credit rating agencies

Cook County Residents To Get Hit With Tax Hikes Soon?

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)

Slodysko added later in the piece:

Preckwinkle declined to discuss specifics, but she did say that any plan that goes before the Legislature will not have property tax increase language written into the bill

(Editor’s note: Bold added for emphasis)

Okaaay… so that means Preckwinkle’s not “leaving the door open” to hiking property taxes?

Regardless, based on what I see coming down the line for us, it’s only a matter of time.

Last summer, Cook County saw its bond rating lowered by one of the major credit rating agencies supposedly due to its public pension liabilities. I blogged on August 20, 2013:

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…

(Editor’s note: Bold added for emphasis)

Stay tuned…

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

Source:

Slodysko, Brian. “Preckwinkle won’t rule out tax increase to strike pension deal.” Chicago Sun-Times. 9 Apr. 2014. (http://politics.suntimes.com/article/chicago/preckwinkle-wont-rule-out-tax-increase-strike-pension-deal/wed-04092014-523pm). 10 Apr. 2014.

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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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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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Moody’s Downgrades Chicago Transit Authority Bonds From Aa3 to A1, Says Outlook Negative

Moody’s Investors Service has dealt Chicago another ratings blow. In this case, it’s the Chicago Transit Authority. From a Global Credit Research news release last Friday:

New York, October 25, 2013 — Moody’s Investors Service has downgraded the Chicago Transit Authority’s $2.9 billion outstanding sales tax revenue bonds to A1 from Aa3 and revised the outlook to negative from stable. Also affected are approximately $77 million of authority lease bonds issued by the Chicago Public Building Commission, which have been downgraded to A2.

According to Moody’s rating scale, this CTA debt has gone from being “high quality” and “subject to very low credit risk” to “upper-medium grade” and “subject to low credit risk.”

The well-known credit rating agency added:

The rating assigned to the Chicago Transit Authority (CTA) sales-tax backed debt has relied partly on active management — the ability to increase pledged revenue to allow for new debt and to maintain debt-service coverage. Two main factors now indicate weaker CTA credit quality. First, in view of growing credit pressures on Chicago (A3/negative), Cook County (A1/negative), and the State of Illinois (A3/negative), we believe the political will to impose further revenue increases has diminished. Second, the CTA system faces growing deferred maintenance and capital needs that will require funding from new debt issuance and other sources, at a time when state and federal support is likely to dwindle. Despite the recent improvement in pledged revenues driven by the national economic recovery, debt service coverage levels are likely to decrease in coming years. A backlog of pledged state matching payments, though recently reduced, will remain a long-term challenge and may be exacerbated by impending state income tax cuts and the state’s massive pension deficits. CTA’s own increasing pension challenges may strain its operating budget. Together, these factors have added to the importance of distinctions between CTA’s sales-tax bonds and those issued by the Regional Transportation Authority (RTA, Aa3/stable), a transit oversight body with a prior claim on the same regional sales taxes and a more conservative additional debt limit.

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

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

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Monday, October 28th, 2013 Bonds, Credit, Government, Taxes, Transportation No Comments

Illinois Senate President John Cullerton Says No State Public Pension Crisis

“Five million dollars a day. That’s the cost of Illinois’ unresolved pension crisis.”

-Jay Levine, Channel 2 News (Chicago CBS affiliate) reporter, October 18, 2013

Five million dollars a day being flushed down the toilet because Illinois politicians haven’t tackled the state’s public pension crisis.

By the way, that pension liability now amounts to a worst-in-the-nation $100 billion last I heard.

And here’s what Illinois Senate President John Cullerton said yesterday about the ongoing fiasco. From the Chicago Tribune website this morning:

“People really misunderstand the nature of this whole problem. Quite frankly, I don’t think you can use the word ‘crisis’ to describe it at the state level,” Cullerton said in an interview on WGN-AM radio.

“It’s something we have to deal with, but it’s not something that we’re on the verge of bankruptcy on,” Cullerton said.

The term “Ivory Tower” comes to mind here.

Meanwhile, it’s probably just a matter of time now before a major credit rating agency downgrades the State’s debt yet again due to the inability of the political leadership to deal with the crisis.

According to the Illinois Watchdog website, Illinois has seen its credit downgraded 16 times since 2003, with both Fitch and Standard and Poor’s currently assigning an “A-” rating to its debt.

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

Sources:

Levine, Jay. “Lawmakers May Take Up Pension Reform, Gun Control In Veto Session.” CBS Chicago. 18 Oct. 2013. (http://chicago.cbslocal.com/2013/10/18/lawmakers-may-take-up-pension-reform-gun-control-in-veto-session/). 21 Oct. 2013.

“Cullerton: Illinois pension debt not a ‘crisis’” Chicago Tribune. 21 Oct. 2013. (http://www.chicagotribune.com/news/politics/clout/chi-cullerton-pension-debt-not-a-crisis-but-about-lowering-taxes-20131020,0,4245590.story). 21 Oct. 2013.

Yount, Ben. “Illinois can stand as a lesson in government-gone-wild.” Illinois Watchdog. 10 Oct. 2013. (http://watchdog.org/110131/illinois-can-stand-as-a-lesson-in-government-gone-wild/). 21 Oct. 2013.

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Motorola CEO: Illinois ‘Asleep At The Switch, And The Day Of Reckoning Will Come’

You know the state of Illinois has real fiscal challenges when a member of the U.S. President’s Management Advisory Board (PMAB) says that’s the case. Greg Brown, President and CEO of Schaumburg-based Motorola Solutions, spoke to Crain’s Chicago Business last week and said the following about his company’s relationship to the Midwestern state:

Illinois remains front and center for us for a variety of reasons: incumbency, skills that are resident, our existing footprint. It’s Illinois’ to lose, but Illinois is on a path to lose it. The state of Illinois is asleep at the switch, and the day of reckoning will come. You can’t have the state’s fiscal house being what it is and be able to attract capital. If Illinois kicks the can and stays in a four-corner offense, then capital will move out of state, including ours. I’ve had governors of Florida and Michigan proactively call me and say: “Would you consider moving a division, opening a plant? Would you consider moving R&D here? Would you deploy a sales division here?” Illinois doesn’t think like that. It needs a complete overhaul. It needs to happen soon.

Judging by the continued inaction in Springfield (seat of Illinois government) on issues of significant fiscal importance to the state and its 12.9 million residents, something tells me that can will keep being kicked down the road until the “day of reckoning” Brown talked about finally arrives.

In the meantime, the State of Illinois continues to languish.

Consider what Ted Dabrowski, Vice President of Policy at the Illinois Policy Institute, wrote back on November 28 on the organization’s website:

Today, Illinois still has more than $9 billion in unpaid bills. The Legislature continues to run structural deficits, appropriating more funds than the revenues it receives. The state’s pension systems are more than $200 billion in the hole and facing insolvency. And the state has been downgraded 10 times by the three major rating agencies since Gov. Quinn took office.

I am truly concerned about what lies in store for the “Land of Lincoln” going forward.

Sources:

Pletz, John. “Motorola’s CEO on taxes, tablets and why Illinois is dying.” Crain’s Chicago Business. 24 Dec. 2012. (http://www.chicagobusiness.com/article/20121222/ISSUE01/312229987/motorolas-ceo-on-taxes-tablets-and-why-illinois-is-dying). 26 Dec. 2012.

Dabrowski, Ted. “Forget reform: Illinois legislators want to borrow $4 billion.” Illinois Policy Institute. 28 Nov. 2012. (http://illinoispolicy.org/blog/blog.asp?ArticleSource=5283). 26 Dec. 2012.

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Christopher E. Hill, Editor
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