Retirement

85% Of Public Pension Funds To Fail In 30 Years?

Caught the following yesterday on the USA Today website regarding a looming national public pension crisis. Matt Krantz reported Wednesday:

Influential and well-regarded hedge fund Bridgewater Associates Wednesday warns public pensions are likely to achieve 4% returns on their assets, or worse. If Bridgewater is right, that means 85% of public pension funds will be going bankrupt in three decades

Public pensions have just $3 trillion in assets to invest to cover future retirement payments of $10 trillion over the next many decades, Bridgewater says. An investment return of roughly 9% a year is needed to meet those onerous obligations…

(Editor’s note: Bold added for emphasis)

Westport, Connecticut-based Bridgewater was founded in 1975, and “manages approximately $150 billion in global investments for a wide array of institutional clients, including foreign governments and central banks, corporate and public pension funds, university endowments and charitable foundations,” according to their website.”

I don’t want to steal USA Today’s thunder here, so you can read the entire story on their website here.

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

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Friday, April 11th, 2014 Bankruptcy, Entitlements, Retirement No Comments

State Of Illinois Deficit Grew By $49 Million Over Last Fiscal Year

The deficit for the State of Illinois is approaching $45 billion. And tucked inside a news release on Illinois Comptroller Judy Baar Topinka’s website yesterday was the following which showed the deficit widened over the last fiscal year. From “Topinka announces earliest state financial report release since 2006”:

The State of Illinois’ net position was reported as a deficit of $44.799 billion as of June 30, 2013. That represents a $49 million decrease in net position compared to the deficit of $44.750 billion at June 30, 2012. The State’s assets increased $3.762 billion from the prior year, offset by an increase in liabilities of $3.811 billion. The increases in liabilities resulted mainly from increases in the State’s net pension obligation of $1.720 billion and net other postemployment benefit obligations of $1.753 billion

You can read the entire news release on the State of Illinois Comptroller’s website here.

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

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Moody’s Downgrades Chicago’s Credit Rating Again, Issues Negative Outlook

Just as I was about to blog about prepping tonight I observed the following splashed on the homepage of the Chicago Tribune website:

Chicago credit rating takes major hit

Chicago’s financial standing took a hit Tuesday when a major bond rating agency once again downgraded the city’s credit worthiness…

No surprise there, all things considered. No real effort has been made to tackle Chicago’s financial woes, which led to bond credit rating giant Moody’s Investor Service downgrading the City of Chicago’s general obligation (GO) and sales tax ratings to A3 from Aa3, water and sewer senior lien revenue ratings to A1 from Aa2, and water and sewer second lien revenue ratings to A2 from Aa3 back on July 17, 2013.

After seeing that headline, I decided to head over to Moody’s Investors Service website to check out the latest “Ratings News,” where the following was posted:

Rating Action: Moody’s downgrades Chicago, IL to Baa1 from A3, affecting $8.3 billion of GO and sales tax debt…

Also downgrades water and sewer senior lien revenue bonds to A2 from A1 and second lien revenue bonds to A3 from A2, affecting $3.3 billion of debt; outlook negative for all ratings…

According to Moody’s, “Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.”

Their Global Credit Research unit added:

The Baa1 rating on Chicago’s GO debt reflects the city’s massive and growing unfunded pension liabilities, which threaten the city’s fiscal solvency absent major revenue and other budgetary adjustments adopted in the near term and sustained for years to come. The size of Chicago’s unfunded pension liabilities makes it an extreme outlier, as indicated by the city’s fiscal 2012 adjusted net pension liability (ANPL) of 8.0 times operating revenue, which is the highest of any rated US local government. While the Illinois General Assembly’s recent passage of pension reforms for the State of Illinois (A3 negative) and the Chicago Park District (CPD) (A1 negative) suggests that reforms may soon be forthcoming for Chicago, we expect that any cost savings of such reforms will not alleviate the need for substantial new revenue and fiscal adjustments in order to meet the city’s long-deferred pension funding needs. We expect that the city’s pension contributions will continue to fall below those based on actuarial standards. The city’s slowly-amortizing debt levels are also large and growing. The Baa1 rating also incorporates credit strengths including Chicago’s large tax base that sits at the center of one of the nation’s most diverse regional economies and the city’s broad legal authority to raise revenue…

You can read the entire Moody’s piece about the downgrade on their website here.

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

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The Civic Federation Proposes Plan For Achieving Long-Term Fiscal Sustainability In Illinois

The last time I blogged about The Civic Federation, an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois, was right before the holidays.

The Civic Federation is in the headlines again these days for proposing a five-year plan to balance the Illinois state budget, eliminate its huge bill backlog, and reduce income tax rates. From a March 3 press release:

In a report released today, the Civic Federation’s Institute for Illinois’ Fiscal Sustainability proposes a comprehensive plan for achieving long-term fiscal sustainability for the State of Illinois. The five-year plan would fully pay down the State’s $5.4 billion backlog of unpaid bills while gradually reducing income tax rates by 20%, broadening the tax base and building a reserve fund as protection against future economic downturns…

$5.4 billion? That’s a lot of bills.

One part of this financial rescue plan will likely raise the eyebrows of certain Illinois residents. From the press release:

3. Broaden Income Tax Base to Include Federally Taxable Amounts of Retirement Income: Out of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income and one of 27 that exclude all federally taxable Social Security income. The State should broaden its income tax base to create greater equity among taxpayers and facilitate the gradual rollback of the income tax rates. The broader base will also ensure greater long-term sustainability of the State’s resources by accessing a growing portion of the Illinois economy…

You can read the entire press release here, as well as find a link to The Civic Federation’s 50-page report State of Illinois FY2015 Budget Roadmap: State of Illinois Budget Overview, Projections and Recommendations for the Governor and the Illinois General Assembly.

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

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WSJ Calls Proposed ‘Fix’ To Illinois Public Pension Crisis ‘Fake’

Today’s the day Illinois lawmakers may vote on SB0001 to “fix” the state’s $100 billion public pension crisis.

But according to the Wall Street Journal last night, the whole thing’s a “fake.”

From the WSJ website Monday evening:

Illinois’s Fake Pension Fix

Democrats in Illinois have dug a $100 billion pension hole, and now they want Republicans to rescue them by voting for a plan that would merely delay the fiscal reckoning while helping to re-elect Governor Pat Quinn. The cuckolded GOP seems happy to oblige on this quarter-baked reform.

Legislative leaders plan to vote Tuesday on a bill that Mr. Quinn hails as a great achievement. But the plan merely tinkers around the edges to save a fanciful $155 billion over 30 years, shaves the state’s unfunded liability by at most 20%, and does nothing for Chicago’s $20 billion pension hole.

Most of the putative savings would come from trimming benefits for younger workers. The retirement age for current workers would increase on a graduated scale by four months for 45-year-olds to five years for those 30 and under. Teachers now in their 20s would have to wait until the ripe, old age of 60 to retire, but they’d still draw pensions worth 75% of their final salary.

Salaries for calculating pensions would also be capped at $109,971, which would increase over time with inflation. Yet Democrats cracked this ceiling by grandfathering in pensions for workers whose salaries currently top or will exceed the cap due to raises in collective-bargaining agreements.

Democrats are also offering defined-contribution plans as a sop to Republicans who are desperate to dress up this turkey of a deal. These plans would only be available to 5% of workers hired before 2011. Why only 5%? Because if too many workers opt out of the traditional pension, there might not be enough new workers to fund the overpromises Democrats have made to current pensioners.

At private companies, such 401(k)-style plans are private property that workers keep if they move to a new job. But the Illinois version gives the state control over the new defined-contribution plans and lets the legislature raid the individual accounts at anytime. That’s a scam, not a reform.

Even under the most optimistic forecasts, these nips and tucks would only slim the state’s pension liability down to $80 billion— which is where it was after Governor Quinn signed de minimis fixes in spring 2010 to get him past that year’s election…

(Editor’s note: Italics added for emphasis)

“Would only slim the state’s pension liability down to $80 billion.”

Sounds like this legislation would only “kick the can down the road” as the public pension crisis is concerned- once again.

I shouldn’t be surprised to read any of this.

After all, it’s what Illinois state legislators have been doing for quite some time now on this issue.

At the end of the day- including today, if a pension “fix” is signed into law- it looks as if public sector retirees participating in these particular pensions are the ones who will be most screwed.

Illinois taxpayers won’t be far behind.

Consider what Kenneth Griffin, the richest Chicagoan and Illinoisan who’s also CEO of the global financial institution Citadel Group, had to say in a Chicago Tribune piece on November 29:

The bitter truth is that our politicians have sold government employees a fraudulent bill of goods. Absent extraordinary economic growth, our state is going to collapse under the weight of generous pension promises made by union leaders and politicians. And with each passing day, the $100 billion gap between what has been promised and what is provided for grows by roughly $5 million.

Here is where this story will inevitably end: Our state is going to be forced to break its promises to our government employees and retirees. They will receive less than they bargained for. Our state’s taxpayers will see the 67 percent “temporary” tax increase converted into a permanent tax increase. And soon we will hear that even further tax increases are needed to meet our obligations. This is the price we are all going to pay for sending the wrong leaders to Springfield for too many years.

I don’t think shaving $20 billion off that total will change Griffin’s prognosis much.

An $80 billion public pension funding gap.

Wonder if that will fake out the credit rating agencies?

Something tells me it won’t, and rewinding the clock only three-and-a-half years will still leave us with an ongoing public pension crisis.

The Wall Street Journal did a nice job picking apart the proposed “fix.” You can read the entire article on the WSJ website here or on the Illinois Policy Institute’s website here.

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

Source:

Griffin, Kenneth. “Guaranteeing financial ruin in Illinois.” Chicago Tribune. 29 Nov. 2013. (http://articles.chicagotribune.com/2013-11-29/site/ct-illinois-pension-reform-financia-ruin-1129-20131129_1_tax-increase-state-income-tax-bill). 3 Dec. 2013.

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Illinois Public Sector ‘Double-Dipping’ Targeted

“Double-dipping.” When public sector public employees draw a public paycheck while at the same time drawing a public pension.

Back when I as a civil servant, not only did I see this taking place, but suspected the arrangement would come under fire one of these days.

As Main Street’s finances eroded significantly after the economic crisis reared its ugly head five years ago, more grumbling was heard over the practice. I blogged back on April 4, 2011:

An employment arrangement I witnessed during my days as a civil servant is coming under increased fire these days. Bloomberg’s David Mildenberg wrote on March 29:

With U.S. unemployment averaging 8.9 percent, so-called double-dipping by tens of thousands of government workers nationwide is drawing increasing scrutiny.

Lawmakers from coast to coast are taking steps to curb the practice as states face combined deficits projected at $112 billion and unfunded pension liabilities of as much as $3 trillion.

Arkansas banned double-dipping by state workers last month, while bills to curb it are pending before lawmakers in Olympia, Washington, and Trenton, New Jersey.

And then there’s Illinois, where double-dipping is still permitted in a state saddled with a nearly $100 billion unfunded public pension liability.

Perhaps for not much longer though.

Enter Illinois State Representative Jack D. Franks (D-Woodstock). Representative Franks has introduced Illinois House Bill 3760, the “Retirement Means Retirement Act,” on November 14. Natasha Korecki reported on the Chicago Sun-Times website today:

[Representative Franks] says the legislation would address anyone — from state lawmakers to school superintendents to those in law enforcement who retire from one public job because they’ve maxed out on their pension, then take another public job as they begin to draw pension benefits.

Franks pointed to school superintendents and police chiefs who retire on a Friday only to return the following Monday with a new title, new salary — and drawing a pension— all while staying in the same office.

“I see a lot of people who retire and just end up in another government job shortly thereafter,” Franks told the Sun-Times. “That’s not what this system was designed for, but it’s a major loophole that they’re able to exploit… We’re going after the abusers — and we know who we’re talking about. Some of these guys make more than the president in retirement.”

Supporters of “double-dipping” argue that someone has to be hired to fill the job opening, so it might as well be the best qualified candidate applying for the position- which in many cases is the new retiree.

Reading over the proposed legislation, “double-dipping” looks to be prohibited only going forward. Illinois public sector retirees who are already participating in such an arrangement appear to be safe.

For now, at least.

You can find out more about Illinois House Bill 3670 on the Illinois General Assembly website here.

Source:

Korecki, Natasha. “Public pension and salary ‘double-dippers’ targeted in new bill.” Chicago Sun-Times. 19 Nov. 2013. (http://www.suntimes.com/23845706-761/public-pension-and-salary-double-dippers-targeted-in-new-bill.html). 19 Nov. 2013.

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

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Report: Chicago Could Soon Require ‘Signficant Increase In The City’s Property Tax Levy, Crippling Cuts To City Services Or Both’

Fresh off publishing a report that found Chicago’s financial condition fared worse than many major U.S. cities from FY2007 to FY 2011 comes this from The Civic Federation, an independent, non-partisan government research organization that provides analysis and recommendations on government finance issues for the Chicago region and State of Illinois. From a press release eariler today:

In a report released today, the Civic Federation announced its support for the City of Chicago’s proposed $7.0 billion budget as a reasonable short-term plan that continues to reduce the City’s structural deficit. However, Chicago’s fiscal and economic stability continue to be jeopardized by the failure to fix the City’s broken pension system. The full 111-page analysis is available at www.civicfed.org.

“This budget should serve as an urgent reminder of the enormous price the City will pay if it is unable to stabilize its pension system,” said Laurence Msall, president of the Civic Federation. “Mayor Emanuel and his team have made significant fiscal progress in recent years, much of which will be derailed when the City’s unaffordable pension contribution increase takes effect next year.” The City faces a $590 million increase in its required pension contribution in FY2015, a rise so sharp it would require a significant increase in the City’s property tax levy, crippling cuts to City services or both

(Editor’s note: Italics added for emphasis)

That massive jump in the City of Chicago’s required pension contribution should come as no surprise to regular Survival And Prosperity readers. It’s been something I’ve been warning about for a while now.

So what does The Civic Federation recommend to fix Chicago’s public pension crisis? From the new report, entitled “CITY OF CHICAGO FY2014 PROPOSED BUDGET: Analysis and Recommendations”:

Work with the State legislature to enact comprehensive pension reform specific for the City pension funds, including changing employer and employee contributions so that they relate to the funded status of the plans, reducing benefits for current employees and retirees, pursuing pension fund consolidation and reforming pension board governance

“Including changing employer and employee contributions so that they relate to the funded status of the plans, reducing benefits for current employees and retirees”

I’m guessing many City of Chicago employees and retirees won’t be to happy with these particular recommendations.

You can read the entire press release on The Civic Federation’s website here, and view the new report on the site here.

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

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Wednesday, November 13th, 2013 Entitlements, Fiscal Policy, Government, Retirement, Taxes No Comments

Chicago Mayor Rahm Emanuel Wants More Time To Fix Chicago’s Public Pension Crisis

“Corporations are moving in, and housing prices are looking better across the region. There has been a slight uptick in population. But a crushing problem lurks beneath the signs of economic recovery in Chicago: one of the most poorly funded pension systems among the nation’s major cities. Its plight threatens to upend the finances of President Obama’s hometown, now run by his former chief of staff, Rahm Emanuel.

The pension fund for retired Chicago teachers stands at risk of collapse. The city’s four funds for other retired city workers are short by $19.5 billion. At least one of the funds is in peril of running out of money in less than a decade. And starting in 2015, the city will be required by the state to make far larger contributions to the funds, which could leave it hundreds of millions of dollars in the red — as much as it would cost to pay 4,300 police officers to patrol the streets for a year.”

-Monica Davey and Mary Williams Walsh, The New York Times, August 5, 2013

Yesterday I blogged about the Illinois public pension crisis. Today, it’s Chicago.

Hal Dardick and Rick Pearson reported on the Chicago Tribune website late last night:

Faced with the prospect of a major tax hike or severe service cuts just as he stands for re-election a year from now, Mayor Rahm Emanuel told the Tribune Wednesday that his formula for fixing the financially out-of-whack government worker pension system requires “reform, revenue and time.”

Dardick and Pearson noted that Chicago’s mayor didn’t offer any specifics about his formula, and just had this to say:

“I believe, push this back, allow us the time, the foresight, to work through the issues,” Emanuel said. The state requirements have “got everybody focused. Now, (the unions should) come to the table and work with us, push the time out,” he said.

Sounds to me that Mayor Emanuel is trying to “kick the can down the road” on the city’s public pension crisis- something his predecessors did and which got the City of Chicago into trouble in the first place.

I can understand why Emanuel is looking for time. As things stand right now, Chicago’s “financial reckoning day” looks to be fast approaching. I blogged backed on August 5:

The “Windy City” faces a number of financial hurdles in the coming years:

• A projected budget gap of $339 million next year
• Growing projected deficits of $994.7 million in 2015 and $1.15 billion in 2016, according to the city’s annual financial analysis released last Wednesday (blogged about here)
• A total long-term debt of nearly $29 billion, or $10,780 for every one of the city’s nearly 2.69 million residents (blogged about here)
• A pension crisis with the Chicago Public Schools, which Davey and Williams Walsh note draws from the same tax base and where an extra $338 million must be found in 2014

It’s one thing to stall and “pass the buck” onto a future administration. It’s another to be granted more time and actually work to resolve this pension problem (if it can even done at this point).

If the State of Illinois “concedes” on the funding requirement, I would hope Rahm Emanuel is in that second camp. Although, plenty of other observers would count him in the first one.

Stay tuned…

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

Source:

Dardick, Hal and Pearson, Rick. “Emanuel trying to buy time as city’s pension crisis escalates.” Chicago Tribune. 25 Sep. 2013. (http://www.chicagotribune.com/news/chi-chicago-budget-reckoning-promo-20130925,0,6194998.story). 26 Sep. 2013.

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Moody’s Cuts Cook County Bond Rating, Outlook Negative

In the wake of significantly downgrading the City of Chicago’s credit rating, bond credit rating giant Moody’s Investor Service lowered Cook County’s bond rating a notch last Friday. In a news release from the Moody’s website right before the weekend:

New York, August 16, 2013 — Moody’s Investors Service has downgraded the rating on Cook County’s (IL) general obligation (GO) debt to A1 from Aa3, affecting $3.7 billion of general obligation debt. The outlook remains negative.

SUMMARY RATING RATIONALE

The downgrade of the GO rating reflects Cook County’s growing pension liabilities due to, in part, a statutory funding requirement that is not tied to the health of the County Employees’ and Officers’ Annuity and Benefit Fund of Cook County (the Fund), resulting in a growing disparity between the fund’s actuarially required contribution (ARC) and its actual employee and employer contributions. Additionally, approximately 50% of the county’s tax base includes the city of Chicago (GO rated A3/negative outlook), resulting in a significant overlapping long-term liability burden. These considerations are balanced by the county’s key credit strengths, including a large tax base that comprises the second most populous county in the nation, inclusive of numerous communities with strong demographic profiles; broad revenue raising flexibility inherent in the county’s home rule status; recent stabilization of financial operations across multiple funds; and a strong management team that continues to implement best practices across all lines of county business. Additionally, the A1 rating reflects the county’s demonstrated willingness to pursue pension reform.

The negative outlook reflects the formidable hurdles facing the county in its quest to pursue meaningful pension reform. Changes to the Fund, including employer contributions and benefits received by plan participants, must be enacted at the State of Illinois (GO rated A3/negative outlook) level. The General Assembly’s legislative paralysis to date with respect to enacting its own pension reforms may further delay the county’s attempt to present a reform package, despite having a significantly developed plan. Further, strong constitutional protections for pension benefits may result in a legal challenge that could further delay the implementation of reforms.

(Editor’s note: Italics added for emphasis)

According to Moody’s, Cook County now has “above-average creditworthiness relative to other US municipal or tax-exempt issuers or issues” as compared to “very strong creditworthiness” prior to the downgrade.

You can read the entire Moody’s news release on their website here.

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

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Tuesday, August 20th, 2013 Bonds, Borrowing, Entitlements, Government, Retirement No Comments

Chicagoans: Should They Stay Or Should They Go?

These days, there are times living out here in the northwest suburbs of Chicago that I feel like Henry Hill (played by actor Ray Liotta) at the end of the 1990 film Goodfellas.

No, not that part about Henry living the rest of his life as a “schnook.”

Rather, where previously I could step out my door adjacent to a major city artery and things were generally hopping, this suburban subdivision I now live in can be pretty dull at times (which isn’t entirely a bad thing).

Thank god the Italian food around here isn’t nearly as bad as what the other Hill encountered.

Grazie a Dio.

However, I was just reminded this morning of one of the big reasons why my girlfriend and I moved out of the city of Chicago while reading the popular Chicago police blog Second City Cop. “016 Up For Grabs” discussed 5 people getting shot in less than 2 days in the Chicago Police Department’s 16th District, something that kind of hit home considering I used to live in that same district.

Now, it’s not like crime never happened in 016 before. It’s the big city, and the 80 percent of good, law-abiding people are packed shoulder-to-shoulder with the 10 percent of human refuse and remaining 10 percent who play by the rules because they’re forced to. I can recall walking into a convenience store down the street from me just minutes after it had been robbed, having a “welcome to the new home” plant stolen from my building’s entryway shortly after it had been delivered, and finding a big metal Coleman cooler stolen from my underground parking garage space- all within weeks after moving in to my old Northwest Side neighborhood, one of the “nicer” ones in the city.

Funny thing about that cooler. It used to store bottles of antifreeze, windshield washer fluid, engine oil, and more- none of which was taken even though it was inside the cooler. But plenty of which splashed around and/or leaked in that container.

Something tells me those bastards got pretty ill later drinking from those beer bottles/cans because they were too lazy to clean out that cooler before using it.

Karma’s a bitch. Or here’s hoping, right?

Still, armed with “intel” from Second City Cop and other alternative media with a local focus (Chicago mainstream media was hit-or-miss on reporting criminal activity in my neighborhood), Chicago-related research/blog material, and my own local observations, I realized that the 16th District had not only become “grittier” as it concerned crime, but it was occurring at a time when police protection in my area was significantly-reduced from when I first moved in.

Coupled with the City of Chicago’s financial woes that are finally coming home to roost? Chicagoans don’t need to be brain surgeons to figure this one out. Like I’ve been saying for some time now, more fees/fines/taxes and less government services seem to be on the horizon.

I suspect less police protection will be part of that equation, unless Chicago taxpayers pony up more of their hard-earned cash to at least keep the “thin blue line” intact.

And boy is it thin these days.

But I suspect increased revenues will be directed at Chicago’s public employee pension crisis and City Hall’s pet projects (where’s my park, dang it) before it’s steered over to the CPD and public safety.

In other words, Chicagoans had better be prepared to keep hearing “crime is down” for a long time.

In the meantime, City Hall still can’t comprehend that losing Downtown to all the wilding will see the City’s bottom line hit hard as word gets out.

Judging by recent MSM coverage nationwide about such criminal activity here, the word’s already out.

I wonder how hard it is to fudge tourism numbers?

While I would have preferred to have stayed in Chicago, and in particular, our old or the adjacent neighborhood in the CPD’s 16th District, considering what I see is in store for the area and our particular circumstances, my girlfriend and I made the right decision to move when and where we did.

Then again, that might not be the “correct” decision for other Chicagoans. Consider this. We didn’t have much invested in our old location. We didn’t own it (could have, but we steered clear of buying anything until home prices came back down to earth somewhat), we weren’t required to live within the city limits as required by a municipal job, we don’t have kids in the local schools, family and friends didn’t live down the street, the list goes on. So it wasn’t all too painful for us to just pick up and leave when our latest lease ran out.

The same can’t be said for others, and I respect that.

At least I, for one, have given you enough notice of what to expect down the road.

Prepare accordingly.

Is the “Second City” going to get worse? Could get “Third World” when all is said and done, and the ongoing financial storm finally blows completely through.

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

Source:

SCC. “016 Up For Grabs.” Second City Cop. 13 Aug. 2013. (http://secondcitycop.blogspot.com/2013/08/016-up-for-grabs.html). 13 Aug. 2013.

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City Of Chicago Annual Financial Analysis 2013

Since the beginning of the month I’ve been bringing up the latest release of the City of Chicago Annual Financial Analysis and its dismal budget deficit projections.

Initially, I couldn’t find the study on the City of Chicago website. I did eventually locate it, and in case you’re interested in looking over the 98-page document, you can read it here (.pdf format).

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

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The New York Times Spotlights Chicago’s Public Pension Crisis

This morning on The New York Times website, the most popular article in their U.S. section being e-mailed is the following:

“Chicago Sees Pension Crisis Drawing Near”

On August 5, Monica Davey and Mary Williams Walsh wrote:

Corporations are moving in, and housing prices are looking better across the region. There has been a slight uptick in population. But a crushing problem lurks beneath the signs of economic recovery in Chicago: one of the most poorly funded pension systems among the nation’s major cities. Its plight threatens to upend the finances of President Obama’s hometown, now run by his former chief of staff, Rahm Emanuel.

The pension fund for retired Chicago teachers stands at risk of collapse. The city’s four funds for other retired city workers are short by $19.5 billion. At least one of the funds is in peril of running out of money in less than a decade. And starting in 2015, the city will be required by the state to make far larger contributions to the funds, which could leave it hundreds of millions of dollars in the red — as much as it would cost to pay 4,300 police officers to patrol the streets for a year.

To be fair, Mayor Emanuel shouldn’t shoulder the blame for this fiasco. The public pension crisis in Chicago is something his administration inherited. Davey and Williams Walsh pointed out:

Chicago’s troubles, experts say, were years in the making. They are the result of city contributions under a state-authorized formula that failed to accumulate nearly enough money, two economic downturns in the 2000s that led to heavy investment losses, and an impasse in the State Capitol despite urgent calls to cut costs of the state’s own pension system. Illinois, which has the most underfunded state pension system in the nation, controls Chicago’s benefit and funding levels.

The “Windy City” faces a number of financial hurdles in the coming years:

• A projected budget gap of $339 million next year
• Growing projected deficits of $994.7 million in 2015 and $1.15 billion in 2016, according to the city’s annual financial analysis released last Wednesday (blogged about here)
• A total long-term debt of nearly $29 billion, or $10,780 for every one of the city’s nearly 2.69 million residents (blogged about here)
• A pension crisis with the Chicago Public Schools, which Davey and Williams Walsh note draws from the same tax base and where an extra $338 million must be found in 2014

Speaking of the CPS pension crisis, from their website under “FY13 Budget” in the “Pensions” section:

Like most public entities, the growing cost of employee pensions is the biggest financial challenge facing Chicago Public Schools (CPS). By FY2014 under existing legislation, CPS will be required to spend $534 million (more than 10 percent of its operating budget) on contributions to the Chicago Teachers Pension Fund (CTPF). This represents an increase of $338 million from the FY2013 contribution, the last year of legislative pension relief. Even at this contribution level, CTPF will still have a funded ratio below 60 percent, considered weak by many observers, and an unfunded liability of approximately $8 billion. Without reform from the state, CPS’s required annual contributions will continue to grow, and by FY 2040 will exceed $1 billion annually. At that point, the funded ratio is still estimated only to be 66 percent. Significant reform is essential to ensure that pension benefits continue to be available to CPS retirees.

(Editor’s note: Italics added for emphasis)

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

Source:

Davey, Monica and Walsh, Mary Williams. “Chicago Sees Pension Crisis Drawing Near.” The New York Times. 5 Aug. 2013. (http://www.nytimes.com/2013/08/06/us/chicago-sees-pension-crisis-drawing-near.html?pagewanted=1&_r=0&src=me). 7 Aug. 2013.

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Chicago Mayor Rahm Emanuel ‘Has The Toughest Job In America’

If you haven’t noticed, I find myself blogging about a lot of depressing crap. That’s not my intention- it just goes with the territory of talking about the subject material I do in this day and age. People who know me know that I look forward to when I can blog about brighter days. They’re out there- but there’s an unavoidable storm to be had first. Especially in the city of my birth and former residence- Chicago. And when I talk of the woes the Midwestern metropolis faces, I’m not making this stuff up. As I blogged back on July 24:

There should be no doubt that I predict tough times ahead for the city. But it’s not just me who harbors such suspicion. Even the Chicago FOX affiliate, Channel 32 News, is running a series called “Chicago at a Tipping Point” these days.

When putting together that post, I told myself I’d have to explore this “Tipping Point” series. The FOX 32 website has more information about it, and this is what it says on the sidebar of its designated web page:

The Problems

Chicago Mayor Rahm Emanuel has the toughest job in America—rescuing one of the country’s most attractive and largest cities from disaster. Among its problems:

Money: Potentially catastrophic tax increases loom due to hundreds of billions of dollars in unfunded public employee pension liabilities. Public employee union leaders have launched increasingly desperate counter-attacks on once-friendly Democratic Party politicians. Those politicians are moving to reduce public employee retirement benefits and other costs because taxpayers cannot afford them.

Schools: One consequence: facing an estimated $1 billion budget shortfall, the Board of Education just voted to close 49 under-performing schools. The vast majority lie within the gang/drug zone that families and business are fleeing as fast as they can. The president of the Chicago Teachers Union routinely denounces the school closings by accusing Mayor Emanuel of being a “racist” and a “murderer.” It might be laughable were it not so disgusting and potentially destabilizing.

Crime: Police claim 80% of the Chicago’s murders are driven by drug-dealing street gangs with billions of dollars in annual revenue and an estimated 100,000 members or sympathizers. Until that contagion is cleansed, those neighborhoods will see little if any private sector investment or job growth and continued residential flight. The street gang population plays into the concerns over crime as well as the closing of schools in gang infested neighborhoods. To many, it appears Chicago Police do not have control over these neighborhoods.

Jobs: Metro Chicago’s dismal 9.5% unemployment rate ranks 315th in the US, just barely ahead of #327 metro Detroit. Factory jobs that remain are increasingly automated and intellect-intensive. Ford Motor Co’s South Side Assembly plant at 126th & Torrence prefers to hire workers with at least two years of college. High school dropouts can’t even find work in a factory any more. It is Chicago’s shame that so few in these dying neighborhoods have sufficient skills to enable them to move Downtown.

Dismal stuff. By the way, on that last point about jobs, the Chicago area unemployment rate has climbed up to 10.3 percent according to the Illinois Department of Employment Security.

Like I said, I don’t make this up.

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

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Chicago Faces $339 Million Budget Deficit In 2014, $1 BILLION Gap In 2015

Last year on this day, I wrote the following about the City of Chicago’s just-released annual financial analysis:

The City of Chicago just released its annual financial analysis. Of no surprise to a number of Chicagoans, the city’s financial health is worrisome. According to an article by City Hall reporter Fran Spielman on the Chicago Sun-Times website last night:

• Chicago is looking at a budget shortfall of $369 million in 2013. Granted, this is better than the $741 million deficit forecast last year, and the Chicago news media is crediting Mayor Rahm Emanuel for this significant reduction…

By early October 2012, Mayor Rahm Emanuel had presented an $8.3 billion budget for 2013 to the Chicago City Council that aimed to balance the City’s finances without introducing new fees, fines, or taxes.

The latest financial analysis is out, and the budget gap in 2014 is projected to be $339 million. Still crappy, but a lot better than what could be in store for the “Windy City” by 2015. Hal Dardick reported on the Chicago Tribune website this morning:

The day of financial reckoning for Chicago is not far off, with the city budget shortfall expected to near a record $1 billion in 2015 if major changes are not made to the government worker pension systems, city officials said Wednesday.

That stark assessment, contained in the annual financial analysis prepared by Mayor Rahm Emanuel’s top budget officials, overshadowed the fact that the city needs to close an expected $339 million budget gap predicted for next year.

(Editor’s note: Italics added for emphasis)

So are Chicagoans going to get slammed with higher fees, fines, and taxes in the coming months? Fran Spielman reported on the Chicago Sun-Times website yesterday:

Mayor Rahm Emanuel will not raise sales or property taxes to close a $338.7 million gap in next year’s budget but all bets are off in 2015, when the shortfall balloons to $1 billion without pension reform, a top mayoral aide said Wednesday.

(Editor’s note: Italics added for emphasis)

Spielman noted that 2016 looks to be painful for the City as well. She added:

The deficit will rise to $994.7 million in 2015 and $1.15 billion in 2016 without a painful mix of employee concessions and new revenues, according to the city’s annual financial analysis released Wednesday.

(Editor’s note: Italics added for emphasis)

What was that Dardick wrote in his article’s introduction?

“The day of financial reckoning for Chicago is not far off…”

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

Sources:

Dardick, Hal. “Absent pension reform, city faces $1 billion hole.” Chicago Tribune. 1 Aug. 2013. (http://www.chicagotribune.com/news/local/ct-met-emanuel-budget-hole-0801-20130801,0,468987.story). 1 Aug. 2013.

Spielman, Fran. “City deficit to hit nearly $1 billion soon without pension reform.” Chicago Sun-Times. 31 July 2013. (http://www.suntimes.com/news/21642911-418/city-deficit-to-hit-nearly-1-billion-soon-without-pension-reform.html). 1 Aug. 2013.

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Chicago Police Department Accepting Police Officer Applications Starting August 1

The word is out that the Chicago Police Department plans on making employment applications available for the position of police officer this Thursday, August 1.

From the department’s “Answer The Call” web page:

The application for entry-level Police Officer with the City of Chicago will be available online between August 1 and September 16.

An examination is scheduled for December.

According to Chicago ABC affiliate Channel 7 News this morning, 429 new police officers have joined the CPD since Mayor Rahm Emanuel took office.

Still, a manpower shortage still exists. As Chicago Sun-Times City Hall reporter Fran Spielman noted back on January 4:

While nine districts now have more officers, most districts have fewer officers on the beat than before Emanuel and Police Superintendent Garry McCarthy reassigned hundreds of officers, records show.

The reason is simple: For every newly-hired officer assigned to a beat during the past two years, six other sworn officers have retired. And because about 1,200 retirements have sharply depleted the payroll, rank-and-file police staffing even in some high-crime areas where new officers were added last year is again declining, the Sun-Times found.

(Editor’s note: Italics added for emphasis)

For more information about the Chicago Police Department hiring process and obtaining an application, you can visit the CPD’s employment web page here.

Good luck!

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

Sources:

“Chicago police job applications accepted starting Thursday.” Channel 7 News. 30 July 2013. (http://abclocal.go.com/wls/story?section=news/local&id=9189616). 30 July 2013.

Spielman, Fran. “Mayor Emanuel: ‘more police…doing policing’ despite stats showing fewer beat cops.” Chicago Sun-Times. 4 Jan. 2013. (http://www.suntimes.com/news/crime/17388094-418/mayor-emanuel-more-policedoing-policing-despite-stats-showing-fewer-beat-cops.html). 30 July 2013.

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Tuesday, July 30th, 2013 Employment, Public Safety, Retirement No Comments


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