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Chicago-style accounting

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* Have you been wondering where CPS got the money to make its $634 million pension payment yesterday? I’m told they took out some more loans based on future revenues, like this fall’s property taxes. And now they want another one…

One day after using borrowed money and savings generated by 1,400 layoffs to make a $634 million payment to the teachers pension fund, Mayor Rahm Emanuel’s administration is asking the pension fund for a $500 million loan.

At a pension fund meeting Wednesday, Chicago’s newly-appointed Chief Financial Officer Carole Brown said she’s well aware it’s a “big ask,” particularly after the history of pension holidays and partial payments that created the $9.5 billion pension crisis at the Chicago Public Schools. […]

Although pension fund trustees expressed their “general overall support,” it wasn’t without a heavy degree of hand-wringing.

One trustee questioned the idea of “hoping Springfield can come through for us” in the toxic atmosphere of a state budget stalemate between Democratic legislative leaders and Republican Gov. Bruce Rauner over Rauner’s demand for pro-business, anti-union reforms.

posted by Rich Miller
Wednesday, Jul 1, 15 @ 12:53 pm

Comments

I cannot see how the trustees of CTPF can do this while still fulfilling their fiduciary duties.

Comment by TotesMcGoats Wednesday, Jul 1, 15 @ 12:55 pm
The just paid them 1 day ago and now they want they want most of it back as a loan? Something seems wrong with that.

Comment by DuPage Wednesday, Jul 1, 15 @ 12:58 pm
Are Chicago Style and Ponzi Scheme synonymous?

Comment by vole Wednesday, Jul 1, 15 @ 1:00 pm
Have they considered asking for more tax revenue?

Comment by Enviro Wednesday, Jul 1, 15 @ 1:02 pm
Is hizzoner on the medical marijuana patient list or what? What is he smoking….I’m gonna pay the bill, and then tomorrow, call and ask to borrow it back…AND pay interest on it?
Wow!
If the trustees of the Pension fund do that deal, IMHO, they ought to be hauled into court and sued for violating their fiduciary responsibilities. Sheeeesh

Comment by northernwatersports Wednesday, Jul 1, 15 @ 1:02 pm
CPS pays the pension fund and then borrows most of it back from tne pension fund.

That’s some financial gravitas!

I saw that movie. Donnie Brasco and Lefty Two-Guns exchange envelopes full of an equal number of hondos.

They’re buying time, hoping some real money eventually comes out of Springfield.

Comment by Wordslinger Wednesday, Jul 1, 15 @ 1:03 pm
I just can’t even.

Comment by Team Sleep Wednesday, Jul 1, 15 @ 1:04 pm
Is this the same as check kiting?

Comment by Keyser Soze Wednesday, Jul 1, 15 @ 1:05 pm
Didn’t they turn down accelerated payments offered by Rauner with the argument that they wouldn’t see FY16 funds to pay FY15 bills?

I don’t see the difference, except that the current choice probably has interest attached to it, and the Gov’s Office didn’t. Good choice.

Comment by Phenomynous Wednesday, Jul 1, 15 @ 1:07 pm
Where does Rahm buy pants to fit stones that size?

Ahem, to the Post, I’m not sure it’s a fiduciary breach if adequate security is provided and the rate of interest is proportional to the risk. Devil in the details and all that.

Having said that, AA wouldn’t do it. No how, no way.

Comment by Arthur Andersen Wednesday, Jul 1, 15 @ 1:09 pm
Seen this show before doesn’t end well. This is paying you cc to get it under the limit and then borrowing up to the limit again. At some point you have to stop digging.

Comment by Mason born Wednesday, Jul 1, 15 @ 1:10 pm
Apt reference to Donnie Brasco. ‘Fugazi’ = ChiTown politics

Comment by Anonymous Wednesday, Jul 1, 15 @ 1:11 pm
Meanwhile, what is Cullerton doing with a property tax freeze?

Comment by Anonymous Wednesday, Jul 1, 15 @ 1:13 pm
But will the $500 million loan go to paying off the $634 million loan? Or perhaps they are investing the money in Puerto Rican bonds?

Comment by A Jack Wednesday, Jul 1, 15 @ 1:16 pm
===Or perhaps they are investing the money in Puerto Rican bonds?===

Hilarious.

Comment by Rich Miller Wednesday, Jul 1, 15 @ 1:17 pm
They are borrowing and hoping the state tax payers will pick up the bill for their financial mismanagement of the CPS.

Comment by Anonymous Wednesday, Jul 1, 15 @ 1:19 pm
Smart move, actually. Gives the Pension Fund ownership and control of the funds. Sidesteps the need for Springfield cooperation (which doesn’t seem like it was gonna happen).

Yes trustees are fulfilling their fiduciary duties. They make investments all the time. And when this investment ensures contributions will still be coming into the Fund out of teacher paychecks, the better argument is that voting against it, given the financial condition of CPS, would violate their fiduciary duty.

Comment by chi Wednesday, Jul 1, 15 @ 1:20 pm
Rahm’s mismanagement continues. Probably going to blame Daley for his own inability to manage anything other than his DC press clippings.

Comment by From the 'Dale to HP Wednesday, Jul 1, 15 @ 1:22 pm
– Gives the Pension Fund ownership and control of the funds.–

Huh? They have that without loaning the money.

You understand that Emanuel just used this three-card-monte play to fire 1,400 teachers?

Comment by Wordslinger Wednesday, Jul 1, 15 @ 1:24 pm
Word, excellent. Now I’m gonna have to find that movie tonight.

Comment by Arthur Andersen Wednesday, Jul 1, 15 @ 1:24 pm
Borrow from the pension fund - brilliant! Why hasn’t anyone figured that out before? /s

Comment by Anon Wednesday, Jul 1, 15 @ 1:33 pm
100% of the pension funds should be invested in Illinois paper. There is absolutely no risk as the Supreme Court has determined that pensions must be paid no matter what.

Comment by A. Staller Wednesday, Jul 1, 15 @ 1:39 pm
Per the article: “part of this agreement includes a 7.75 percent return, which is your assumed actuarial return.”

I would be more than happy to loan Chicago some cash at a guaranteed “cannot be diminished or impaired” 7.75% ROR.

Comment by nixit71 Wednesday, Jul 1, 15 @ 1:42 pm
Nix, thanks for adding that data point. My phone wouldn’t open the S-T article earlier.

7.75% “guaranteed” is not bad. The sticky wicket is whether or not they will ever be able to get their money out. A mortgage on buildings that are hard to sell ain’t the best security, either.

Comment by Arthur Andersen Wednesday, Jul 1, 15 @ 1:56 pm
===Smart move, actually. Gives the Pension Fund ownership and control of the funds.===

If the pension fund makes a loan to the City of Chicago I do see that they have the ownership of the funds. However, I do not see where they have much in the way of control of the funds once the loan is made.

The bond rating agencies all give Chicago a poor rating to the City of Chicago. The pension fund would better meet its fiduciary duties if it loaned its funds to another, and preferably several, borrower with a better bond rating. The pension fund should look to lower its risk, not to increase the risk.

Comment by Hit or Miss Wednesday, Jul 1, 15 @ 2:05 pm
“Remain Calm. All is Well”

Oops….
—————–

“Iceberg!

That’s not an iceberg. It’s just a really large ice cube”

Oops…..

Comment by Judgment Day Wednesday, Jul 1, 15 @ 2:09 pm
I long for the good old days when Rahm spoke of no more smoke and mirrors accounting. I guess like counting 14 months of revenue against 12 months of expenses.

Comment by james the intolerant Wednesday, Jul 1, 15 @ 2:13 pm
“7.75% “guaranteed” is not bad. The sticky wicket is whether or not they will ever be able to get their money out. A mortgage on buildings that are hard to sell ain’t the best security, either.”
———-

Not to mention that evil word “Asbestos” in many of those older structures…….

Comment by Judgment Day Wednesday, Jul 1, 15 @ 2:13 pm
I guess they can look on this as investing in CPS.

Comment by Wensicia Wednesday, Jul 1, 15 @ 2:14 pm
Thanks in part to the S Ct and decades of mismanagement this is the Illinois/Chicago we now inherit. Every revenue dollar anyone can borrow or raise goes toward paying retirement benefits while the rest of us are left with reduced services. Something drastic needs to happen which is why I presume Rauner says sign onto reforms or refuse to proveed with a budget. How can anyone same disagree with him

Comment by Sue Wednesday, Jul 1, 15 @ 2:43 pm
“Thanks in part to the S Ct and decades of mismanagement this is the Illinois/Chicago we now inherit. Every revenue dollar anyone can borrow or raise goes toward paying retirement benefits while the rest of us are left with reduced services.”
————-

First off, the “reduced services” (i.e.; hollowing out of operations) has not happened - YET.

It’s likely to occur - but not yet. Probably will start during this fiscal year, (re: as many as 1400 CPS layoffs), but limited.

IMO, the 2016-2017 budget is going to be the one where the service reductions really starts to occur.

This fiscal year, we still have choices. We could set the income tax levels back to where they were (assuming we can get a deal), but it sure looks like for 2016-2017 FY that we are plumb out of alternatives - and that’s only at the state level.

City of Chicago, Cook County government, and CPS - well, good luck.

The smart players need to be looking ahead.

Let’s remember that right now there’s a lot of smart players out there saying our financial recovery is getting really long in the tooth. You got to plan for the possibility that things could go sideways, and if that happens, there is the possibility of lower pension investment returns.

What you gonna do then……

Just saying….

Comment by Judgment Day Wednesday, Jul 1, 15 @ 3:11 pm
==This fiscal year, we still have choices. We could set the income tax levels back to where they were (assuming we can get a deal)==

I don’t see Rauner raising the income tax rate back to 5% ever, even if most of his turnaround agenda is adopted. That would be too Quinnsian of him.

I do, however, foresee a 4.5% rate with additional services subject to sales tax.

Comment by nixit71 Wednesday, Jul 1, 15 @ 3:23 pm
During the election the turnaround agenda was not made clear to the voters. The smart people now realize that a property tax freeze will hurt their local school districts and municipalities. The workers realize that they will be hurt by right to work zones and allowing local governments to opt out of collective bargaining with public-employee unions and prevailing wages. This is clearly a race to the bottom that the voters did not sign up for.

Comment by Enviro Wednesday, Jul 1, 15 @ 3:27 pm
I hope nixit is right although given Illinois’ history of poor governance in recent decades, I’d add temporary to the tax increase again. If the economy improves, along with tax receipts, all taxpayers deserve a chance at the extra money, not just our highly dysfunctional (and greedy) political class. So let the pols defend this tax increase on the middle class (the rich won’t feel it) on occasion. Left to their own devices, the pols will spend any amount of cash that comes their way. And not just “for the people.” For themselves.

Comment by Cassandra Wednesday, Jul 1, 15 @ 3:43 pm
Isn’t “race to the bottom” a banned phrase here? It should be.

Are you referring to the public sector “race” that has no competition, forced payment of entry fee even if you do not wish to race, and no freedom to choose what race you wish to run? Because that is not a race. That is my high school walk-a-thon.

Comment by nixit71 Wednesday, Jul 1, 15 @ 3:44 pm
Wasn’t New York in a similar situation in the 1970’s?

http://www.nytimes.com/2006/12/31/nyregion/31default.html?_r=0

Comment by I guess nothing is really new... Wednesday, Jul 1, 15 @ 3:50 pm
“I don’t see Rauner raising the income tax rate back to 5% ever, even if most of his turnaround agenda is adopted. That would be too Quinnsian of him.”
————-

Actually, it might be the smart long-tem play. He puts the rate back to 5%, he basically takes any future income tax increase off the table during his term as governor. It’s done.

But to get him there, it’s pretty much pass most of the Turnaround agenda into law.

The Democrats want increased taxes beyond that, better have a veto proof majority in both houses.

If the Turnaround Agenda is going to have a temporary sunset provision, well, expect the same limits to apply to the income tax reinstatement.

Maybe the beginnings of a deal…..

Maybe….

Comment by Judgment Day Wednesday, Jul 1, 15 @ 4:38 pm
So, let’s see. Is this robbing Peter to pay Peter or robbing Paul to pay Paul?

Answer: who cares?
Ugh.

Comment by A guy Wednesday, Jul 1, 15 @ 4:40 pm
Forget a out it Jake it’s Chi-Town.

Comment by William Jennings Bryan Thursday, Jul 2, 15 @ 12:34 am