Debt Crisis

Crain’s Chicago Business: Pension Reform Ruling Could Cost Taxpayers Extra $200 Million A Year Through End Of Decade

In my Sunday post about Chicago’s pension reform legislation being ruled unconstitutional, I blogged:

Chicagoans- let that last line from Dardick and Pearson sink in real good:

“Taxpayers could eventually be on the hook for hundreds of millions of dollars more in annual payments to those city funds — before the even worse-funded police and fire retirement accounts are factored into the taxing equation…”

How many hundreds of millions are we talking about here?

Greg Hinz wrote in his blog on the Crain’s Chicago Business website Monday:

The court decision throwing out a deal to refinance two Chicago pension funds appears to be among the most costly in the city’s history, in some ways ranking right up there with the Great Chicago Fire.

Exact figures are not available and vary some depending on who’s doing the estimating. But based on statements by city officials and documents filed by the pension funds themselves, it’s likely that the decision by Cook County Circuit Court Judge Rita Novak will cost city taxpayers around $200 million a year through the end of the decade—and will keep rising for decades thereafter.

“You’d have to go back to either the Depression or the Great Fire to find a comparable situation in which the city faced either greater challenges or more painful decisions,” Civic Federation President Laurence Msall said. “It’s clearly going to result in increased taxes and reduced services.”

(Editor’s note: Bold added for emphasis)

Remember, that additional $200 million hit to Chicago taxpayers would come on top of addressing fire and police pensions. And bailing out the Chicago Public Schools, which had its credit rating reduced to junk status today by Fitch Ratings. In May, I noted Moody’s downgraded the Chicago Board of Education (the primary debt issuers of CPS) three notches to junk.

You can read Hinz’s entire blog post on the Crain’s Chicago Business website here. If I were still a Chicago resident, I’d probably find it disturbing. But at least I’d be clued in as to what could be coming down the line.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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The Survival Podcast’s Jack Spirko Thinks Coming Recession Is Not The ‘Big One’

I recently listened to an episode of The Survival Podcast (named a “Resource Of The Week” back in March 2011) that really caught my attention. Modern survivalist and host Jack Spirko wrote in the intro to episode 1608 (July 21, 2015), “The Next Recession or the One that Never Went Away?” on The Survival Podcast website:

Officially the recession of 08-09 ended in late 09, or 6 years ago, well, typically we never make it 10 years in the best of times with out at least a minor recession. The questions at this point are not is a recession coming and will it effect us, they are when will it get here and how badly will it effect us…

The big question for most preppers is, “Is this the big one”. My gut is no. Keep in mind I said “the big one would be after after a false recovery, a marked drop in unemployment and likely to occur in late 2015 to mid 2016″, as long ago as 2009 when many were claiming that recession was “the big one”. So why do I now disagree with myself, tune in today to find out, and to find out why not the big one, doesn’t really mean, “not so bad”.

(Editor’s note: Bold added for emphasis)

Actually, Spirko has suspected the next recession wouldn’t be the “big one” for some time now. I blogged about episode 1127 (May 9, 2013), “Risk Assessments and Readiness Audits,” back on May 22, 2013, where the modern survivalist said:

And sooner or later we are going to get to a point where inflation, the devaluation of money, the ridiculous level of debt and the interest there on it, do their full-scale, whole cancer-style damage, eat the patient from the inside, and we wake up to terminal financial illness as a nation.

But that’s not happening tomorrow. That’s not happening next year. That’s not even happening in the next 5 years. There could be recessions and things in the middle. But that day is probably at this point 10 years into the future or more.

And I don’t claim to be Nostradamus. I don’t know the exact timeline. I can just do math and can say with mathematical certainty this system at some point must fail.

(Editor’s note: Bold added for emphasis)

Spirko laid out what needs to be done now in his July 21 show. He advised:

We need to, I think at this point, assess our preps for hard financial times, more than anything else right now. I’m not talking about economic collapse, I’m talking about economic struggle. Everybody’s waiting for economic collapse, no one understands we’re standing in the middle of it. We’re standing in the middle of it…

Buck up your preps guys. Get ready for tougher times ahead…

The United States economy does not have to collapse for your personal economy to collapse. Nine million people found that out the hard way last time. Be prepared this time. Be prepared. Prepare to feed yourself, clothe yourself, take care of yourself, provide for your own security. Start thinking about the efficiencies of your energy usage, and get very, very diverse with your skill set, your knowledge, your ability to earn income. That’s how you prepare for what’s coming.

Somber stuff. You can listen to episode 1608 via The Survival Podcast website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

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Judge Rules Chicago’s Pension Reform Legislation Unconstitutional

Here’s the latest on Chicago’s public pension crisis. Hal Dardick and Rick Pearson reported on the Chicago Tribune website last night:

Mayor Rahm Emanuel’s administration said it will appeal a Cook County judge’s decision Friday that ruled unconstitutional a state law reducing municipal worker pension benefits in exchange for a city guarantee to fix their underfunded retirement systems.

The 35-page ruling by Judge Rita Novak, slapping down the city’s arguments point by point, could have wide-ranging effects if upheld by the Illinois Supreme Court. Her decision appeared to also discredit efforts at the state and Cook County levels to try to curb pension benefits to rein in growing costs that threaten funding for government services.

The issue of underfunded pensions, and how to restore their financial health, is crucial for the city and its taxpayers. The city workers and laborers funds at issue in Friday’s ruling are more than $8 billion short of what’s needed to meet obligations — and are at risk of going broke within 13 years — after many years of low investment returns fueled by recession and inadequate funding.

Without reducing benefits paid to retired workers, or requiring current workers to pay more, taxpayers could eventually be on the hook for hundreds of millions of dollars more in annual payments to those city funds — before the even worse-funded police and fire retirement accounts are factored into the taxing equation

(Editor’s note: Bold added for emphasis)

Chicagoans- let that last line from Dardick and Pearson sink in real good:

“Taxpayers could eventually be on the hook for hundreds of millions of dollars more in annual payments to those city funds — before the even worse-funded police and fire retirement accounts are factored into the taxing equation…”

And the City’s response to the ruling? Mayor Emanuel’s Press Office countered Friday:

Statement of City of Chicago Corporation Counsel Stephen Patton on SB1922

“While we are disappointed by the trial court’s ruling, we have always recognized that this matter will ultimately be resolved by the Illinois Supreme Court. We now look forward to having our arguments heard there. We continue to strongly believe that the City’s pension reform legislation, unlike the State legislation held unconstitutional this past spring, does not diminish or impair pension benefits, but rather preserves and protects them. This law not only rescues the municipal and laborer pension funds from certain insolvency, but ensures that, over time, they will be fully funded and the 61,000 affected City workers and retirees will receive the pensions they were promised.”

As to the City of Chicago’s credit rating possibly getting whacked after the decision? Timothy W. Martin reported on The Wall Street Journal website Friday afternoon:

Moody’s said Friday’s ruling had no effect on Chicago’s bond grade. But rival Standard & Poor’s Ratings Services, which currently has an investment-grade rating for the city, said that “regardless of the ultimate outcome” of Mr. Emanuel’s pension law, it “will likely lower” its Chicago rating in the next six months, unless city leaders chart out a solution to address its pension problems.

(Editor’s note: Bold added for emphasis)

Like I’ve been saying for a couple years now, that proverbial brick wall keeps approaching for Chicago.

Since City Hall can’t get its affairs in order, Chicagoans might want to look at straightening out theirs if they intend to stick around for the long haul.

Sources:

Dardick, Hal and Pearson, Rick. “Judge finds city’s changes to pension funds unconstitutional.” Chicago Tribune. 24 July 2015. (http://www.chicagotribune.com/news/local/politics/ct-chicago-pension-ruling-met-20150724-story.html). 25 July 2015.

Martin, Timothy W. “Chicago’s Pension Overhaul Plan Tossed Out by Judge.” The Wall Street Journal. 24 July 2015. (http://www.wsj.com/articles/judge-rules-2014-law-to-reduce-chicago-pension-shortfall-unconstitutional-1437754525). 25 July 2015.

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Chicago Board Of Education Authorizes Another Billion Dollars Of Debt

On June 24, I blogged about the Chicago Board of Education approving plans to borrow more than $1 billion to meet its financial obligations .

And then I found out the Board of Education was seeking yet another cool billion to help pay the bills. Lauren Fitzpatrick reported on the Chicago Sun-Times website yesterday:

Chicago’s newly constituted Board of Education voted unanimously Wednesday to authorize up to $1.2 billion in long-term bonds so the district can pay for ongoing capital projects, fees on past borrowing and some costs of refinancing old debt.

That’s on top of the $1.1 billion the board approved last month in short-term lines of credit — and it won’t stave off about $200 million in cuts and 1,000-plus layoffs the district already announced

(Editor’s note: Bold added for emphasis)

All this brought to mind the lyrics of an Aerosmith song my buddies and I used to listen to back in high school:

It’s the same old story, same old song and dance, my friend…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Fitzpatrick, Lauren. “Chicago Board of Ed votes to approve $1.2 billion in borrowing.” Chicago Sun-Times. 22 July 2015. (http://chicago.suntimes.com/news/7/71/814622/cps-seeks-permission-borrow-1-2-billion). 23 July 2015.

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Thursday, July 23rd, 2015 Debt Crisis, Education No Comments

Crain’s Chicago Business: City’s Rising Fees, Fines, And Taxes Look To Continue

Chicago readers of Survival And Prosperity might want to read two articles that recently appeared on the Crain’s Chicago Business website concerning rising fees, fines, and taxes in the city. In a piece entitled “Chicago’s expanding appetite for new taxes,” Thomas A. Corfman wrote Saturday:

While Mayor Rahm Emanuel has held the line on property taxes, revenue from other local taxes has climbed nearly 20 percent since he took office.

A strengthening economy explains much of the surge. But Emanuel has fueled the growth by raising taxes on things such as cable TV and parking…

Keep in mind that “line on property taxes” may soon be breached. Significantly. Corfman added:

While property tax revenue has fluctuated slightly since 2011 after accounting for new construction, that’s likely to end soon. The badly undercapitalized police and firefighter pension funds are supposed to receive a state-mandated $550 million payment next year. Property taxes will likely account for the bulk of the increase, says Ald. Roderick Sawyer of the South Side’s 6th Ward

(Editor’s note: Bold added for emphasis)

This comes on the heels of another Corfman article entitled, “How much could Chicago pension payments jack up your property bill? Try 30%”. He wrote on July 4:

Even as Mayor Rahm Emanuel warns about a property tax hike of up to $250 million for the cash-strapped Chicago Public Schools, another big wave of increases likely is coming to rescue the pensions of police officers and firefighters.

A massive payment due to those retirement plans next year could drive up Chicago property taxes by more than 30 percent, according to a Crain’s analysis. And if the current logjam in Springfield continues, it could be a lot worse

(Editor’s note: Bold added for emphasis)

As I wouldn’t steal Crain’s thunder, you can read Corfman’s July 18 article here and his July 4 piece here.

And as always, my intention is not to scare Chicago residents/businesses by blogging about such material. Rather, as a former Chicagoan this is something I feel my former neighbors should be made aware of, especially if they plan on staying in the “Windy City.”

Got to figure out some way to keep ahead of those rising fees, fines, and taxes and eroding public services.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Jim Rogers Predicts Crude Oil, Russian Ruble Comeback But Warns On U.S. Dollar

On Tuesday, The Economic Times (India) released an interview of well-known investor, author, and financial commentator Jim Rogers on its website. Discussing weakness in the crude oil market in light of the recent nuclear “deal” with Iran, the former investing partner of George Soros said:

Not here to stay, but certainly when you have a big collapse in anything, it hits a bottom, then there is a big rebound. We call it in America a dead-cat bounce. Then you have a test, a second test to the low.

This is going to lead to the second test to the low. There is always a reason for the second test and now we are having it, but is oil going to stay down forever? No. Remember that known reserves around the world are in decline, except for fracking. This is good news for people who consume, bad news for people who produce. But it is not the end of the story…

(Editor’s note: Bold added for emphasis)

Rogers thinks the Russian ruble, a currency he’s been bullish about for some time now, will benefit from a crude oil comeback. Sputnik, the international news service owned and operated by the Russian government, referenced a recent interview of the Singapore-based investor on Gazeta.ru. From the news outlet Tuesday:

Concerning the current rouble situation Rogers said, “Russia has low debt, unlike Greece, as well as convertible currency, which is quite unique for the new markets. So fundamentally its position can be called normal. It is being pressured by lower oil prices, but as soon as the black gold finds the stable point the situation will improve for the rouble.”

(Editor’s note: Bold added for emphasis)

Sputnik added:

He also mentioned the dollar saying that the US currency is in a terrible situation as the US national debt and trade deficit are huge.

“If we simply write out on paper the facts that lie behind the ruble and the dollar, without naming the currency, then everyone will want to buy rubles and no one will buy dollars. But as soon as you name them then, of course, people buy dollars.”

He added that he hopes he will be smart enough to get rid of dollars before the collapse happens. “Everything seems perfect, until one day it ceases to be so. It was the same with Britain, France, Spain and Greece. Often stocks manage to go up for a few years before hitting bankruptcy.”

(Editor’s note: Bold added for emphasis)

Last I heard, Rogers still owned greenbacks. I blogged back on November 11, 2014:

Despite the above warning, Rogers shared with Reuters back on October 23 that he still owned the U.S. dollar. He explained:

I have no confidence in the long-term strength of the U.S. dollar. I only own it because I expect all this turmoil to happen. And in times of turmoil, people flee to the safe-haven of the U.S. dollar. It’s not a safe-haven, but they think it’s a safe-haven, so people will own it. That’s why I own it.

Now what I expect to happen is, the dollar will go up stronger and stronger over the next year or two, at which point- some point- I’ll have to sell it. I have no idea what I’ll do with my money then because the world has got this terrible, terrible unsound foundation in all assets.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)

Sources:

“Crude prices may sink on more Iran oil, but will rebound as known reserves are declining: Jim Rogers.” The Economic Times. 14 July 2015. (http://economictimes.indiatimes.com/opinion/interviews/crude-prices-may-sink-on-more-iran-oil-but-will-rebound-as-known-reserves-are-declining-jim-rogers/articleshow/48066869.cms). 17 July 2015.

“US ‘Shot Itself in the Foot’ by Pushing Russia Toward China – Jim Rogers” Sputnik. 14 July 2015. (http://sputniknews.com/business/20150714/1024625814.html). 17 July 2015.

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Size Of Cook County Sales Tax Hike Necessary?

No surprise here. Hal Dardick reported on the Chicago Tribune website yesterday:

Cook County Board President Toni Preckwinkle persuaded just enough commissioners to approve a 1-percentage-point sales tax increase Wednesday — the culmination of a major political about-face, but a move she said was needed to bail out the county worker pension system.

Following weeks of one-on-one lobbying sessions by Preckwinkle, nine of the 17 commissioners voted to raise the county share of the sales tax to 1.75 percent. Add up the state, city and public transit portions, and the total sales tax rate in Chicago once again will hit 10.25 percent — one of the highest rates in the nation

Preckwinkle first rose to power in 2010 on a campaign pledge of repealing what remained of an identical sales tax increase under predecessor Todd Stroger…

(Editor’s note: Bold added for emphasis)

Opponents of the sales tax hike claim the County didn’t perform enough belt-tightening before approving the measure. County Commissioner Bridget Gainer (10th District) penned on the Tribune website on July 1:

Don’t get me wrong, the county has a serious budget and pension cost gap, predicted to be $479 million. The proposed 1 percentage point increase in the sales tax would raise some $474 million annually.

But $130 million of the deficit goes away with pension reform. An additional $50 million in savings has already been identified by the budget staff. Yet another $50 million is in reach if we are finally willing to consolidate our redundant taxing bodies and duplicative services…

(Editor’s note: Bold added for emphasis)

Back on December 5, 2013, I pointed out Illinois has the most units of local government of any state in the country at 6,963 local governments (U.S. Census Bureau).

It’s been reported Cook County is home to 1,300 of these taxing agencies alone.

The sales tax hike goes into effect starting January 1, 2016.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Dardick, Hal. “Cook County Board votes to raise sales tax.” Chicago Tribune. 15 July 2015. (http://www.chicagotribune.com/news/local/politics/ct-cook-county-sales-tax-increase-met-0716-20150715-story.html#page=1). 16 July 2015.

Gainer, Bridget. “Commentary: Cook County Commissioner Bridget Gainer: I won’t vote for a sales tax hike.” Chicago Tribune. 1 July 2015. (http://www.chicagotribune.com/news/opinion/commentary/ct-cook-county-tax-preckwinkle-gainer-perspec-0702-jm-20150701-story.html). 16 July 2015.

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S&P Cuts Chicago’s Credit Rating Twice In Less Than 2 Months

Surprise, surprise. The City of Chicago’s credit rating was lowered yet again.

This time, it’s Standard & Poor’s that did the cutting.

Karen Pierog and Tanvi Mehta reported on the Reuters website last night:

Standard & Poor’s Ratings Services cut Chicago’s credit rating one notch to BBB-plus with a negative outlook on Wednesday, citing the windy city’s nagging structural budget deficit and the lack of a plan to close it.

S&P analyst John Kenward said the U.S.’ third-largest city needs “a credible, public, detailed plan” to deal with budget gaps projected to grow to $588 million in fiscal 2017, largely due to escalating contributions to its police and fire fighter retirement funds.

S&P also warned Chicago’s general obligation bond rating may fall further if a credible plan does not surface within six months…

(Editor’s note: Bold added for emphasis)

According to the S&P website, “BBB” indicates:

Adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

It was less than two months ago that Standard & Poor’s last downgraded the City of Chicago’s credit rating. I blogged on May 17:

Standard & Poor’s joined in on the downgrade parade later in the week. From a press release Friday:

Chicago, IL GO Bond Ratings Lowered To #A-# From #A+#, Placed On CreditWatch Due To Short-Term Liquidity Pressure
CHICAGO–15 May–Standard & Poor’s

CHICAGO (Standard & Poor’s) May 14, 2015–Standard & Poor’s Ratings Services lowered its rating to ‘A-‘ from ‘A+’ on the city of Chicago’s outstanding general obligation (GO) bonds, and placed the ratings on CreditWatch with negative implications…

Stay tuned…

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Mehta, Tanvi and Pierog, Karen. “UPDATE 1-S&P downgrades Chicago’s GO bond rating to BBB-plus.” Reuters. 8 July 2015. (http://www.reuters.com/article/2015/07/08/usa-chicago-sp-idUSL3N0ZO60H20150708). 9 July 2015.

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Gone Blogging (About Greek Bank Safe Deposit Boxes)

Sorry about the lack of material on Survival And Prosperity this week. With the most recent flare-up of Greece’s sovereign debt crisis, I’ve been busy blogging about reports that access to cash in Greek bank safe deposit boxes has been prohibited. You can read all about it over on Offshore Safe Deposit Boxes.

New material is scheduled to be published on Survival And Prosperity tomorrow.

Thank you for your patience.

Christopher E. Hill
Editor

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IMF Statement On Greece

The Greek sovereign debt crisis has now entered a new, more disturbing phase. From an International Monetary Fund press release Tuesday night:

Statement by the IMF on Greece
Press Release No.15/310
June 30, 2015

Mr. Gerry Rice, Director of Communications at the International Monetary Fund (IMF), made the following statement today regarding Greece’s financial obligations to the IMF due today:

I confirm that the SDR 1.2 billion repayment (about EUR 1.5 billion) due by Greece to the IMF today has not been received. We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared.

“I can also confirm that the IMF received a request today from the Greek authorities for an extension of Greece’s repayment obligation that fell due today, which will go to the IMF’s Executive Board in due course.”

(Editor’s note: Bold added for emphasis)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Tuesday, June 30th, 2015 Debt Crisis, Defaults, Europe No Comments

Cook County Sales Tax Hike Coming?

Cook County, Illinois, could soon have one of the highest sales tax rates in the country (again). The Chicago Tribune Editorial Board wrote on the paper’s website this evening:

Cook County Board President Toni Preckwinkle is weighing the idea of imposing a penny-on-the-dollar increase in the local sales tax to balance the county’s books…

Preckwinkle is lobbying Cook County Board members to raise the county’s portion of the sales tax by 1 percentage point, which would push Chicago’s tax rate to 10.25 percent, among the highest in the nation

(Editor’s note: Bold added for emphasis)

This should come as no surprise to regular readers of Survival And Prosperity. I blogged back on April 10 of last year:

For a while now (last time being earlier this week), I told my girlfriend we were lucky to have escaped the fiscal debacle and revenue grab going on in the city of Chicago.At the same time, I pointed out that as Cook County residents we’re still on the hook for the same type of nonsense.

Brian Slodysko reported on the Chicago Sun-Times website yesterday afternoon:

Hoping to ward off another credit rating downgrade, Cook County Board President Toni Preckwinkle said Wednesday that she will soon present a plan to reform the county’s underfunded pension system.

And she’s leaving the door open to hiking property, sales and other taxes.

When asked repeatedly about the possibility of tax increases, Preckwinkle responded: “We’re looking at all the options. Everything is on the table.”

(Editor’s note: Bold added for emphasis)

According to the local press, it’s the sales tax hike Preckwinkle’s now pushing.

And considering Cook County’s fiscal challenges, it shouldn’t surprise blog readers to hear of hikes on “property… and other taxes” down the road.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Source:

Editorial Board. “Editorial: Watch out for the Toni Tax.” Chicago Tribune. 23 June 2015. (http://www.chicagotribune.com/news/opinion/editorials/ct-edit-tonitax-0624-20150623-story.html). 23 June 2015.

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Chicago Tribune: ‘Chicagoans Should Consider A Modest Property Tax Increase Inevitable’

Coming on the heels of last Thursday’s post and an earlier one about Chicago-area property/other taxes was an article by Chicago Tribune business columnist Melissa Harris entitled “Chicago isn’t Detroit- and it’s not going bankrupt.”

In the June 20 piece, Harris attempted to argue exactly what the title says (critics are panning it as “Machine”/union propaganda). But what interested me were statements like this:

More revenue will be required soon, most likely in the form of a property tax increase.

Not only is Chicago’s property tax rate lower than those in many suburbs, Chicago’s effective property tax rate ranked 49th out of the 50 largest cities in each state, according to 2009 U.S. Census data…

(Editor’s note: Bold added for emphasis)

And this:

Chicagoans should consider a modest property tax increase inevitable, though how much of an increase it will be could be affected by Moody’s decision, which made it more expensive for Chicago to borrow money…

(Editor’s note: Bold added for emphasis)

If one believes claims the Chicago news media routinely carries Mayor Rahm Emanuel’s water, increased tax hike chatter and growing comparisons of the city to other municipalities by the local press could be sending a strong signal to Chicagoans that they’ll be required to bust out their wallets shortly.

You can read the rest of that column on the Chicago Tribune website here (registration required)

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Moody’s Downgrades Cook County’s Credit Rating, Issues Negative Outlook

The following is kind of stale, but the local press didn’t really publicize it and Cook County residents are entitled to know the financial health of the local government unit in these uncertain times. The Global Credit Research division of Moody’s announced on their website back on June 5:

Rating Action: Moody’s downgrades Cook County, IL’s GO to A2 from A1; outlook negative

A2 rating applies to $3.6B of GO debt

New York, June 05, 2015 — Moody’s Investors Service has downgraded to A2 from A1 the rating on Cook County, IL’s general obligation (GO) debt. The county has $3.6 billion in GO debt outstanding. The outlook remains negative…

The Global Credit Research division explained:

The A2 rating incorporates credit pressures associated with Cook County’s unfunded pension liabilities. Based on the Illinois Supreme Court’s May 8 overruling of the State of Illinois’ (A3 negative) pension reforms, we perceive increased risk that the county’s options for reducing unfunded pension liabilities have narrowed considerably. As it currently stands, Cook County-despite its home rule status-has little direct control over its single largest liability. Whether or not the statute that governs Cook County’s pension plan stands, we expect pension-related costs will place increasing strain on the county’s financial operations. Furthermore, approximately half of Cook County’s tax base is highly leveraged by the debt and unfunded pension liabilities of the City of Chicago (Ba1 negative) and the Chicago Public Schools (CPS) (Ba3 negative). We believe that the revenue demands of these entities could place practical limitations on the county’s ability and willingness to increase revenue to fund its pension costs. Other credit challenges for the county include enterprise risks inherent in operating the Cook County Health and Hospitals System (CCHHS)…

As for that negative outlook:

The negative outlook reflects our view that Cook County’s credit quality could weaken given continued uncertainty in the county’s future pension funding framework. Our outlook on the county’s credit is also informed by our expectation of growth in the pension costs of the local governments that share half of the county’s tax base. Finally, the negative outlook incorporates continued pressures in the health care sector, improved financial results for CCHHS notwithstanding…

On June 8, the major U.S. credit rating agency also announced a downgrade of the Cook County Forest Preserve District’s general obligation debt to A2 from A1, with a negative outlook as well.

You can read that entire June 5 Moody’s rating action on their website here.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

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Wednesday, June 17th, 2015 Credit, Debt Crisis, Entitlements, Government No Comments

Chicago, The Taxman Cometh

“Amid comparisons to ‘shuffling the deck chairs’ on the Titanic, the City Council’s Finance Committee agreed Monday to add another $1.1 billion to the mountain of debt piled on Chicago taxpayers…”

Chicago Sun-Times website, June 15, 2015

While Chicagoans celebrate the Stanley Cup, City Hall is mulling over which taxes of theirs to hike. Derrick Blakley reported on the CBS 2 (Chicago) website before the weekend:

With a huge budget deficit ahead, Chicago city government is desperately searching for new income.

Now, Mayor Rahm Emanuel may be seriously considering an income tax

Emanuel isn’t specifically talking income tax yet. But one of his strongest city council allies, 49th Ward Ald. Joe Moore, is speaking up.

“In my ideal scenario, it would be a graduated income tax that would be pegged at peoples’ ability to pay,” he says.
Some of the biggest U.S. cities already tax wages, including New York, Philadelphia, Detroit, Cleveland, San Francisco and Denver.

The tax that would also strike suburbanites who work in the city, Moore says.

The concept drew support Thursday from other mayoral allies who want to avoid a property tax hike…

Last year, the mayor rejected a city income tax. Not Thursday…

(Editor’s note: Bold added for emphasis)

The Chicago Sun-Times Editorial Board also picked up on Mayor Emanuel’s silence on the city income tax issue, writing Friday on the paper’s web site:

In a major break from the past, Mayor Rahm Emanuel did not immediately shoot it down…

(Editor’s note: Bold added for emphasis)

The Board added:

Might a Chicago income tax have bad, unintended consequences? Of course. And we’re by no means endorsing the idea here. But so might all the other taxes Chicago needs to consider: a commuter tax, a modest financial transaction, the broadening of the sale tax to cover more services, closing some tax-increment financing districts, congestion pricing and a pay-as-you-go garbage fee, to name some of the biggies.

Each revenue-generator should be vetted and priced out publicly, and the results should be explained far and wide so that the City Council and every Chicagoan come to accept two realities. One is the sheer size of Chicago’s financial crisis. The second is that no single solution will cut it. The pain has to be spread as widely as possible. The question then becomes: Which ingredients, in what proportions, make for the best stew — or at least the one that goes down easiest?

We have long said that raising property taxes — the city’s most stable revenue source, and one of the few it controls directly — is inevitable. But if property taxes are raised too much, both for Chicago and the school system, the city we know and love will cease to exist. An already dwindling middle class will flee.

A property tax hike should only be part of that bigger stew…

(Editor’s note: Bold added for emphasis)

Testing the waters? Conditioning Chicagoans for inevitable tax hikes?

All I know is this. Higher fees/fines/taxes. Reduced government benefits/services. That’s what I see coming down the pipeline for not only Chicago but the rest of the nation in due time.

Prepare accordingly.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Blakley, Derrick. “Chicago Eyes A City Income Tax On Residents, Suburbanites Who Work Here” CBS 2. 11 June 2015. (http://chicago.cbslocal.com/2015/06/11/chicago-eyes-a-city-income-tax-on-residents-suburbanites-who-work-here/). 16 June 2015.

Editorial Board. “Editorial: Mixing up a stew of Chicago revenue solutions.” Chicago Sun-Times. 12 June 2015. (http://chicago.suntimes.com/opinion/7/71/685251/editorial-16). 16 June 2015.

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Tuesday, June 16th, 2015 Debt Crisis, Fiscal Policy, Government, Taxes No Comments

Illinois Tax Hikes Coming Warn Municipal Bond Fund Managers

Talk of rapidly-approaching tax hikes in the “Land of Lincoln” is growing. Reuters’ Nick Brown, Megan Davies, and Karen Pierog reported yesterday:

With no easy way to financially engineer or negotiate its way out of a budget and pensions crisis, Illinois is likely to dish out some unpleasant medicine to its residents in the next few years. And investors say that is most likely to come in the form of higher taxes.

Given the Democrats’ control of the state legislature and their opposition to many proposals for spending cuts, municipal bond fund managers see little alternative for Republican Governor Bruce Rauner other than eventually agreeing to hike taxes, such as raising the state’s income tax or broadening its sales tax base…

(Editor’s note: Bold added for emphasis)

Regular readers of Survival And Prosperity shouldn’t be surprised when the hikes (fees, fines, and taxes) arrive, as they’ve been discussed on this blog for quite some time now. The tragedy is that Springfield continues to waste time and resources on trivial matters while neglecting to tackle crucial issues like the well-publicized debt crisis. Monique Garcia and Kim Geiger reported on the latest nonsense preoccupying the politicians. From the Chicago Tribune website this afternoon:

Democratic Speaker Michael Madigan’s effort to ask voters to approve a measure to impose higher income taxes on millionaires failed in the House on Thursday, but provides the powerful Southwest Side politician ammunition to attack Republicans in next year’s legislative campaigns.

The proposal needed 71 “yes” votes to pass, but received just 68. But now there’s a roll call, and Madigan’s Illinois Democratic Party could send out mailers criticizing Republicans who voted against the idea. Democrats already have sent out attack ads against Republicans who did not vote in favor of a property tax freeze last week

(Editor’s note: Bold added for emphasis)

Games. Stupid political games as the state’s “financial reckoning day” fast approaches.

By the way, back on March 24 of last year I blogged about that push for a “millionaire’s tax” in Illinois. My prediction now is pretty much the same as it was a year ago:

Should Illinois Democrats jack up their income taxes, I suspect the number of Illinois millionaires right before the tax hike is implemented will plummet. Revenue will follow. Out-of-state vacation homes in Indiana and Wisconsin will be declared as primary residences.

The only difference being, I forgot to mention Michigan vacation homes.

Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

Sources:

Brown, Nick, Davies, Megan and Pierog. “As Illinois runs out of options in budget crisis, tax rises seen in the cards.” Reuters. 20 May 2015. (http://news.yahoo.com/illinois-runs-options-budget-crisis-tax-rises-seen-051616644.html). 21 May 2015.

Garcia, Monique and Geiger, Kim. “Madigan’s ‘millionaire tax’ question fails in House.” Chicago Tribune. 21 May 2015. (http://www.chicagotribune.com/news/local/politics/ct-rauner-warns-of-long-overtime-20150521-story.html). 21 May 2015.

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