pensions

Standard & Poor’s Warns Chicago ‘Downgrade Of More Than One Notch Is Possible’

Not too much talk about the following last week in the Chicago-area news. From Standard & Poor’s credit analyst Helen Samuelson over on S&P’s Global Credit Portal website on April 9:

CHICAGO (Standard & Poor’s) April 9, 2015–After months of campaigning and uncertainty, Chicago (A+/Negative general obligation debt rating) can get back to the business of running itself. As such, we expect Mayor Rahm Emanuel’s attention to be focused on the city’s budget challenges, namely its ballooning pension obligation.

During the course of the election — and particularly during the runoff — Mayor Emanuel avoided addressing the possibility of property tax increases to help pay for these pension obligations.

“Following Tuesday’s vote, in order to maintain its current rating, we expect the administration to address the pension and budget challenges head on by providing solutions that will support the city’s credit strengths in the near and far term,” said Standard & Poor’s credit analyst Helen Samuelson.

Our ‘A+’ rating is predicated on Chicago’s ability to make the changes necessary to address its budget gap and pension problem. However, even with this ability, to ensure long-term stability Chicago still needs to demonstrate its willingness to make difficult choices that address its budget issues.

Otherwise, the ‘A+’ rating could be severely pressured. Our negative rating outlook reflects the city’s fiscal pressures. If the city doesn’t find structural solutions, a downgrade of more than one notch is possible.

In our view, if the city fails to articulate and implement a plan by the end of 2015 to sustainably fund its pension contributions, or if it substantially draws down its reserves to fund the contributions, we will likely lower the rating. This is regardless of whatever relief the state legislature may or may not provide. We will likely affirm the rating and revise the outlook to stable if Chicago is able to successfully absorb its higher pension costs while maintaining balanced budgetary performance and reserves at or near their current level…

(Editor’s note: Bold added for emphasis)

To date, a different credit rating agency- Moody’s- has been making the most noise about the City of Chicago’s financial woes. Yvette Shields reported on The Bond Buyer website on April 6:

The city has suffered a steep credit rating slide and further credit deterioration is threatened.

Chicago’s GO ratings range from a low of Baa2 — two notches above speculative grade — from Moody’s to a high of A-plus from Standard & Poor’s…

“A-plus.” That may not be the case at year end.

You can read that entire Standard & Poor’s piece on the Global Credit Portal here.

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

Source:

Shields, Yvette. “Big Stakes as Market Awaits Chicago’s Mayoral Pick.” The Bond Buyer. 6 Apr. 2015. (http://www.bondbuyer.com/news/regionalnews/big-stakes-as-market-awaits-chicagos-mayoral-pick-1071986-1.html). 16 Apr. 2015.

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Thursday, April 16th, 2015 Credit, Debt Crisis, Entitlements, Government, Taxes No Comments

Afterthoughts: Chicago’s 2015 Mayoral Election

In case you hadn’t heard, Rahm Emanuel remains Mayor of Chicago after defeating Jesús “Chuy” García yesterday in a run-off election 55.7 percent to 44.3 percent with 98.7% of precincts reporting.

Here are some of my thoughts regarding the 2015 mayoral election in Chicago:

1. The fact that “Chuy,” a Cook County commissioner who was born in Durango, Mexico, forced Mayor Emanuel into a first-ever run-off election for the position signaled two things. One, a number of Chicago voters aren’t too happy with the way the “Rahmfather” is running the city. And two, Chicago’s Hispanics continue to flex their growing political muscle. Natasha Korecki reported on the Chicago Sun-Times website back on March 15:

According to census data from 2010, Hispanics make up just shy of 29 percent of the city’s population- but they account for only 13 to 15 percent of the electorate. (Garcia’s campaign says that number was at about 16 percent on Feb. 24.)

Should trends hold, I envision Latinos making significant gains with that percentage. Korecki added:

“The Hispanic population is the fastest-growing segment of the early-childhood population,” says Chicago City Clerk Susana Mendoza, an Emanuel supporter. “Latinos make up 47 percent of students in CPS,. It’s a very significant population…

Last December, the U.S. Census Bureau forecasted that Hispanics will comprise 25 percent of the U.S. population within the next 30 years- up from approximately 17 percent right now.

At risk of sounding like “Captain Obvious” here, I’m thinking Chicago’s future will be a much more Latino one. Particularly as city government is concerned.

(Editor’s note: Back in the fall of 1988 I told my high school Spanish teacher I wanted to learn the language because I thought it would “come in handy” someday. Has it ever.)

2. After being forced into a run-off, the Rahm camp realized he’s rubbed a number of Chicagoans the wrong way. Which led to commercials like this:


“New Rahm Emanuel Ad: ‘I Can Rub People The Wrong Way’”
YouTube Video

So now that he’s won the run-off, what’s Mayor Emanuel “tune” now? Rick Pearson and Bill Ruthhart reported on the Chicago Tribune website this morning:

After finishing a salad and bowl of matzo ball soup, Emanuel was asked what he learned from the runoff and whether he would, in fact, be a more inclusive mayor in his second term.

Emanuel responded by confidently saying the feedback he’d gotten from voters during the campaign would serve as his “North Star.” Asked by the Tribune if that meant he would take a different approach to running the city, Emanuel instead deflected the question by telling the reporter: “You’ll evaluate that, and my guess is you’ll tell me on a 24-hour basis.”

Pressed again on whether he had heard the voters and would change his often brusque style, Emanuel responded with just one word:

“Yeah.”

(Editor’s note: Bold added for emphasis)

Yeah. I don’t know about you, but the impression I get from that response is- something tells me old habits might be particularly hard to break with this one.

I can’t help but wonder if dead fish aren’t already on their way…

3. Chicago’s “financial reckoning day” is still fast approaching. And I don’t think it matters who’s in charge, as I believe we’re too far along in the deterioration and the required political will to do something about it just isn’t there. Still. I read a “funny” comment on the popular Chicago police blog Second City Cop earlier today. From a Tuesday night post:

Anonymous said…

Blah blah blah. The city will not go.bankrupt. We are third in the country for tourists, we have numerous international and national companies world headquarters plus we have a 100s of millions in tif funds. Commie chuy was a police hater that had no plan for this city. Rahm ain’t no picnic either but next to chuy he was a genius.

Now consider what the National Journal’s John B. Judis reported on March 30:

Chicago is facing a truly grave set of problems– problems that are essentially more extreme versions of the challenges confronting city governments across the country.

The quandaries begin with Chicago’s dramatic social divide. To an even greater extent than is the case in, say, New York or Philadelphia, Chicago has become two entirely separate cities. One is a bustling metropolis that includes the Loop, Michigan Avenue’s Magnificent Mile, and the Gold Coast, as well as the city’s well-to-do, working-class, and upwardly mobile immigrant neighborhoods. The other Chicago consists of impoverished neighborhoods on the far South and West Sides, primarily populated by African-Americans. These places have remained beyond the reach of the city’s recovery from the Great Recession.

Meanwhile, even as it grapples with this extreme gap, Chicago is suffering from a severe fiscal crisis. Like plenty of other municipalities, Chicago lacks the revenue to pay its bills, particularly its pension obligations to city workers. According to a 2013 Pew report, 61 other U.S. cities face similar difficulties, but Chicago’s situation is one of the worst. “Voters must realize we are facing the greatest economic crisis since the Great Depression,” says Roosevelt University’s Paul Green, the doyen of Chicago political experts. “If something doesn’t happen, the city is beyond the abyss.”

Those problems aren’t really Emanuel’s fault, but his efforts to fix them over the past four years haven’t yielded especially good results. For his part, Garcia—who has been at the forefront of Latino politics in Chicago for four decades and who has a history of bucking Chicago’s political establishment—has run a campaign long on general populist criticism of the incumbent, but short on credible ideas about what he would do differently.

All of which means that this election won’t yield much of a mandate for dramatic solutions to Chicago’s twin crises

(Editor’s note: Bold added for emphasis)

Translated: Probably doesn’t matter who won the election, because Chicago looks to “lose” with either at the helm.

Once again, the economic situation appears too far gone at this point, and the political will to truly get the city’s finances back on track just isn’t there.

I hope Judis is wrong. And I hope I’m wrong here.

But the numbers are looking pretty atrocious right now.

As much as I’d like to side with “Anonymous,” as Rahm Emanuel enters his second term as Mayor of Chicago, I feel that proverbial brick wall is still fast-approaching.

Perhaps the best Chicagoans can hope for at this point is a controlled crash landing.

I know one thing. If I were still living in the city, I’d be preparing for the coming carnage.

More on that topic soon.

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

Sources:

Korecki, Natasha. “Getting Hispanics to the polls in Chicago mayor’s race no slam dunk for Chuy.” Chicago Sun-Times. 15 Mar. 2015. (http://chicago.suntimes.com/chicago-politics/7/71/438985/getting-hispanics-polls-chicago-mayors-race-slam-dunk-chuy). 8 Apr. 2015.

Pearson, Rick and Ruthhart, Bill. “’Second chance.’ Emanuel says he’s ‘humbled’ by victory.” Chicago Tribune. 8 Apr. 2015. (http://www.chicagotribune.com/news/local/politics/ct-chicago-mayoral-election-20150407-story.html#page=1). 8 Apr. 2015.

SCC. “Mixed Bag.” Second City Cop. 7 Apr. 2015. (http://secondcitycop.blogspot.com/2015/04/mixed-bag.html). 8 Apr. 2015.

Judis, John B. “Broken city: Rahm Emanuel and the unraveling of Chicago.” National Journal. 30 Mar. 2015. (https://www.yahoo.com/politics/broken-city-rahm-emanuel-and-the-unraveling-of-115037357316.html). 8 Apr. 2015.

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Thinking Of Illinois’ Financial Woes While In Wisconsin

Saturday morning while working on projects around my family’s place in Wisconsin, something I read earlier in the week came to mind. Steven Malanga wrote on The Fiscal Times website on March 30:

Illinois officials… are awaiting a ruling from the state’s Supreme Court on a suit by workers seeking to overturn the legislature’s 2013 pension reforms. If the court, which has previously refused to allow any changes to retirement plans for retirees or current workers, throws out the reforms, Illinois will face $145 billion in higher taxes over the next three decades just to pay off the debt, according to a report by the Civic Committee of Chicago.

(Editor’s note: Bold added for emphasis)

“Illinois will face $145 billion in higher taxes…”

I don’t recall hearing/seeing that figure being used before, so I decided to track it back to the source. From an October 9, 2014, press release from the Civic Committee:

The “What If?” initiative identifies some of the consequences that could result from an overturn of the pension law, including:

$145 billion in higher taxes and service cuts over 30 years
• Highest property taxes in the nation
• 41¢ of Big Three state tax dollars devoted to pensions, up from 8¢ in 2007
• A possible $2,500 tuition spike at the University of Illinois
• Severe cuts to K-12 education, leading to as many as 13,000 teacher layoffs
• Critical meltdown of social services, including the end of child care for 41,000 kids and 21,000 seniors losing in-home care

(Editor’s note: Bold added for emphasis)

That’s a pretty scary picture being painted. The accompanying “What If?” brochure does a good job at accomplishing that. Consider some of these additional forecasts being made:

• 64,000 jobs lost
• $375 average property tax increase
• $3,000-plus in state taxes per household

The brochure didn’t indicate how all this was computed.

However, if conditions in the “Land of Lincoln” deteriorate to such a point, Wisconsin is where I’ll likely stay for good. Regular readers might recall that I’ve mentioned my permanent address being a Wisconsin one in the future.

You can read that entire press release/learn more about their “What If?” initiative on the Civic Committee website here.

While I support public pension reform in Illinois, I’m just not convinced what’s been put into play (passed into law) is the best way of going about it.

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

Source:

Malanga, Steven. “Outrageous public pensions could bankrupt these states.” The Fiscal Times. 30 Mar. 2015. (http://finance.yahoo.com/news/outrageous-public-pensions-could-bankrupt-172700274.html). 5 Apr. 2015.

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Bill Introduced To Permit Illinois Municipalities To File For Bankruptcy

Since I started blogging about a U.S. financial crash back on Memorial Day Weekend 2007, I’ve believed one casualty will be municipal government. Particularly in Illinois. So imagine my non-surprise when I spotted an article on the Chicago Tribune website a couple of days ago about proposed legislation at the state level granting Illinois towns the authority to file for bankruptcy. Nick Swedberg of the Associated Press wrote on March 26:

Stressed by pension debt, other financial issues and the possibility losing a chunk of their state aid, some Illinois cities want the option to file for bankruptcy. They’ve found an ally in a Republican lawmaker, who’s proposed legislation to allow municipalities to follow in the footsteps of Detroit and other cities in restructuring debt and paying back creditors…

Rep. Ron Sandack is sponsoring legislation that would grant authority for communities to file for bankruptcy under Chapter 9 of the federal code. The Downers Grove Republican says it’s a “measure of last resort,” especially with Gov. Bruce Rauner’s proposal in next year’s budget to cut in half the local governments’ share of state income taxes by 50 percent.

“It’s just giving time and space to do things right,” he said…

Swedberg added later in the piece:

Municipal bankruptcies are rare, NCSL data shows. Of 37 local government filings since 2010, only 8 were cities, with the majority filed by utilities and special districts.

Detroit filed for the nation’s largest municipal bankruptcy in July 2013, looking to restructure $12 billion of debt…

It’s true. Municipal bankruptcies haven’t happened too often. But keep in mind what Eric Weiner wrote on the NPR website back on February 28, 2008:

For most of U.S. history, cities and towns were not eligible for bankruptcy protection. But during the Great Depression, more than 2,000 municipalities defaulted on their debt, and they pleaded with President Roosevelt for a federal bailout. “All they got was sympathy,” reported Time magazine in 1933. Instead, Roosevelt pushed through changes to the bankruptcy laws that allows towns and cities to file for bankruptcy. They even got their own section of the bankruptcy code: Chapter Nine…

(Editor’s note: Bold added for emphasis)

There’s also this from Robert Slavin on The Bond Buyer website back on January 14:

For the municipal bond industry, 2015 marks the midpoint in what may turn out to be the decade of the bankruptcy.

Four of the five largest municipal bankruptcy filings in United States history have been made in roughly the last three years, a trend analysts attribute to the aftereffects of the 2008 credit crisis and Great Recession, as well as changing attitudes about debt.

“The crash of 2008 and five years of stagnation preceded by years of escalating wages, pensions and Other Post-Employment Benefits set the stage for our recent Chapter 9 filings,” said Arent Fox partner David Dubrow.

Chapter 9 municipal bankruptcy was adopted in 1937 but had been rarely used, particularly by large governments. However, since November 2011 San Bernardino, Calif., Stockton, Calif., Jefferson County, Ala., and Detroit have filed four of the five largest bankruptcies as measured by total obligations.

(Editor’s note: Bold added for emphasis)

Could the specter of Meredith Whitney, the “Diva Of Doom,” be returning to take revenge on the municipal bond industry?

I’m not surprised Illinois municipalities would be interested in House Bill 298. From Patrick Rehkamp and Andrew Schroedter on the website of the Chicago-based Better Government Association back on December 6, 2014:

Reasons for filing vary but often include troubled public development projects, unanticipated hefty legal judgments against a taxpayer-backed entity, or massive pension and bond debt payments that leave a municipality cash-strapped and unable to cover operating costs of employee salaries, vendor payments and other expenses.

(Editor’s note: Bold added for emphasis)

The public pension crisis in Chicago and Illinois has been well-publicized for some time now. And while such entitlements are supposedly protected by a provision in the 1970 Illinois Constitution, the BGA noted in their piece:

In Illinois, public employee pensions are guaranteed by the state constitution. But in the Detroit and Stockton, California bankruptcy cases, federal judges have ruled that pension benefits can be adjusted, the same as other debts, despite a constitutional guarantee.

(Editor’s note: Bold added for emphasis)

You can track the progress of HB 298 on the Illinois General Assembly website here.

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

Sources:

Swedberg, Nick. “Bill pushes for possible municipal bankruptcies in Illinois.” Associated Press. 29 Mar. 2015. (http://www.chicagotribune.com/news/sns-bc-il–closer-look-bankruptcy-20150329-story.html). 3 Apr. 2015.

Weiner, Eric. “What Happens When City Hall Goes Bankrupt?” NPR. 28 Feb. 2008. (http://www.npr.org/templates/story/story.php?storyId=60740288). 3 Apr. 2015.

Slavin, Robert. “Why So Many Big Bankruptcies?” The Bond Buyer. 14 Jan. 2015. (http://www.bondbuyer.com/news/markets-buy-side/why-so-many-big-bankruptcies-1069539-1.html). 3 Apr. 2015.

Rehkamp, Patrick and Schroedter, Andrew. “Next Up: Illinois Municipal Bankruptcy?” Better Government Association. 16 Dec. 2014. (http://www.bettergov.org/next_up_illinois_municipal_bankruptcy/). 4 Apr. 2015.

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

Chicago’s financial health is still pretty bleak in 2015.

Almost one year ago to this day, I blogged about bond credit rating giant Moody’s Investor Service downgrading the City of Chicago’s general obligation (GO) and sales tax ratings to Baa1 from A3, affecting $8.3 billion of GO and sales tax debt. I added last March:

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.”

Just before the weekend, Moody’s downgraded Chicago’s credit rating yet again. The Global Credit Research division announced on the Moody’s website under “Ratings News” Friday:

Rating Action: Moody’s downgrades Chicago, IL to Baa2; maintains negative outlook

Baa2 applies to $8.3B of GO debt, $542M of sales tax debt, and $268M of motor fuel tax debt

New York, February 27, 2015 — Moody’s Investors Service has downgraded to Baa2 from Baa1 the rating on the City of Chicago, IL’s $8.3 billion of outstanding general obligation (GO) debt, $542 million of outstanding sales tax revenue debt, and $268 million of outstanding or authorized motor fuel tax revenue debt. We have also downgraded to Speculative Grade (SG) from VMIG 3 the short-term rating on the city’s outstanding Sales Tax Revenue Refunding Bonds, Variable Rate Series 2002. The outlook on the long-term ratings remains negative…

“The outlook on the long-term ratings remains negative”

Kind of hard to get excited about the “Windy City’s” prospects after reading that.

To be fair, some are suggesting the credit rating downgrades are being influenced by City Hall in order to avoid meeting certain financial obligations (i.e., Chicago’s well-publicized public pension crisis).

“We ain’t got it.”

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

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

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Robert Kiyosaki: 2002 Prediction Of Huge Stock Market Crash Next Year ‘Holding Course’

“‘Rich Dad’s Prophecy’- [Robert Kiyosaki’s] most recent book- predicts that the market will crash around 2016 when the oldest Baby Boomers start cashing out their 401(k) plans. Individuals whose savings are locked into 401(k) plans will suffer because these retirement plans, aren’t flexible and don’t do well in a bear market…”

-CNN.com, October 30, 2002

How many readers out there know who Robert Kiyosaki is? The American entrepreneur, educator, and investor was quite popular back in the early 2000s. I first encountered him while watching public television around that time, sharing financial and investment strategies taught to him by his rich “Dad” and found in his 2000 New York Times best-selling book Rich Dad Poor Dad. Kiyosaki went on to write a number of books, including Rich Dad’s Prophecy in 2002.

Last Tuesday, Robert Kiyosaki appeared on the Alex Jones Show. Kiyosaki talked about his new book, Second Chance, and other subjects, including a certain prediction made about the U.S. stock market next year. From their exchange:

JONES: The world is just crazy at this point. Give us your prognosis for the planet. There’s obviously opportunities for those of us that are studying it. I mean, I going to do better probably than ever as things get worse. But I’m not happy about that, because I know it’s hurting the average person.
KIYOSAKI: Amen. Alex, I would say exactly the same thing. It doesn’t make me happy that I’m getting richer and richer, and I see my friends getting poorer and poorer. I’m very concerned right now about my generation- the Baby Boom generation, the biggest generation in history. And they bought that program of put all your money in a 401(k) and invest for the long term. Now, I wrote a book called Rich Dad’s Prophecy back in 2002. That was 13 years ago. And I said the biggest stock market crash in the history of the world was coming in 2016. I was kind of guessing. But unfortunately, I didn’t write it to be right. I wrote it out of concern. If I’m correct that in 2002 what I said the biggest market crash was coming in 2016, that means millions and millions of Baby Boomers, their kids, their grandkids, will feel the effect of that when their retirement savings are wiped out. I hope I’m wrong. But so far, my numbers look accurate and it’s holding course right now. So I don’t write because I want to be rich or poke fun or want to be righteous. I am rather concerned about my fellow citizens.

“But so far, my numbers look accurate and it’s holding course right now.”

Disturbing. Kiyosaki added later on in the interview:

I’m just concerned about this possible- I hope it doesn’t happen- but if my “rich Dad” was correct, again, published in 2002 Rich Dad’s Prophecy predicted the biggest crash in the history of the world was coming in 2016. And that’s why I wrote Rich Dad Poor Dad, that’s why I speak, that’s why I write, that’s why I take on the media. But I’m very concerned for my [fellow] citizens. Look, Alex, what happens? Let’s say I’m right- hopefully I’m not. And millions of Baby Boomers lose their pensions, their homes, their jobs- they lose everything. What is the ripple effect throughout the world going to mean to that? We’ve never been here before. Never before has the U.S. dollar, one currency, been the reserve currency of the world- and we’re printing it. The Europeans are printing, Japanese are printing. And you’ve got to look at this and go, “This is not good.” So that’s my concern right now.


“Great Economic Collapse & Currency Meltdown Is Coming
Says Financier Robert Kiyosaki”
YouTube Video

So how is Robert Kiyosaki going to fend off the crisis he still sees coming? While taking phone calls from listeners, Kiyosaki revealed:

I like silver personally. I love gold. I have a lot of gold and silver.

Further insight was provided right before the holidays, when Eve Fisher of The Sydney Morning Herald reported:

“The world is in very serious trouble and the next 20 years will not be like the past two decades,” says Kiyosaki, who predicted the downfall of Lehman Brothers investment bank in 2008 and the ensuing GFC.

“I foresee a global currency crash, like the one that ruined Germany in the 1920s, which will wipe out the poor and the middle class – as the rich get richer.

“People will see that money and shares are not real wealth, just paper, and the way to survive is by acquiring assets – like property, resources, gold and other precious metals.”

Farmers will benefit as land and food become highly valued commodities, he says…

(Editor’s note: Bold added for emphasis)

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)

Source:

Fisher, Eve. “Robert Kiyosaki says to prepare for the worst.” The Sydney Morning Herald. 10 Nov. 2014. (http://www.smh.com.au/business/robert-kiyosaki-says-to-prepare-for-the-worst-20141111-11jyhr.html). 21 Feb. 2015.

Robert Kiyosaki’s latest book…

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The Civic Federation Proposes Less Government Spending, More Taxes To Tackle Illinois’ $6.4 Billion In Unpaid Bills

Regular Survival And Prosperity readers shouldn’t be surprised to hear the following 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 last Thursday:

In a report released today, the Civic Federation’s Institute for Illinois’ Fiscal Sustainability proposes a comprehensive five-year plan that responds to the dire reality of Illinois’ financial condition with painful, but necessary recommendations. The plan immediately stabilizes the State’s operating budget and establishes a sustainable long-term financial plan that would pay off Illinois’ unpaid bill backlog of approximately $6.4 billion. The full 56-page report is available here.

Nearly five years after the official end of the national economic downturn, Illinois is still burdened with billions of dollars in unpaid bills. The State’s five pension systems, underfunded for decades and further weakened by recession-driven investment losses, are consuming a growing share of annual operating revenues. Temporary income tax rate increases enacted in 2011 helped the State cope with these massive problems, but the higher rates began to phase out on January 1, 2015 and the State’s income tax revenues are expected to plummet by $5.2 billion between FY2014 and FY2016.

“The incomplete FY2015 budget resulted in a greater deterioration of Illinois’ finances and made the necessary actions to fix this crisis even more painful,” said Laurence Msall, president of the Civic Federation. “Illinois cannot afford such a steep rollback of its tax rates without eliminating entire areas of State services or completely restructuring the government.”

After examining the effectiveness of multiple budget scenarios based on the fundamental long-term financial goals detailed below, the Federation proposes the following recommendations as part of a comprehensive five-year plan…

In a nutshell, The Civic Federation proposes less government spending and more taxes for the State of Illinois. From that press release:

1. Fix Fiscal Cliff in FY2015: Rather than sharply dropping income tax rates by 25% in one year, the State should retroactively increase the income tax rate to 4.25% for individuals and 6.0% for corporations as of January 1, 2015. The State could then provide additional tax relief by rolling back the rates on January 1, 2018 to 4.0% for individuals and 5.6% for corporations.
2. Control State Spending: The State should restrict discretionary spending growth from the 2.7% level shown in its three-year projections to 2.0%, closer to the rate of inflation. This could reduce total State spending by $1.3 billion over five years.
3. Broaden the Income Tax Base to Include Some Retirement Income: Out of the 41 states that impose an income tax, Illinois is one of only three that exempt all pension income. To create greater equity among taxpayers, the State’s income tax base should include non-Social Security retirement income from individuals with a total income of more than $50,000.
4. Expand Sales Tax Base to Include Services: Illinois should expand its sales tax base to include a list of 32 service taxes proposed by Governor Rauner. Due to the complexity of sourcing rules and collections for new businesses that are not currently required to collect sales taxes, it is estimated this expansion could take up to two fiscal years to fully implement.
5. Temporarily Eliminate Sales Tax Exemption for Food and Non-Prescription Drugs: To provide much-needed immediate revenue, the State should temporarily eliminate the tax exemption for food and non-prescription drugs. The State should apply the full 6.25% sales tax rate to food and over-the-counter drug purchases through FY2019 and then reinstate the exemption in FY2020 after the service tax expansion is fully implemented and the State’s backlog of unpaid bills is eliminated.
6. Expand the Earned Income Tax Credit to Provide Assistance to Low Income Residents: To help soften the impact of the State’s fiscal crisis on low income residents, the Civic Federation proposes an increase in the State’s Earned Income Tax Credit from 10% of the federal credit to 15% of the federal credit by FY2018…

At this point, I wholeheartedly believe it’s just a matter of time now before a number of the above are implemented either willingly (legislatively) or forcefully (“financial reckoning day”) in the “Land of Lincoln” down the road.

As such, it might be wise for Illinoisans to start preparing (if they haven’t done so already) for an impending hit to household finances and elsewhere.

You can read the entire press release and obtain that report on The Civic Federation’s website here.

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

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Illinois Debt Crisis Latest: $9 Billion Annual Deficit, $159 Billion In IOUs

Illinois residents are waking up to disturbing news this morning. From the “Press Room” over on the website of the Institute of Government and Public Affairs at the University of Illinois:

Illinois faces $9 billion annual deficit and $159 billion in IOUs

New analysis (PDF) by the Fiscal Futures Project finds no easy fix to Illinois’ chronic fiscal imbalance. Illinois now faces a $9 billion annual deficit that will grow to $14 billion by FY 2026.

“Years of pay-later budgeting has resulted in a massive imbalance between sustainable revenue and spending,” said Richard Dye, co-director of the Fiscal Futures Project. “Like a person in deep credit card debt, the state has been spending more than it can afford, and is covering the gap by issuing IOUs.” The report finds that the state’s IOUs now total $159 billion—more than twice the inflow of revenue in a single year. It’s a monumental problem that will require a long-term fiscal plan that includes tax increases, spending cuts, and economic growth.

The report, Apocalypse Now? The Consequences of Pay-Later Budgeting in Illinois, examines what it would take to balance the budget. The options are limited.

• Bringing back the 2011 tax increase would close only about one-half of the gap projected for the next several years.
The problem cannot be solved with spending cuts alone. Because Illinois can’t cut debt service or pension payments, it would take at least a 20 percent cut of all remaining spending to eliminate the deficit. This includes education, corrections, Medicaid, public safety, transportation, and more.
• Economic growth is also not a cure-all: an increase in the growth rate of personal income by an extra one-half percent every year for 10 years (an optimistic scenario) would only have a modest effect on the deficit.

The report concludes: “Changes in awareness, expectations, and policy are needed to restore fiscal balance in Illinois. Being saddled with paying past years’ bills means that today, Illinoisans must reduce their expectations for the services that they can expect from government and be prepared to pay more for government, now and in the future.”

(Editor’s notes: Bold added for emphasis)

Like I blogged a week ago:

A lot less government services. Much higher fees, fines and taxes.

An outcome I see for Chicago, Cook County, and Illinois residents down the road.

And plenty of Illinoisans wonder why their neighbors are high-tailing it out of the “Land of Lincoln.”

You can read a summary fact sheet or the entire report over on the IGPA website here.

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

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Chicago, Cook County, Illinois Residents: ‘Sacrifice’ Looming

A lot less government services. Much higher fees, fines and taxes.

An outcome I see for Chicago, Cook County, and Illinois residents down the road.

And based on comments made by Cook County Board President Toni Preckwinkle and new Illinois Governor Bruce Rauner yesterday, our destination is in sight. Governor Rauner said in his inaugural speech Monday:

We have an opportunity to accomplish something historic: to fix years of busted budgets and broken government; to forge a path toward long-term prosperity and a brighter future; to make Illinois the kind of state others aspire to become, a national leader in job growth and education quality.

To achieve that will require sacrifice. Sacrifice by all of us- politicians and interests groups, business and labor, those who pay for government and those who depend on government’s services. Each person here today and all those throughout the state will be called upon to share in the sacrifice so that one day we can again share in Illinois’s prosperity. We all must shake up our old ways of thinking…

The 42nd governor added later on in his address:

Illinois is our home- and right now our home is hurting. But home and family are worth sacrificing for… worth fighting for. Together, let’s do the hard work to rebuild our home…

“Sacrifice.” Call me crazy, but something tells me the burden of bailing out the “Land of Lincoln” won’t be falling upon the backs of the rich and powerful.

Cook County Board President Toni Preckwinkle also gave a speech yesterday in which she hinted at county residents having to make future sacrifices. John Byrne reported on the Chicago Tribune website Monday:

Preckwinkle gave a speech to the City Club of Chicago about her first-term achievements and laid out a blueprint for her second four years in office. Asked afterward about the likelihood she will be forced to raise taxes, Preckwinkle said only that it will be “a challenge” to meet the county’s financial obligations.

“We have significant challenges, both around the spike in our debt obligations and our pension obligations, and my charge to our chief financial officer is that he has to do everything he can to be creative in figuring out how to address these problems,” she said…

Preckwinkle crafted a $4 billion budget for 2015 that includes no new taxes, fines or fees. She has warned that the 2016 budget will be far trickier to balance because debt payments will increase and the county could need to come up with $144 million more to pay into the county workers retirement system if she gets the pension fund changes she has asked for from the General Assembly.

“I can’t predict now, because we don’t even have a pension bill, how much it’s going to cost or what it’s going to take, but it’s going to be a real challenge, I’ll say that,” she said Monday.

(Editor’s note: Bold added for emphasis)

Coupled with Chicago’s financial issues, all I can say to Chicago, Cook County, and Illinois residents at this point in time is- better start figuring out a way to cope with less government services and higher fees/fines/taxes from local and state government in the coming years. The politicians can only kick the can down the road so far.

You can read Governor Rauner’s entire inaugural address on the Chicago Sun-Times website here.

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

Source:

Byrne, John. “Preckwinkle details 2nd-term plans for Cook County.” Chicago Tribune. 12 Jan. 2015. (http://www.chicagotribune.com/news/ct-preckwinkle-second-term-agenda-met-0113-20150112-story.html). 13 Jan. 2015.

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Chicago, New York City Cops Talk ‘De-Policing,’ ‘Blue Flu’

“In Oklahoma City, after the terrible bombing, Americans were wearing a T-shirt- I’ve got a copy of it here that was given to me- and I’d never seen this before. But this T-shirt shows all the different things that federal law enforcement officials do and mentions all the different agencies and has the following quote on it:

A society that makes war against its police had better learn to make friends with criminals.

That’s a fact.”

-Former U.S. President Bill Clinton, in a July 20, 1995, meeting with federal law enforcement

I’ve been following the protests, riots, and other activity related to the deaths of Michael Brown and Eric Garner. And considering the anti-police sentiment that’s arisen and being stoked by certain politicians, the mainstream media, anarchists, and other agenda-driven parties, I was wondering how long it would take before someone in law enforcement uttered the following. From the popular Chicago police blog Second City Cop early Sunday morning:

We’re about to see a nationwide “de-policing” shortly.

De-policing. A situation where law enforcement activities are unofficially curtailed.

Comments on that Sunday post lent support to such action:

“De-Policing”, hey, I’m all for it! Give the people/folks what they want, maybe then they will be happy!

Essentially de-policing is the solution to all of this nonsense but it must be a concerted effort by all the police and not just one municipality. That will wake bitch slap the media and politicians into realizing what the consequences are of falsely accusing the police of these stupid excessive force accusations. NYPD did it right by telling the jack-off mayor he is persona non grata. For starters that should be done to mayor tiny dancer, libtard Dick Durbin, jack-off soon to be out of a job Holder and a host of others.

Why are we waiting for de-policing to happen? Start right now, answer all calls and do paper. No more rushing to a man with a gun, burglary in progress, person shot. Take your time and get there safely, take down all information. When the detectives get there they can suspend the case until the offender turns himself in and proceed with paper work. Not charged unless they confess, don’t bother calling the useless Felony Review or asa Office. Sorry, take it slowly, no more racing around for me on jobs. Gotta go, I feel the flu coming on. Take care of those that mean the most to you!

There was also talk of law enforcement officers coming down with the “blue flu” on that Second City Cop post. In New York City, the flu is also known as a “sick out”- which is what a number of cops out in the “Big Apple” are calling for as the anti-police protests carry on. From Thee RANT Forums (“New York City Cops speaking their minds”) website, under “Sick out New Years Eve”:

It’s been said many times now it has to be done! Bratton sold you all out and the Mayor hates your guts. How many Captains and above on the job 700? let them work the detail on New Years. If everyone goes sick this city will be at a fughing standstill! It needs to be done folks to give everyone a much needed reality check. I’m sure the job has a contingency plan in place where everyone who goes sick will have to report to the Police Academy. How many Surgeons do we have? What could they do? It needs to be done! It will cost 2 days pay perhaps but would be well worth it.

Again, commenters lent support to such activity:

The city and the public need a reality check. Can u imagine what would happen in Manhattan alone. A lot of robbed beat up white-boys.

“De-policing,” “Blue flu,” “Sick out.” Personally, I don’t see any of this happening on a large scale just yet. The present animosity being directed at the police isn’t coming from the majority of citizens (despite what the MSM would like you to think), and I believe most LEOs realize this.

However, as America’s finances continue to deteriorate going forward, I can see such work slowdowns and stoppages occurring with law enforcement. Disputes over wages, pensions, working conditions are likely flashpoints.

If the coming financial crash ever gets as ugly as what’s happened in the once-prospering South American country of Argentina, then perhaps we might see incidents like what took place there last year around this time. From the BBC website on December 10, 2013:

At least five people have been killed as looting spreads through Argentina.

Hundreds have been injured as people took advantage of a police strike to rob shops and homes.

Police have refused to go on patrol until their demands for a salary rise are met.

Their move follows a police walkout in Cordoba province last week which also led to lootings, and which was settled after the governor almost doubled officers’ pay…

(Editor’s note: Bold added for emphasis)


“Looting rife in Argentine city of Cordoba as police take strike action”
YouTube Video

On the third-ever day of this blog (November 24, 2010), I shared the following with readers (not sure I had any at that time though). I think it bears repeating here. I wrote:

This last thought about the individual being ultimately responsible for their own personal protection is hammered home by John S. Farnam, a long-time defensive firearms instructor and deputy sheriff (training officer) in the Park County, Colorado, Sheriff’s Office. In The Farnam Method of Defensive Shotgun and Rifle Shooting, the founder and president of Defense Training International wrote:

It is said by enlightened social scientists, “If it rained twenty-dollar bills every Monday morning, there would still be people begging for their dinner ever Monday evening!” The same is true with criminals. No matter how “civilized” or indulgent our society becomes, there will always be criminals. And, the more foolishly dependent we all become upon governmental institutions as the only means of preserving civil order, the more dubious our continued existence becomes, and the more quickly order will disintegrate when our societal underpinnings are crippled or even imperiled. When citizens become additively dependent on an eleemosynary and paternal government to do for them what they could be, and, of right, ought to be, doing for themselves, that civilization’s days are surely numbered. Never forget, regardless of how politically incorrect it may sound to the uninformed, your personal security is always your responsibility, and yours alone!

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

Sources:

SCC. “NYPD Takes A Stand.” Second City Cop. 14 Dec. 2014. (http://secondcitycop.blogspot.com/2014/12/nypd-takes-stand.html). 15 Dec. 2014.

“Deadly Argentina looting spreads as police go on strike.” BBC. 10 Dec. 2013. (http://survivalandprosperity.com/2010/11/24/putting-the-self-back-into-defense/). 16 Dec. 2014.

Farnam, John S. The Farnam Method of Defensive Shotgun and Rifle Shooting. Boulder: DTI Publications, 1997.

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Illinois Named Worst-Run State In America In 2014

“‘We don’t have the time to mess around. We are in deep, deep trouble financially,’ [Illinois Governor-elect Bruce] Rauner told a meeting of the Illinois Farm Bureau at a downtown Chicago hotel. ‘The next 24 months are going to be rough. And I apologize. I ain’t going to be Mr. Popularity for a little while. That’s OK. Four years from now I think, though, everybody will appreciate what we did.’”

Chicago Tribune website, December 8, 2014

Talk about lists you don’t want to be on. In 2012 and 2013, Illinois was the 3rd worst-run state in the annual best- and worst-run states in America survey conducted by New York City-based financial news and opinion organization 24/7 Wall St.

So how did the “Land of Lincoln” fare in 2014? From the 24/7 Wall St. website on December 3:

How well run is your state? Assessing a state’s management quality is hardly easy. The current economic climate and standard of living in any given state are not only the results of policy choices and developments that occurred in the last few years, but can also be affected by decisions made decades ago, and by forces outside a state’s control.

Each year, 24/7 Wall St. attempts to answer this question by surveying various aspects of each state. To determine how well states are managed, we examine key financial ratios, as well as social and economic outcomes. This year, North Dakota is the best-run state in the country for the third consecutive year, while Illinois replaced California as the worst-run state

(Editor’s note: Bold added for emphasis)

Ouch. Worst part is, the people who brought us this mess are the same ones still in charge, more or less. It will be interesting to see how much of a difference Governor-elect Rauner- who ran on the Republican ticket- can make in the Democrat-controlled state.

24/7 Wall St. went into more detail about my home state’s latest “honor.” From the piece:

Illinois is the worst-run state in the nation. Like many other low-ranked states, more people left Illinois than moved there. Illinois lost more than 137,000 residents due to migration between the middle of 2010 and July 2013. A poor housing market may partly explain the exodus. Median home values fell 16.2% between 2009 and 2013, the second largest drop nationwide. Illinois has extremely poor finances by many measures. Just 39.3% of Illinois’ pension liabilities were funded as of 2013, worse than any other state. Further, the state’s reserves are estimated at just 0.5% of its general fund expenditure, the second lowest reserves rate nationwide. Both Moody’s and S&P gave Illinois the worst credit ratings of any state, at A3 and A- respectively. According to Moody’s, the state’s rating reflects its low fund balances and high pension obligations, as well as its “chronic use of payment deferrals to manage operating fund cash.”

As for our neighbors, Indiana is ranked 28th and Wisconsin comes in at 26th in 2014- down from 19th and 21st- respectively.

That’s quite a hit (9 places) the Hoosiers took from last year. Wonder what’s behind the drop?

Curious as to where 24/7 Wall St. ranked your state in 2014? Head on over to their website here.

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

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Chicago’s 2015 Budget Includes Tax And Fee Hikes

Gee, who could’ve anticipated new fee and tax hikes look to be in store for Chicago next year?

From Fran Spielman over on the Chicago Sun-Times website this morning:

[Chicago Mayor Rahm] Emanuel will campaign for re-election on a budget that raises $62.4 million through “targeted” tax hikes and closing “loopholes,” which amounts to the same thing.

People who live, work and play in Chicago will be paying more for everything from parking and vehicle leasing to cable television and stadium skyboxes…

(Editor’s note: Bold added for emphasis)

These individuals have been doing that for a number of years now. Hal Dardick pointed out over on the Chicago Tribune site:

As the Chicago City Council prepares to approve his latest budget Wednesday, Mayor Rahm Emanuel repeatedly has reminded voters that he didn’t raise city property taxes during his first four years in office.

But that doesn’t mean homeowners haven’t had to pay. Under Emanuel, vehicle stickers cost more. Cable TV and phone taxes went up. And water and sewer fees increased significantly…

Taken together, Emanuel’s hikes mean the typical Chicago family will pay about $481 more to the city next year than it did in 2011. That’s the equivalent of a typical Chicago homeowner paying 60 percent more in city property taxes, which are nearly $800 a year for city and library services on a $250,000 home…

(Editor’s note: Bold added for emphasis)

“Nearly $800 a year for city and library services on a $250,000 home”

In the Chicago neighborhood I recently moved out of, I’m not sure if any inhabitable houses at that price range with more than 2 bedrooms/1 bath even exists. So I’m guessing a number of my old neighbors- who already shoulder a significant tax burden for the city- will be somewhat pissed to hear of this “good news” coming out of City Hall.

That being said, it’s not exactly Chicago’s “financial reckoning day” we’re talking about here. But it’s probably not what Chicagoans want to deal with as the holiday season kicks-in.

As for the well-publicized pension crisis going on in the “Windy City,” Spielman added:

By December, 2015, the City Council must decide whether to raise property taxes — or find other new revenues — to fund a state-mandated, $550 million payment to shore up police and fire pension funds.

(Editor’s note: Bold added for emphasis)

So a property tax hike might also be coming down the pipeline.

One more thing. Regarding the ongoing manpower shortage in the Chicago Police Department? That doesn’t look like it’s going to be resolved in 2015. From the Sun-Times piece:

Once again, the mayor’s budget includes only enough money to keep pace with retirements. It also includes roughly $70 million in police overtime, down from $100.3 million in 2013 and a projected $95 million this year…

(Editor’s note: Bold added for emphasis)

“Crime is down!” Yeah, whatever.

As always, I’m glad to see Fran Spielman and Hal Dardick are on top of their game.

What does all this mean for Chicago residents/workers/visitors?

It’s probably wise to budget a good deal more money for anything city-related next year. Even more so in 2016 considering what could be in store with the city’s public pension mess and what Cook County is telegraphing these days (blogged about Monday).

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

(UPDATE: The Chicago City Council approved Mayor Emanuel’s proposed 2015 city budget Wednesday by a vote of 46-4, and “puts off dealing with the city’s most vexing financial woes until after next year’s elections” according to the Tribune Thursday morning)

Sources:

Spielman, Fran. “Chicago City Council set to pass Emanuel’s $7.3 billion budget.” Chicago Sun-Times. 19 Nov. 2014. (http://politics.suntimes.com/article/chicago/chicago-city-council-set-pass-emanuels-73-billion-budget/wed-11192014-742am). 19 Nov. 2014.

Dardick, Hal. “Higher Emanuel fees and taxes add up.” Chicago Tribune. 19 Nov. 2014. (http://www.chicagotribune.com/news/local/politics/ct-emanuel-budget-2015-met-20141118-story.html#page=1). 19 Nov. 2014.

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2015 Cook County Budget Holds Line On Taxes, Fines, And Fees- For Now

Cook County residents dodged a bullet this time around.

John Byrne and Hal Dardick reported on the Chicago Tribune website Friday:

Cook County Board President Toni Preckwinkle on Friday won easy approval for her $4 billion 2015 budget proposal that includes no new taxes, fines or fees

(Editor’s note: Bold added for emphasis)

For now. Byrne and Dardick added:

Preckwinkle earlier this year warned that the 2016 budget will be far more difficult to balance because debt payments will grow and the county will need to pay $144 million more into the county workers’ retirement system if she secures the pension fund changes she seeks from the General Assembly…

(Editor’s note: Bold added for emphasis)

Regular readers of Survival And Prosperity know I suspect those “new taxes, fines, or fees” are coming soon. I wrote back on May 22:

Last week, I blogged about the possibility of property and/or sales taxes going up soon in Cook County, Illinois. Dave McKinney and Brian Slodysko reported on the Chicago Sun-Times website on May 13 the hikes might occur as part of a pension “reform” bill.

Hal Dardick and Monique Garcia added on the Chicago Tribune website tonight:

Cook County Board President Toni Preckwinkle hit Springfield Thursday to try to build support for changes to the county pension plan that she says would halt its ongoing decline toward insolvency.

She met with Senate President John Cullerton House Speaker Michael Madigan, both Chicago Democrats, and also Republican legislative leaders. “I think she’s got a good chance to pass this bill,” Madigan said afterward…

Although Preckwinkle has not identified how she would pay for her plan, it calls for the county to put $144 million a year into the pension fund. If funded with property taxes, that would cost the average homeowner up to $65 more a year, starting in 2017, according to one internal county document the Tribune obtained.

Preckwinkle, however, said Wednesday that she has closed even larger budget gaps through cuts and other, smaller scale tax and fee increases without raising property taxes — while also lowering the county sales tax by a half-cent on the dollar…

(Editor’s note: Bold added for emphasis)

Yet, McKinney and Slodysko wrote last week:

County officials do not believe they can cut enough from the budget to cover the cost, the source said…

(Editor’s note: Bold added for emphasis)

Only a matter of time now before those hikes kick in. As I also noted in that May post:

What’s that line I keep repeating on this blog?

Higher fees, fines, and taxes. Less government services.

As much as I hate saying it, that’s what Chicago and Cook County residents should be preparing themselves for down the road.

I’d say that probably applies to all Americans, come to think of it.

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

Source:

Byrne, John and Dardick, Hal. “Preckwinkle wins easy approval of $4 billion budget.” Chicago Tribune. 14 Nov. 2014. (http://www.chicagotribune.com/news/ct-cook-county-budget-met-1115-20141114-story.html). 17 Nov. 2014.

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The Civic Federation Analyzes Chicago’s FY2015 Budget

The last time I talked 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 back on March 4, when they proposed a five-year plan to balance the Illinois state budget, eliminate its huge bill backlog, and reduce income tax rates. But yesterday, the group released a new report on the City of Chicago’s proposed budget for fiscal year 2015. From their press release Monday:

Civic Federation Supports FY2015 Chicago Budget

Recent Progress Threatened by Pension Funding Crisis, Borrowing for Operations

In a report released today, the Civic Federation announced its support for the City of Chicago’s proposed FY2015 operating budget of $7.3 billion but expressed deep concern for how the City will manage rising pension costs and debt service payments in future years. The full 101-page analysis is available here.

The FY2015 budget closes a $297.3 million deficit with reasonable structural changes including targeted tax and fee increases, vacancy eliminations and other operational efficiencies. The budget also reflects significant actions toward long-term stability including the 2014 pension reform law for the City’s Municipal and Laborers’ pension funds and the continued phase out of the City’s retiree health care subsidy and planned transition of most retirees to coverage under the federal Affordable Care Act.

“Mayor Emanuel and his team are continuing to make the reasonable changes and bold decisions necessary to stabilize Chicago’s finances,” said Laurence Msall, president of the Civic Federation. “Two issues, however, threaten to erase all recent progress: the pension funding crisis and the administration’s continued use of borrowing for operations through the issuance of refunding bonds.”

Landmark pension reforms were enacted in June 2014, but only for two of the City’s four pension funds. The City’s Police and Fire pension funds remain dangerously close to running out of funds with market value funded ratios of only 27.0% and 31.7% respectively in FY2013. The Illinois General Assembly passed legislation in 2010 that mandates a sharp $550 million increase in contributions to the Police and Fire funds. This change, even without considering increased contributions to the City’s Municipal and Laborers’ funds, would require a significant increase in the City’s property tax levy, crippling cuts to City services, or both. The Mayor, City Council and State legislators must work together to create a reform framework for the Police and Fire funds that will stabilize the funds at an affordable cost to taxpayers. The Civic Federation also recommends that the City study ways to consolidate its pension funds, including the possibility of merging its Police and Fire funds with suburban and downstate public safety funds.

Over the last three fiscal years, the City of Chicago reduced its annual debt service payments by refunding bonds that are due to mature and extending the life of these bonds for an additional 30 years, a practice referred to as “scoop and toss.” This practice dramatically increases the cost of providing government services. It also could threaten the City’s ability to issue future debt by filling the out years of the City’s debt service schedule with previously issued bonds. The Civic Federation urges the City to develop a strategy for ending this costly and unsustainable practice.

The Federation’s full report also discusses the creation of the City Council Office of Financial Analysis in 2013. The office was intended to give aldermen access to the independent information and analysis they need to be effective stewards of the City’s finances. A delay in fully implementing the office means aldermen will not have access to this resource before they vote on the FY2015 budget.

You can read the 101-page report entitled City of Chicago FY2015 Proposed Budget: Analysis and Recommendations on The Civic Federation’s website here.

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

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Tuesday, November 4th, 2014 Bonds, Borrowing, Fiscal Policy, Government No Comments

Chicago Faces $297 Million Budget Shortfall In 2015, $588 Million Deficit By 2017

I’ve been wanting to blog about the latest City of Chicago annual financial analysis for some time now. This afternoon I’m finally getting that chance. From Fran Spielman (who’s done a terrific job breaking those analyses down the past couple years I’ve been paying attention to them) on the Chicago Sun-Times website back in August:

Mayor Rahm Emanuel has ruled out a pre-election increase in property or sales taxes, but he’ll have to find another way to close a $297.3 million budget gap that assumes the Illinois General Assembly will lift the pension hammer hanging over Chicago.

State law requires the city to make a $550 million contribution to shore up police and fire pension funds that have assets to cover just 30 and 24 percent of their respective liabilities.

If Emanuel chooses to fund the payment with property taxes, the city’s levy must be raised in 2015 so bills issued the following year reflect the increase.

Instead of including that payment in the financial analysis now used as a substitute for Chicago’s preliminary budget, the mayor left it out, assuming he will get both revenue and reform before the payment is due

(Editor’s note: Bold added for emphasis)

$297.3 million budget shortfall for Chicago in 2015- assuming the city gets “relief” from that State of Illinois-mandated $550 million pension fund contribution.

From what I’ve read, that looks to be a big assumption.

Still, the projected 2015 budget gap that’s being advertised by City Hall is significantly rosier than a year ago (big election coming up in February 2015 you know).

I blogged back on August 1, 2013:

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: Bold added for emphasis)

Returning to that Sun-Times piece from this August, Spielman added:

As for the more manageable, $297.3 million gap, sales and property taxes are off the table. But [Budget Director Alexandra] Holt refused to rule out other tax and fee hikes after exhausting further cost-cutting that might include layoffs

Last year’s financial analysis projected a $338.7 million shortfall that would balloon to $994.7 million in 2015 and $1.15 billion in 2016 without a painful mix of employee concessions and new revenues. This year’s version takes the 2017 shortfall down to $587.7 million, but only if the mayor’s risky assumptions are correct.

(Editor’s note: Bold added for emphasis)

That classic Benny Hill skit about why one shouldn’t assume things comes to mind right now.

Okay. Looking at the actual 2014 annual financial analysis on my laptop screen right now, I see that $297.3 million budget shortfall projected for Chicago in 2015, a $430.2 million gap in 2016, and that $587.7 million deficit in 2017 that Spielman mentioned.

The trend is definitely not Rahm’s and the City’s friend in this instance.

Here’s what I see going down for the “Windy City.” The Machine will mobilize as many kissing cousins (Democrats elsewhere in the state) as it can to get Mayor Emanuel his much-desired pension “reform.” Basically “kicking the can down the road.” If full reform isn’t achieved, perhaps partial “relief”?.

Of course, the City of Chicago will still have those snowballing budget shortfalls to contend with. At first, I anticipate a lot of stupid spending still going on, with only some belt-tightening and layoffs here and there (“Kiss Your Clout’s Ass” Day soon to be a much celebrated event?). And fees, fines, and taxes will be heading up (but not property and sales taxes initially). But I suspect as Chicago’s “day of reckoning” gets closer, all these measures will be intensified.

Think major cost-cutting in conjunction with a much stronger attempt to increase incoming revenues.

Like my forecast for the rest of the nation- regrettably, I see things getting a lot worse before they get better again.

You can view the entire 2014 City of Chicago Annual Financial Analysis on the City of Chicago website here (.pdf format).

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

Source:

Spielman, Fran. “City budget puts off day of reckoning until after election.” Chicago Sun-Times. 1 Aug. 2014. (http://politics.suntimes.com/article/chicago/city-budget-puts-day-reckoning-until-after-election/fri-08012014-1210am). 23 Sep. 2014.

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Survival Titles Save 20% Paladin Press Reviewed HERE
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Shop Pyramyd Air Field Target Products PyramydAir.com Reviewed HERE
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Airsoft Megastore Reviewed HERE
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