Retirement
Cook County Public Pension Crisis Worsens
Back on April 9, 2012, I blogged about the public pension crisis in Cook County, Illinois. From that post:
Chicago, Cook County, and Illinois- a trifecta of serious financial concerns.
Hal Dardick talked about all three entities and their growing pension problems early this morning on the Chicago Tribune website:
Cook County’s pension fund will go broke in 26 years without changes that could include an increase in employee contributions and later retirement ages, according to a new analysis.
The report, done under the direction of county Commissioner Bridget Gainer in her role as chairwoman of the board’s pension-oversight panel, shows that it’s not just state and city pension funds that have perilous futures.
Even if the county fund generally is in better shape, Gainer said, that doesn’t mean the county can continue to ignore a funding gap that had grown to $5.2 billion by the end of 2010. That’s seven times the size it was a decade earlier…
(Editor’s note: Italics added for emphasis)
The public pension crisis in the country’s second most populous county has grown worse since I posted that, with the funding gap now having reached $6.79 billion. Paul Merrion revealed on the Crain’s Chicago Business website Wednesday:
Solvency of Cook County’s pension funds deteriorated in the last fiscal year, according to a new report, and county commissioners are pressing anew for reforms.
The county’s main Employees’ Annuity and Benefit Fund saw its pension debt grow to $6.79 billion, up $969.5 million last year and an increase of $1.6 billion in the gap between assets and liabilities since 2010. The plan is only 53.5 percent funded, down from 57.5 percent in fiscal 2011, and the fund is projected to be insolvent by 2034.
(Editor’s note: Italics added for emphasis)
I anticipate Cook County’s financial woes will make themselves known well before that 2034 date. County residents and businesses should plan accordingly.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Source:
Merrion, Paul. “Cook County pension woes worsen.” Crain’s Chicago Business. 8 May 2013. (http://www.chicagobusiness.com/article/20130508/NEWS02/130509769/cook-county-pension-woes-worsenwww.sj-r.com). 10 May 2013.
Wall Street Legend Stanley Druckenmiller Warns Stock Market Rally Coming To End, Financial Storm Coming
Well-known investor Stanley Druckenmiller is warning these days that not only is the stock market rally coming to an end, but that a financial crash is fast-approaching. For those of you not familiar with Druckenmiller, from the Forbes magazine website:
• Started Duquesne Capital Management in 1980 with $1 million. Closed down $12 billion hedge fund in 2010 “and returned investors’ money, citing frustration with his inability to deliver high returns.”
• Hired by legendary investor George Soros in 1988 and together the two reportedly made $1 billion in a day by shorting the British pound in 1992
• Went back to running Duquesne in 2000, which reportedly made money for its clients during the 2008 global economic crisis
• His estimated net worth in March 2013: $2.8 billon
Yesterday morning, Druckenmiller appeared on CNBC’s Squawk Box. Discussing the recent performance of equities, he told viewers:
You’ve got a great supply-and-demand situation for stocks right now. But, I’d analogize it to the hamster on the wheel. It was easy to know when QE1 and QE2 were going to end. This thing will probably end, even though I think QE is going to go on forever just because all the lobster are about to get in the pot. And maybe we’re in the 7th or 8th inning. But, they’re going to get boiled at some point. But right now, supply-and-demand looks great.
“Druckenmiller: Don’t Know When, But It Will End”
CNBC Video
Last Friday, Druckenmiller sat down with Stephanie Ruhle on Bloomberg Television’s Market Makers. He warned viewers of an approaching financial “storm,” stating:
Currently, Stephanie, I see a storm coming. Maybe bigger than the storm we had in 2008 to 2010… The basic story is, the demographic bubble I was looking at way back in ‘94 that started in 2011. We are right at the first ramp-up of this thing…
Something remarkable has occurred since 1994 until now, which is entitlement spending. Or let me say transfer payments, to be a little more correct. Transfer payments which were 28 percent in ‘60. And were 50 percent when we were in the budget mess in ’94. Lo and behold, they’ve gone up to 67 percent of government outlays. But, they haven’t gone up because of demographics. They’ve gone up because the seniors have a very, very powerful lobby. They keep getting more and more transfer payments from the youth. But the demographic storm is just starting now…
So, what’s going to happen, we now have a working popular of- this is how entitlements work- where the current workforce is paying for the benefits of the seniors. Since 2000, we’ve have about 4.5 to 4.8 workers for every retiree. By 2050, that number will drop to 2.4 workers per retiree. Another catchy way of saying it is that by 2030, the average population of the United States is going to be older than the average Floridian right now.
Druckenmiller later said that he’s not out to bash senior citizens, but instead:
What I’m against is current seniors stealing from future seniors.
“Druckenmiller: I See Storm Coming, Bigger Than 2008”
Bloomberg TV Video
By Christopher E. Hill, Editor
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)
Chicago Murders Down Last Month Due To More Cops On The Streets?
Here in Chicago, the news media is making a big deal about the historically-low number of murders here in February. It seems a correlation is trying to be made between the few homicides and the Chicago Police Department paying cops overtime to saturate the problem areas of the city. Jon Seidel reported on the Chicago Sun-Times website yesterday:
The Chicago Police Department is considering the expansion of the “hot zone” crime-fighting strategy highlighted by Supt. Garry McCarthy this week as the city recorded a historically low number of murders in February.
McCarthy is paying overtime to 200 officers for nightly patrols of 10 areas identified in a three-year and one-year analysis of murders, shootings and robberies across the city.
It will be interesting to see if murders decline over time while this crime-fighting strategy is pursued. Personally, I think the saturation had some effect on last month’s homicides. However, I suspect the cold, snowy weather also had a lot to do with the low numbers. When spring-like temperatures finally arrive here, look for the bodies to start stacking up again.
If a correlation is found between more cops in the “hot zone” and less murders, funding this crime-fighting strategy through overtime pay isn’t going to cut it if City Hall is serious about fighting violent crime and beating-back our growing reputation as the “Deadliest Global City.” Hiring new beat cops will be needed. Even a correlation isn’t found, for that matter. Consider what Fran Spielman of the Sun-Times wrote yesterday about Chicago Police Department manpower issues:
Emanuel campaigned on a promise to add 1,000 police officers not now on the street. Instead, he has reassigned 1,019 police officers to beat patrol, half of whom already had been on the street in now-disbanded specialized units.
The Chicago Sun-Times reported in late December that, as of Oct. 15, a total of 6,638 rank-and-file officers were assigned to police beats citywide, down from 6,746 beat cops at the start of 2011.
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)
Like I said, overtime isn’t going to cut it. More beat cops need to be hired, trained, and deployed yesterday to make progress in the ongoing fight against violent crime and the city’s growing reputation as a war zone.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Sources:
Seidel, Jon. “Supt. McCarthy considers expanding ‘hot zone’ crime-fighting strategy.” Chicago Sun-Times. 4 Mar. 2013. (http://www.suntimes.com/18628475-761/supt-mccarthy-considers-expanding-hot-zone-crime-fighting-strategy.html). 5 Mar. 2013.
Spielman, Fran. “Suit: Chicago Police Department washes out cops’ relatives as recruits.” Chicago Sun-Times. 4 Mar. 2013. (www.suntimes.com/news/cityhall/18630237-418/suit-chicago-police-department-washes-out-cops-relatives-as-recruits.html). 5 Mar. 2013.
Chicago Sees ‘Most Violent January In More Than A Decade’
I have a pretty good idea what a number of you will be thinking as you read this post:
How’s that gun “control” working out for you, Chicago?
From John Byrne, David Heinzmann, and Bob Secter on the Chicago Tribune website late last night:
Following the most violent January in more than a decade and the high-profile slaying of a 15-year-old high school band majorette, Mayor Rahm Emanuel and his police chief moved closer than ever Thursday to reintroducing the very police strategy they dumped when they took over in 2011.
Emanuel said he would move 200 officers off desk duty to bolster the size of roving teams aimed at suppressing outbreaks of murderous violence that have been on the rise in the city for more than a year.
“The most violent January in more than a decade.”
According to the Crime in Chicago blog yesterday, 44 people were murdered and 160 were shot in the city last month.
Now, back on New Year’s Eve, I noted that at the end of a year in which Chicago surpassed 500 murders (534 according to CIC), the number of beat cops was less than before Rahm Emanuel became mayor.
So, why not just hire more police officers then?
Byrne, Heinzmann, and Secter (sounds like a law firm) added:
The head of the police union said retirements and a lack of new hiring amid tight budget years has reduced the size of the force well below what is needed to keep the streets safe.
“No matter how City Hall slices the numbers or spins this issue, the fact remains we have less officers on the street now than when the mayor was elected,” said Mike Shields, head of the Fraternal Order of Police.
At the news conference announcing his new plans, Emanuel said “you don’t ask the taxpayers to pay for additional cops until you make sure you’re using every cop on the payroll today effectively.”
Personally, I think City Hall is well-aware of the significant, fast-approaching fiscal challenges that are in store for Chicago, so basically “what you see is what you get” could be the case for Chicago Police Department manpower. As things stand, taxes will be going up- significantly- but one has to wonder how much of it will be earmarked for the following, which I blogged about back on August 1:
The “Windy City” has a $25 billion pension crisis that will require property taxes to be doubled by 2015 (from an anticipated $476 million this year to $1.2 billion in 2015) if no changes are made to both retirement benefits and City of Chicago employee contributions.
Remember that $2.98 billion the city received when the Chicago Skyway and parking meters were privatized under former Mayor Richard M. Daley? Only $623 million remains.
The analysis comes on the heels of year-end audit findings that show Chicago is in the midst of a debt crisis, adding $465 million of debt in 2011 to a total long-term debt that’s sitting at just over $27 billion.
(Editor’s note: Italics added for emphasis)
Chicagoans- be prepared to bust out those wallets very shortly.
To wrap things up, one sentence in that Tribune piece really stood out for me. Byrne, Heinzmann, and Secter wrote:
But the events of this week show that tragedy can strike anywhere, and calibrating how and where to stretch those resources is difficult in a city with a deeply entrenched culture of violence.
(Editor’s note: Italics added for emphasis)
“Culture of violence?”
Sounds like Second City Cop wasn’t too far off the mark with that “Culture of Death” comment the other day.
Watch your six, Chicago.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Source:
Byrne, John, Heinzmann, David and Secter, Bob. “Street violence spurs shift in police strategy.” Chicago Tribune. 31 Jan. 2013. (http://www.chicagotribune.com/news/local/ct-met-emanuel-mccarthy-officers-reassigned-20130201,0,7276684,full.story). 1 Feb. 2013.
Illinois’ Total Unfunded Liabilities: $275 Billion
The following bit about Illinois’ total unfunded liabilities from a January 28 Investor’s Business Daily editorial was so depressing to read that I originally planned to blog about it much earlier this morning- but needed to step away. From the IBD website:
A recent release by the Illinois Policy Institute shows this [$96.8 billion unfunded debt to five state pension systems] is only the tip of the iceberg and when you add in other liabilities such as $54 billion in unfunded liabilities for retiree health insurance and $15 billion in pension bonds that Gov. Pat Quinn and his immediate predecessor, former Gov. Rod Blagojevich, issued to avoid pension reform, Illinois’ total unfunded liabilities amount to $275 billion, or $58,000 in debt for each and every household in the state.
(Editor’s note: Italics added for emphasis)
So what’s it going to be, Illinois? Since a booming economy seems unlikely to return anytime soon, will the Democrat-dominated Illinois General Assembly finally enact significant spending cuts? Raise fees and taxes through the roof? Throw public sector retirees “under the bus?”
They’re going to have to do something real quick.
Or watch the whole thing unravel.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Source:
“Obama’s Illinois Downgrade Makes It America’s Greece.” Investor’s Business Daily. 28 Jan. 2013. (http://news.investors.com/ibd-editorials/012813-642237-credit-downgrade-illinois-standard-poors-worst.htm). 31 Jan. 2013.
Labor Minister: France ‘Is A Totally Bankrupt State’
Speaking of France, how is the Socialist-led European state faring these days?
Not so great, it seems.
In fact, a pretty reliable source claims they’re bankrupt.
Graham Ruddick reported on The Telegraph (UK) website Monday:
Michel Sapin made the gaffe in a radio interview, which left French President Francois Hollande battling to undo the potential reputational damage.
“There is a state but it is a totally bankrupt state,” Mr Sapin said. “That is why we had to put a deficit reduction plan in place, and nothing should make us turn away from that objective.”
The comments came as President Hollande attempts to improve the image of the French economy after pledging to reduce the country’s deficit by cutting spending by €60bn (£51.5bn) over the next five years and increasing taxes by €20bn.
(Editor’s note: Italics added for emphasis)
As I mentioned earlier tonight, some claim President Obama desires French-style Socialism for the United States.
If France’s economy truly is in shambles, and the U.S. President really wants to emulate them, well- here’s a glimpse of what Americans could expect. From an Investor’s Business Daily editorial yesterday:
Fresh after May 2012′s election, President Francois Hollande wasted no time raising government spending, hiking tax rates to 75% on those above $1.3 million in income, hiring 60,000 bureaucrats, cutting the retirement age for public pensions to 60 and undoing fiscal reforms by his predecessor, Nicolas Sarkozy. During his campaign, Hollande declared himself “the enemy of finance.” France today proves it…
Public debt has soared from 68% of GDP in 2008 to 90% in 2012, joblessness has hit 11%, and GDP growth of its $2.8 trillion economy is projected in 2013 at zero.
Tax hikes have driven the richest taxpayers from the country, making the $43 billion budget hole unlikely to be plugged by Hollande’s $26 billion tax hike. Meanwhile, a squeeze on business creates rising numbers of unemployed, who in turn demand state services.
Time will tell how this will all work out for the Socialists in France. But if history rhymes once again, keep in mind something former British Prime Minister Margaret Thatcher said in a 1976 interview:
Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them. They then start to nationalise everything, and people just do not like more and more nationalisation, and they’re now trying to control everything by other means. They’re progressively reducing the choice available to ordinary people.
Any of this sound familiar?
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Sources:
Ruddick, Graham. “France ‘totally bankrupt’, says labour minister Michel Sapin.” The Telegraph. 28 Jan. 2013. (http://www.telegraph.co.uk/finance/financialcrisis/9832845/France-totally-bankrupt-says-labour-minister-Michel-Sapin.html). 30 Jan. 2013.
“Like The Bourbons, France’s Socialists Have Learned Nothing, Forgotten Nothing.” Investor’s Business Daily. 29 Jan. 2013. (http://news.investors.com/ibd-editorials/012913-642388-france-socialist-model-is-same-old-recipe-for-bankruptcy.htm). 30 Jan. 2013.
More Working Americans Tap Retirement Savings To Pay Bills
I always suspected those exuberant, carefree American retirees seen in TV commercials from various financial services companies were more the exception rather than the rule. And considering it’s being reported that a growing number of working Americans are dipping into their retirement savings to help pay their bills, those happy-go-lucky retirees could soon be truly endangered. Michael Fletcher wrote on the Washington Post website Monday:
A large and growing share of American workers are tapping their retirement savings accounts for non-retirement needs, raising broad questions about the effectiveness of one of the most important savings vehicles for old age.
More than one in four American workers with 401(k) and other retirement savings accounts use them to pay current expenses, new data show. The withdrawals, cash-outs and loans drain nearly a quarter of the $293 billion that workers and employers deposit into the accounts each year, undermining already shaky retirement security for millions of Americans.
With federal policymakers eyeing cuts to Social Security benefits and Medicare to rein in soaring federal deficits, and traditional pensions in a long decline, retirement savings experts say the drain from the accounts has dire implications for future retirees…
(Editor’s note: Italics added for emphasis)
Another worthwhile read, which can be found on the Post’s website here.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Best- And Worst-Run U.S. States In 2012
New York City-based financial news and opinion organization 24/7 Wall St. has just released their 2012 list of best- and worst-run states in America. While they ranked all 50 based on financial health, standard of living, and government services data, 24/7 Wall St. declared the top 5 best-run states to be:
1. North Dakota
2. Wyoming
3. Nebraska
4. Utah
5. Iowa
The top 5 worst-run states are:
1. California
2. Rhode Island
3. Illinois
4. Arizona
5. New Jersey
Last November, 24/7 Wall St. named Illinois the 2nd worst-run state in America. Up to 3rd this year? High-fives all around the “Land of Lincoln” today. Here’s what 24/7 Wall St. had to say about Illinois this year:
48. Illinois
> Debt per capita: $4,790 (11th highest)
> Budget deficit: 40.2% (2nd largest)
> Unemployment: 9.8% (tied-10th highest)
> Median household income: $53,234 (18th highest)
> Pct. below poverty line: 15.0% (25th highest)Although many states have budget issues, Illinois’ faces among the biggest problems. In 2010, the state’s budget shortfall was more than 40% of its general fund, the second-highest of any state. Both S&P and Moody’s gave Illinois credit ratings that were the second-worst of all states. In addition, the state only funded 45% of its pension liability in 2010, the lowest percentage of any state. Governor Patrick Quinn has made the now-$85 billion pension gap a top priority for the new legislative session beginning in January.
“$85 billion pension gap.” Make that $96.8 billion last I heard.
And as for Wisconsin, where I plan on moving to in a couple of years? 24/7 Wall St. ranked the “Badger State” the 21st best-run state in America this year- down from 16th in 2011.
You can find out where 24/7 Wall St. ranked your state this year by going here on their website.
Illinois Pension System ‘Can No Longer Be Salvaged’ Says Leading Business Group
The State of Illinois’ pension funding gap has now reached $86 billion.
That’s right- $86 billion.
And one of Illinois’ leading business groups- the Civic Committee of The Commercial Club of Chicago- has just issued a letter to its members and Governor Pat Quinn that the pension crisis has gotten to the point that even if the Illinois General Assembly takes drastic action in addressing the issue, the state’s pension systems will still run out of money to pay promised benefits. From correspondence dated November 14:
Dear Governor Quinn:
As you well know, the Illinois budget has crumbled under the heavy weight of the state’s underfunded pension obligations. We’ve watched and waited as our state’s leaders have time and again been unable to make the choices necessary to put us back on sound financial ground. Our latest sobering analysis has led us to conclude, as I have shared in the attached memo sent today to members of the Commercial Club, that under current circumstances the pension system is unfixable.
We base that statement on more than just the overwhelming numbers. The magnitude of the unfunded obligations, combined with a total lack of political courage to rectify the situation, leads us to believe that our pension systems can no longer be salvaged sufficiently to meet their current obligations. This is tragic, both for those who participate in the systems and those who pay for them, but it did not come without warning or proposed solutions…
(Editor’s note: Italics added for emphasis)
The Civic Committee concluded their stinging assessment of the state’s public pension program and its political leaders with the following:
Illinois has become the poster child for state finances gone awry.
Being the “poster child” for anything typically sucks- as is the case here.
If you happen to participate in one of these pension plans, it’s probably wise to explore fall-back plans in case this source of retirement income doesn’t pan out as expected.
You can read the entire letter from the Civic Committee of the Commercial Club of Chicago on Scribd.com here.
Illinois Named One Of ‘10 Worst States To Retire’ In
Illinois ranks near the top of yet another comparison among the 50 states.
“Worst States to Retire”
MoneyRates.com has been a leading source of financial information since 1999, and they recently released their 2012 list of the “10 Worst States to Retire” in. The measures that formed this year’s analysis included senior population growth, economic conditions, crime rate, climate, and life expectancy. Richard Barrington wrote on the MoneyRates.com website on October 22:
4. Illinois
Illinois ranked below-average in every category, with its chief problems being high property taxes and high unemployment.
Only Alaska and Pennsylvania (tied for 2nd), and 2012 winner Michigan, beat out the “Land of Lincoln” for this distinction.
You can view the entire “top 10” list of worst states for retirement on MoneyRates.com here.
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