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Moody’s: It’s really bad

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Illinois

* Greg Hinz looks at a new study of the Chicago pension situation…

In the report, Moody’s says that despite the recent adoption of the biggest property tax in Chicago history—$543 million over four years—the unfunded liability in the city’s four pension funds will continue to rise for at least 10 years and, potentially, until some time after 2030. […]

Moody’s looks at four scenarios, assuming various possibilities about whether Gov. Bruce Rauner signs a bill that would allow the city to defer an additional $200 million a year or so needed for the police and fire funds, and whether the Illinois Supreme Court upholds a lower court ruling tossing out reforms in the laborers’ and municipal funds that cut benefits while requiring somewhat increased city contributions.

Under the “best” scenario, in Moody’s view, Rauner doesn’t sign, the courts say yes, and the city comes up with the additional hundreds of millions from, well, somewhere. Assuming City Hall doesn’t borrow the money, gross unfunded liability would top out at around $22 billion and begin dropping around 2022.

On the other hand, what many insiders believe is the most likely scenario—Rauner signs, and the courts say no—unfunded liabilities still will be rising in 2030, nearly doubling to just under $40 billion. That means the two funds would “deplete (their) assets in approximately 10 to 13 years.”

The full report is here.

posted by Rich Miller
Tuesday, Nov 10, 15 @ 1:11 pm

Comments

Yet election after election, the big money business boys, including the governor, rained money on Daley and Emanuel because they had “gravitas,” as Sen. Kirk would say.

The editorial boards backed them to the hilt, too.

Comment by Wordslinger Tuesday, Nov 10, 15 @ 1:34 pm
I imagine CPS will be forced into some sort of bankruptcy within the next 10 years.

Comment by Tone Tuesday, Nov 10, 15 @ 1:43 pm
Yea it’s always Rauners fault somehow. LOL.

Comment by Allknowingmasterofraccoondom Tuesday, Nov 10, 15 @ 2:08 pm
Do they even mention retiree healthcare debt or this article just on pension debt? When you throw in the County’s, CPS’s and other taxing bodies mess, things don’t look too bright right now.

Comment by Luther Pendragon Tuesday, Nov 10, 15 @ 2:10 pm
Time to raid the TIF fund.

Comment by Anonymous Tuesday, Nov 10, 15 @ 2:14 pm
Yeah, where is the complete outrage regarding decades long gross mismanagement by the democrats????

Blame Bush, blame Rauner!! Sheesh.

Comment by anon Tuesday, Nov 10, 15 @ 2:15 pm
“Kick the Can” financing is clearly less acceptable and the more people/organizations are are start to look at details and effects of the massive liability.

Sad fact is no solution(s) in site.

I really question Moody’s on the $200 million the discussion of the deferral. Who would do that given where the City/State are currently (if they really want to be paid)? This is not the prior handling a major part of the many current government problems? Again “Kicking the Can”.

Comment by Cannon649 Tuesday, Nov 10, 15 @ 2:18 pm
Supreme Court to hear oral argument on City pension case on November 17th. http://www.illinoiscourts.gov/SupremeCourt/OralCal/2015/11-15.pdf

Comment by Anonymous Tuesday, Nov 10, 15 @ 2:39 pm
It is about demographics, folks.
Boomers will have died out enough by 2030 so that the “crisis” begins to ebb.

The Boomers are the biggest generation in history, the biggest retirement generation in history and they were employed by government before technology started replacing human beings, so there were more Boomers in governments.

All of them retiring.

The Boomers need to offset the costs they are inflicting upon their own retirement and pension plans. There needs to be a retirement income tax placed upon them for the next twenty years.

No one planned on them eating up everything, and it is time that they help pay for what they are breaking.

Comment by VanillaMan Tuesday, Nov 10, 15 @ 2:52 pm
Maybe Chicago will close up shop and move to Indiana.

Comment by Team Katniss Tuesday, Nov 10, 15 @ 2:52 pm
@ VM:
That was one of the best posts recently. Unfortunately, it is not practical because BB’s are still a large voting bloc.

“It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
Upton Sinclair

Comment by Jockey Tuesday, Nov 10, 15 @ 3:00 pm
I would love to see Moodys actuarial analysis to see if this includes not one,but two increases in life expectancy by 2030.

Comment by blue dog dem Tuesday, Nov 10, 15 @ 3:13 pm
Well…if anyone was wondering a way for Governor Rauner and the House & Senate GOP caucuses to get some of the Turnaround Agenda passed, bailouts may have to be on the table. Both sides need to swallow the syrup.

Comment by Team Sleep Tuesday, Nov 10, 15 @ 3:14 pm
Just let it all fall down like a house of cards.

Comment by Anonymous Tuesday, Nov 10, 15 @ 3:44 pm
“The only reason that the CTPF went from nearly 100% funded in 1995 to 58% funded now is because CPS took successive pension holidays and paid nothing for 10 years into the pension and asked for pension relief in April of 2010 in the amounts of $400 million per year until 2013.”
http://www.ctunet.com/legislative/protect-our-pensions/questions-answers-about-the-chicago-teachers-pension-fund

Comment by Enviro Tuesday, Nov 10, 15 @ 3:52 pm
Well, there you have it. More proof that the tax increase was not nearly enough to stop the bleeding.
I know its not a popular position here, but Illinois needs to amend its Constitution to permit a downward adjustment to the current pension liabilities of the State, City of Chicago and the scores of other units of local government in the State that can never tax enough to cover the shortfalls in their pension liabilities. Tough medicine but its time.

Comment by In a Minute Tuesday, Nov 10, 15 @ 3:56 pm
== Illinois needs to amend its Constitution to permit a downward adjustment to the current pension liabilities of the State, City of Chicago…==

Here is a better idea:

Illinois needs to amend its Constitution to require that the state and the city of Chicago make their share of the pension payments.

Comment by Enviro Tuesday, Nov 10, 15 @ 4:02 pm
===Sad fact is no solution(s) in site.===

From a political point of view this may be true. From a mathematical point of view the solution is immediately obvious, Chicago, CPS, etc. needs to raise taxes.

===City of Chicago and the scores of other units of local government in the State that can never tax enough to cover the shortfalls in their pension liabilities.===

With the lowest property tax rate in Cook County, the City of Chicago has plenty of ‘opportunity’ to tax its way out of its unfunded pension problem. But it must at the same time learn not to make the same bad decisions it has in the past.

Comment by Hit or Miss Tuesday, Nov 10, 15 @ 4:08 pm
VanillaMan

And you DO know, don’t you that if the pension fund had been properly paid each and every year just like IMRF has been, there would be no issue? That’s just so hard for you to admit, isn’t it? Too many IMRF retirees? That fund is over 96% funded because employers were legally required to make the payment each and every time. Or are there too many retirees there too? It’s just so hard for you to accept that you’ll be an old person some day, isn’t it?

Comment by Anonymous Tuesday, Nov 10, 15 @ 4:13 pm
****Anonymous - Tuesday, Nov 10, 15 @ 4:13 pm:

VanillaMan And you DO know, don’t you that if the pension fund had been properly paid each and every year just like IMRF has been, there would be no issue?*****

And who were the taxpayers and legislators, so easily persuaded that there was a way out of paying the bills? The BOOMERS. As they say: Try to keep up.

Comment by West Sider Tuesday, Nov 10, 15 @ 4:44 pm
New Trier style property taxes for Chicago public schools ! That’s the winning solution for happy taxpayers and social justice warriors of Chiccago.

Comment by Steve Tuesday, Nov 10, 15 @ 4:45 pm
City, county, state and property tax increases likely for Chicago residents.

Ugh.

Comment by Formerly Known As... Tuesday, Nov 10, 15 @ 4:54 pm
I suppose that Moody’s is assuming that Chicago’s population and tax base will remain the same over the next 20 years…

MSN Money: Chicago stuck in pension squeeze despite millions in new taxes: http://www.msn.com/en-us/money/markets/chicago-stuck-in-pension-squeeze-despite-millions-in-new-taxes/ar-CCcxVG

“But the rising burden is also crowded out spending on other services provided by state and local governments. Higher taxes and city service cutbacks prompt residents and businesses to move elsewhere, dampening a city prospects economic growth and reducing the tax base.”

Comment by Luther Pendragon Tuesday, Nov 10, 15 @ 5:23 pm
What does it take to amend the Illinois Constitution? I thought that could only happen every 20 years.

Comment by Anonymous Tuesday, Nov 10, 15 @ 5:32 pm
@Enviro - If I may borrow from my previous post today, per a Chicago Catalyst article circa 1995…

Using pension money for the regular budget is not a new practice. With the agreement of the Chicago Teachers Union, the Legislature transferred pension funds to its regular operating budget from 1990 through 1993; the move helped pay for teacher raises and bonuses.

So let’s not pretend the CTU is completely innocent in all this

Comment by nixit71 Tuesday, Nov 10, 15 @ 5:39 pm
Did some research. Moody’s, the crap ratings agency that it is, did not formulate life expectancy increases in its analysis. What a worthless waste of print. Take this to the bank, old blue dog boldly predicts this charade can only last 7 years, less if the state fails to pony up. Folks, I hate to be so pessimistic, I have been censored before, but I really don’t think there is a formula that solves this problem other than a recalc of promised benefits. Sorry!

Comment by Blue dog dem Tuesday, Nov 10, 15 @ 5:47 pm
Wait, I thought “billionaires and millionaires” were the villains, especially as personified by Rauner. But it’s the Boomers now? Despite all the admonitions on this blog, it’s hard to keep up.

Comment by perry noya Tuesday, Nov 10, 15 @ 5:58 pm
West Sider

Unhappy home life as a child, eh? Hate the parents?

Comment by Anonymous Tuesday, Nov 10, 15 @ 6:06 pm
It is obvious from the report that the recent property tax increases, while a good first step, will not be sufficient to solve the pension funding problem long-term. So I have two questions:

1) When the property tax increases are fully implemented, what will be the ratio of total tax collected to the market value of all real estate in Chicago, and how will this compare to the ratio that prevailed throughout the 1980’s? My gut tells me that the ratio will still be considerably less, meaning that the city would have leeway to raise taxes further, at least in theory.

2) Has Chicago impemented a reduced benefit Tier 2 for new employees, as the state did in 2010? If not, now would be a good time to do so.

Comment by Andy S. Tuesday, Nov 10, 15 @ 6:42 pm
“but I really don’t think there is a formula that solves this problem other than a recalc of promised benefits.”
———-
IF the pension issue currently before the State Supreme Court goes against the City, the recalculation of pension benefits is even off the table.

The options then are:
1) Raise taxes as required.
2) Hollow out existing programs & re-allocate that money to pay the pension benefits.
3) State legislature passes legislation allowing units of local government to file for federal bankruptcy.

Great options, huh?

Now this could change down the road. Hint: Pay attention to what happens with Puerto Rico.

Comment by Judgment Day Tuesday, Nov 10, 15 @ 6:46 pm
I was gone all day so late to the party and haven’t read all the comments, but wanted to address this reoccurring theme …

Enough already about amending the State Constitution. For most government employees, the pension level promised was already changed FOR NEW HIRES (the only legal way to change it) by ‘Tier 2′ in 2011.

Even if you eliminate the pension clause, the debt doesn’t go away. Like it or lump it, you can’t legislate away the existing and already contracted for pension debts of any of the government entities … so the only LEGAL solution is to pay it. Everyone needs to figure out the best way to pay it, either by bonding it out with a dedicated revenue stream, or just a straight tax increase and the fortitude to actually make the required payments.

Comment by RNUG Tuesday, Nov 10, 15 @ 7:19 pm
== So let’s not pretend the CTU is completely innocent in all this ==

I agree; none of the unions are completely innocent when it comes to the pension mess. BUT, and it’s a BIG BUT, the IL Supreme Court had already told the unions in 1975 that in Illinois government could choose any method to fund the pensions.

So while the unions didn’t have to wholeheartedly agree with various pension holidays and fund diversions, the unions also had no legal means to stop said diversions except just complaining to the people doing the under-funding / non-funding.

Comment by RNUG Tuesday, Nov 10, 15 @ 7:25 pm
Bottom line - tax retirement income to help offset the costs occurring due to an over abundance of Boomer blessings.

Anonymous - you are not a victim. Quit yer whining, BABY Boomer.

Comment by VanillaMan Tuesday, Nov 10, 15 @ 7:52 pm
@RNUG - I hear ya, but that was one instance where a “diversion” didn’t go to pave roads, as they say. It went right into CTU pockets. Ironic that one of the few times CPS “wanted” to pay pensions, CTU said “Nah, I’d rather have that money now.”

At the very least, CTU owes CTPF 20-25 years of 8% compounded interest on whatever amount was diverted from their pensions to their salaries at that time. I’m guessing that liability doesn’t appear on any CTU balance sheet.

And I suppose one could argue they essentially took a portion of their pension payment early that year. So perhaps the taxpayers could deduct a year of service as well. And since they borrowed from their own pension payment without any thought of funding it at retirement, you could consider that raise a pension spike.

Comment by nixit71 Tuesday, Nov 10, 15 @ 9:08 pm
VanillaMan, the answer is taxing retirement income, huh. What stops retirees from moving out of State to avoid your plan? Nothing. Like to come up with another plan?

Comment by RetiredState Tuesday, Nov 10, 15 @ 10:12 pm
More bad news from the Tribune: http://www.chicagotribune.com/news/local/politics/ct-emanuel-budget-city-tax-20151110-story.html

“Analysts for the agency determined the city would have to contribute $780 million more than planned next year to its four pension funds to “tread water,” or prevent the pension fund debt from growing. That’s 88 percent more than the $886 million total the city plans to pay into the funds.”

Keep in mind, that this is just for City of Chicago pension debt - not other debt. At least it starts to shed some light on the enormity of Chicago’s debt. It would be nice to see a story on how that ties in with the State’s, Cook County’s and CPS’s debt and how that will impact Chicago taxpayers. It would also be nice to see some detailed plans on how the region can continue to attract companies to the State and City and be a good place to live when dealing with the whole enchilada, if you will.

Comment by Kraftjerk Wednesday, Nov 11, 15 @ 7:43 am