, or at least attempting to put, politics ahead of the mathematics of the situation. With the lowest property tax rate in all of Cook County, there is ample room for an increase in property taxes in Chicago.
- burbanite - Wednesday, May 11, 16 @ 9:58 am:
If they don’t appropriate to pay the bills incurred and “owing” for 2016, and the court says they don’t have to pay without an appropriation. Aren’t they defacto bankrupting anyway?
- Anonymous - Wednesday, May 11, 16 @ 9:59 am:
Bankruptcy, the governments answer to mismanagement! But afterwards things will not be the same!
- RNUG - Wednesday, May 11, 16 @ 10:01 am:
To the issue of municipal bankruptcy (or all non-state government entities) I believe they are pushing it as step 1. Once it is enacted, some people fully intend to dump the TRS pension liability on the local districts, expecting them to use bankruptcy to eliminate the debt.
This makes perfect sense because:
1) bankruptcy is what this Governor knows best
2) TRS is the largest pension fund the State is responsible for; eliminating it gets rid of more that half the current pension debt
3) and if the courts do side with the teachers / retirees, it will just increase pressure from the districts to bust unions, bust contracts, and eliminate prevailing wage as the districts only possible source of savings
Either way, Rauner would win some of his TA.
- Arthur Andersen - Wednesday, May 11, 16 @ 10:03 am:
Welt, tuna noodle casserole is a Lenten staple at my table. The rest of the year, not so much.
I agree with RNUG that the City’s finance folks are either clueless or dishonest about their revenue needs. Even this talk of a casino (which has a billion more moving parts than just the revenue side) ignores the fact that revenues won’t be available for several years at a minimum.
- CrazyHorse - Wednesday, May 11, 16 @ 10:09 am:
The problem with the Raunerite bankruptcy is that he only wants to bankrupt the pensioners. If they could line item it, I’m pretty sure they’d simply wipe away the pension debt and pay everybody else. Fortunately, it doesn’t work that way. You can’t cherry pick who gets paid and which debts are forgiven. A federal judge decides that.
- Arthur Andersen - Wednesday, May 11, 16 @ 10:09 am:
RNUG, when you put on your “doomsday scenario” hat, I get really scared.
A similar line of thinking likely lies behind Rahm’s multiple attempts to fold CTPF into TRS, with CPS paying future normal cost. A BK here, a BK there, and one heckuva cost shift is achieved.
- jeffinginchicago - Wednesday, May 11, 16 @ 10:15 am:
This is very simple and very hard. First taxes have to go up. Second wage increases are off the table. Third head count has to go down. The court has removed all other possibilities.
2 and 3 have to happen to keep the hole from getting bigger 1 fills the hole already created.
Nothing can go on as it has in the past.
- RNUG - Wednesday, May 11, 16 @ 10:20 am:
-AA-
What scares me is how easily I can put myself inside their heads …
And I don’t even put the really, really scary stuff out here in public.
- Ghost - Wednesday, May 11, 16 @ 10:22 am:
bankruptcy though primarily cuts off all the other creditors in favor of the pension funds. starting with those bond holders.
tou cant short a fund for decades and then fix it in one day. they need long term solutions. For example, do a casino and video poker at the airports, then do a bind for 10billion backed by requring the casino funds to lay the bind debt.
- illinifan - Wednesday, May 11, 16 @ 10:24 am:
Bankruptcy, private industry’s answer for poor decision making. Now they want to extend this to government. It does not solve the core problem, bad management. We should be working to enact policies that address some core funding issues that deal with poor management. Possibly a more iron clad budgeting process that accurately mirrors what is happening with certain triggers that kick in if the projected funds are below the receivables. While this is being done, they need to reinstate the tax increase, pay the bills and re-amortize the pension debt.
- jeffinginchicago - Wednesday, May 11, 16 @ 10:25 am:
Also based on the court rulings in CA I don’t think municipal bankruptcy is all that wise. The courts protected the pensions and hit the bondholders. Good for pensioners but we still will need to borrow in future. You have to satisfy both in my opinion for a strong city going forward
- Norseman - Wednesday, May 11, 16 @ 10:28 am:
=== … ignores the fact that revenues won’t be available for several years at a minimum. ===
AA, this seems to be a contagion affecting a lot of folks nowadays - especially Rauner’s folks.
- Jason Horwitz - Wednesday, May 11, 16 @ 10:29 am:
The author should have mentioned that the mayor’s plan that was shot down by the IL Supreme Court also required about $500m a year more in city contributions. The fact is, any plan to deal with the pensions will require a significant increase in city contributions because the source of the pension problem is chronic underfunding by city gov’t, which continues today.
- Cassandra - Wednesday, May 11, 16 @ 10:29 am:
Didn’t both the bondholders and the pensioners take a cut in Detroit? But I think the pensioners came out better than the bondholders. And of course all really controversial decisions got made by the judge. No risky votes for fearful pols.
Bankruptcy would be embarrassing to Mayor Rahm. But he may be political toast anyway. Have the real Democratic powerbrokers already written him off?
- RNUG - Wednesday, May 11, 16 @ 10:39 am:
== Didn’t both the bondholders and the pensioners take a cut in Detroit? But I think the pensioners came out better than the bondholders. ==
The judge had ruled the pensioners had to be made whole and even went so far as to order municipal assets sold at auction to satisfy the pension debt. This included such assests as their art museum. The bondholders got a very short end of the stick from the judge.
In the end, a group of wealthy Detroit citizens didn’t want to see “their” assets like the museum suctioned off, so they stepped up with massive contributions to the Detroit pensions to prevent that. Pensioners were made roughly 90% whole. Notably, the judge did not order those “saved” assets sold off to satisfy the bond debt, I believe because the bonds were primarily tied to revenue streams, not the assets of the city.
- BK Bro - Wednesday, May 11, 16 @ 10:44 am:
Without a significant tax increase, which many Chicagoans say they can’t afford, Chicago finances will inevidibly be managed by court orders, judges, and lawyers. No way around it. Eventually, Chicago will run out of road to kick a can down. The battle will ensue between bond holders, unions, and taxpayers.
- anon - Wednesday, May 11, 16 @ 10:49 am:
The Trib leaves out who caused the deep pension hole that is so expensive to fill in. Maybe Rahm should ask Richard M. for advice, since he did so much to create this pension crisis.
- Cook County Commoner - Wednesday, May 11, 16 @ 10:53 am:
The issue seems to be how much additional taxation without benefit to the private sector that private sector voters will tolerate. Judging from Mayor Emmanuel’s paralysis, he and his advisors have concluded they’re reaching a point where new taxes and the current state of the economy may cause Illinois’ usually low voter turnout to improve with unpredictable results.
- RNUG - Wednesday, May 11, 16 @ 11:02 am:
== The issue seems to be how much additional taxation without benefit to the private sector that private sector voters will tolerate. Judging from Mayor Emmanuel’s paralysis, he and his advisors have concluded they’re reaching a point where new taxes and the current state of the economy may cause Illinois’ usually low voter turnout to improve with unpredictable results. ==
The results are predictable: regardless, taxes will be going up and the politicians who voted for the increased taxes will be voted out.
- TinyDancer(FKA Sue) - Wednesday, May 11, 16 @ 11:22 am:
Isn’t a major portion of the pension payments going to the banks to pay interest on the debt?
Interest rates are at historic lows.
Homeowners are refinancing mortgages.
Without the Fed bailout, there would be no more big banks.
If I had to choose which to save - cities or big banks - I go with the cities.
The Fed should be allowed to refinance municipal debt.
End of problem.
- Anonymous - Wednesday, May 11, 16 @ 11:45 am:
The casino should go in the Thompson Center.
- JS Mill - Wednesday, May 11, 16 @ 11:49 am:
@ RNUG and AA +1
I have a hard time believing TRS debt will be pushed to schools. Regular costs, yes.
Where did the money go? Those funds were spent on something and it wasn’t pensions. Think infrastructure, social services, Pork projects etc.
- Union Man - Wednesday, May 11, 16 @ 11:54 am:
There is no reason for any school dist superintendent to get paid more than the Gov’s authorized salary.
Pensions earned as a legislator should never include state employment after leaving the ILGA
- lake county democrat - Wednesday, May 11, 16 @ 12:00 pm:
So in the case of CPS, a bankruptcy - if we apply Detroit’s ruling - would mean the toxic swap lenders would lose big, pensioners would lose 10%, current contracts would be nullified, CPS would be forced to sell its real estate assets, but at the end of the day it would shed hundreds of millions in debt. There are other negatives, but it sure seems like the option should be on the table and open to more discussion.
- RNUG - Wednesday, May 11, 16 @ 12:05 pm:
== Isn’t a major portion of the pension payments going to the banks to pay interest on the debt? ==
No, That is a misunderstanding. The pension debt is not owed to any bank; it is just a series of IOU’s that the State owes itself. Same as you promising to pay back the money you borrowed out of your emergency fund savings to take a vacation.
Right now that pension debt consists of payments you kinda, shoulda make to yourself. That’s why they can reduce or skip payments as desired.
Bonding out all that debt would make it real. You would have a fixed series of payments you could not skip .., and when revenue came up short, you would have to cut other spending or raise taxes. Today that is kind of optional; with bonds that debt is real.
- RNUG - Wednesday, May 11, 16 @ 12:07 pm:
== I have a hard time believing TRS debt will be pushed to schools. Regular costs, yes. ==
-JS Mills-, I’m going to the logical (but not necessarily legal) conclusion of that kind of thought pattern.
== Where did the money go? Those funds were spent on something and it wasn’t pensions. Think infrastructure, social services, Pork projects etc. ==
At State level, all of the above. In the case of CPS, apparently on increased salaries and charter schools.
- RNUG - Wednesday, May 11, 16 @ 12:10 pm:
- lake county democrat -
Based on what has happened elsewhere, that would be logical. But the judge would also look at ability to pay. In Detroit there was very little; Chicago (and Illinois) has the ability to pay, just not the political will. Big difference.
- Anonymous - Wednesday, May 11, 16 @ 12:12 pm:
==There is no reason for any school dist superintendent to get paid more than the Gov’s authorized salary.
Pensions earned as a legislator should never include state employment after leaving the ILGA==
Could not agree more.
- Rich Miller - Wednesday, May 11, 16 @ 12:14 pm:
===There is no reason for any school dist superintendent to get paid more than the Gov’s authorized salary.
Pensions earned as a legislator should never include state employment after leaving the ILGA ===
You’re spitting into the wind with these small-ball ideas. Have you any idea how big the problem is?
Also, it’s a rarity that someone has to be recruited to run for governor. Hence, the salary.
- RNUG - Wednesday, May 11, 16 @ 12:21 pm:
To clarify my 12:05 pm comment:
The pension IOU’s the State owes itself take into account a lot of factors including “projected earnings” and “interest” to arrive at the current amount owed.
- titan - Wednesday, May 11, 16 @ 12:22 pm:
Aren’t the city’s residential tax rates relatively low compared to the surrounding communities? I seem to recall Chicago residential taxes being a lot lower than those on comparably valued suburban residential properties.
- ZC - Wednesday, May 11, 16 @ 12:26 pm:
>> At State level, all of the above. In the case of CPS, apparently on increased salaries and charter schools.
School construction / renovation too. To buy political support Daley actually put a lot of money into many schools. Some (not all) of these schools Rahm closed, should have closed years ago, based on demographic trends, but it would have brought on political heat, whenever it happened, and Daley was determined to be ice-cold.
The one possible flaw here above is that if you canceled all the charter schools that would naturally boost the traditional public schools’ enrollment. So how you feel about the charters is obviously a big part of this story.
http://apps.chicagotribune.com/bond-debt/cps-bonds.html
- lake county democrat - Wednesday, May 11, 16 @ 12:41 pm:
RNUG - interesting. If the judge didn’t allow CPS *any* relief though based on an ability of the city to pay, they’re no worse off than they are now. Also as I recall, there was a lot of speculation as to what the Detroit judge would end up doing because these are uncharted waters - without a lot of precedence it’s hard to predict how a judge might use whatever discretion he/she is allowed.
- TinyDance(FKA Sue) - Wednesday, May 11, 16 @ 12:58 pm:
==The pension debt is not owed to any bank; it is just a series of IOU’s that the State owes itself. ==
I was referring to CPS debt. Isn’t much of that going towards interest?
Regardless - if we could get those payday lender enablers, the rating agencies, out of the picture it would be more affordable for CPS to borrow.
Allow the Fed to buy munis - at the same interest rate (near zero) they give to the big banks.
- RNUG - Wednesday, May 11, 16 @ 1:25 pm:
== I was referring to CPS debt. ==
I thought that was mostly the same as the state, CPS owing itself.
The only place where the banks are in the picture is when some of that debt actually gets bonded out by borrowing and committing to use future pension fund revenues to repay it … something Blago did back in the day.
- BBG Watch - Wednesday, May 11, 16 @ 1:32 pm:
== - RNUG - Wednesday, May 11, 16 @ 10:20 am:
-AA-
What scares me is how easily I can put myself inside their heads …
And I don’t even put the really, really scary stuff out here in public. ==
That’s the REALLY SCARY part!
- Sue - Wednesday, May 11, 16 @ 1:59 pm:
As someone who knows How Big The Problem really is- I commend Rich for his comment. In reality the present unfunded liabilities owed to all State and municipal pension funds( along with retiree health obligations) is so BIG that we are beyond the point of being able to resolve the issue thru modest tax increases (back to 5). For that reason I do not understand the reluctance to give Rauner most of what he is seeking. Perhaps Madigan is just unwilling to be honest with his supporters and to come clean. Absent some flexibility to reduce costs the ongoing actuarial increases owed to the Plans are going to swallow more and more of the annual expenditures leaving every other item in the budget to be shortchanged. For all of you who constantly just say pay up- you truly do not comprehend what $140 billion in unfunded liabilities at the state level only really represents. There is no politically acceptable way to address this and these past few year attempts are just laughable. Sure- the payments should have been addressed over the past 50 years BUT they weren’t and today’s taxpayers are not at fault. The real fault lies with past elected officials and past Union officials who negotiated the largess but didn’t demand that it be funded. The truth may hurt and no one in office other then Rauner seems willing to be calling anyone to account. Go ahead and resume taxes at 5 percent and next year you will see that our hole keeps getting deeper
- TinyDancer(FKA Sue) - Wednesday, May 11, 16 @ 2:04 pm:
=I thought that was mostly the same as the state, CPS owing itself.=
The swaps?
http://apps.chicagotribune.com/news/local/chicago-public-schools-bonds/
- TinyDancer(FKA Sue) - Wednesday, May 11, 16 @ 2:10 pm:
I believe they used (CAB) capital appreciation bonds, also:
http://www.npr.org/2012/12/07/166745290/school-district-owes-1-billion-on-100-million-loan
Michigan outlawed them and we should, also.
- RNUG - Wednesday, May 11, 16 @ 2:12 pm:
== The swaps? ==
That wasn’t pension debt, which is what I thought we were talking about.
- TinyDancer(FKA Sue) - Wednesday, May 11, 16 @ 2:16 pm:
2014 CPS debt, including CAB:
http://www.cps.edu/finance/FY14Budget/Pages/debtmanagement.aspx
- TinyDancer(FKA Sue) - Wednesday, May 11, 16 @ 2:20 pm:
Sorry, didn’t realize they 2016 numbers. These also include CAB:
http://cps.edu/fy16budget/Pages/debtmanagement.aspx
- TinyDancer(FKA Sue) - Wednesday, May 11, 16 @ 2:22 pm:
==The swaps?==
Look at the debt management graphs. They’re right there.
- Sue - Wednesday, May 11, 16 @ 2:42 pm:
Swaps have no relevance to any of the 5 state plans. The state plans other then the POB program reflect accounting liabilities and not bank or bond debt
- TinyDancer(FKA Sue) - Wednesday, May 11, 16 @ 2:46 pm:
=Swaps have no relevance to any of the 5 state plans. =
I’m referring to CPS debt.
We’re discussing municipal bankruptcy, right?
- Enviro - Wednesday, May 11, 16 @ 4:35 pm:
“No easy way out”
True.
But there is an honest and fair way out. That would be a progressive state income tax that includes most retiree income.
This would provide a shared sacrifice by everyone that is fair to all.
- Sue - Wednesday, May 11, 16 @ 4:56 pm:
Progressive income tax is never going to fly because of the required change to the constitution. What we need is for the legislature to permit Rauner to achieve some of the TA starting with his final proposal on the AFCSME contract
- RNUG - Wednesday, May 11, 16 @ 5:31 pm:
== Progressive income tax is never going to fly … ==
because the 1.4% will spend whatever it takes to defeat it.
- Arthur Andersen - Wednesday, May 11, 16 @ 5:36 pm:
Sue, your comment about swaps losses and the State pensions belies your lack of understanding about how the systems actually operate, your prior assertions notwithstanding.
If a fund, or more likely an external money manager, loses a dollar on a swap in the fund’s portfolio, that’s a dollar the fund has lost. The managers don’t eat the difference or cover their bad trades. That is more than the “accounting liability” you want it to be.
- cannon649 - Wednesday, May 11, 16 @ 9:36 pm:
i believe a comparison to the Detroit BK is very realistic. The agreements will all be redone. Several of the assets will get some type of private help. The longer this takes the bigger the cuts.
I can not see any other way and their is leader coming stepping that can get a workable solution.