State of Illinois

Chicago Board Of Education Could Borrow More Than $1 Billion With $600 Million-Plus Pension Payment Due Next Week

I fear Chicago’s celebratory mood post-Stanley Cup could be fast disappearing as the city’s financial reckoning day rapidly approaches. Juan Perez, Jr., reported on the Chicago Tribune website tonight:

The Chicago Board of Education on Wednesday approved plans to borrow more than $1 billion in an effort to manage an immediate cash crunch and get through the coming budget year.

The borrowing is on top of an existing line of credit of up to $500 million. The initial $200 million in borrowing authorized Wednesday could help the district cover its bills through the end of June, but the district would be short of cash to cover payments shortly after that, according to documents obtained by the Tribune.

A separate line of credit of up to $935 million would take the district through the coming budget year. The loans will be secured with the promise of future property tax revenue.

The board’s unanimous 5-0 vote in favor additional borrowing came one day after the Illinois House fell 18 votes short of approving a three-week extension on a $600 million-plus pension payment due next week

(Editor’s note: Bold added for emphasis)

Democrats have a supermajority in both chambers of the Illinois General Assembly, and “Machine”-controlled Chicago still couldn’t get that pension payment deadline extended.

Oh well. Long-time Survival And Prosperity readers shouldn’t be the least bit surprised about the latest bad news concerning Chicago’s public schools. I blogged way back on September 13, 2012:

By now, many of you have probably heard about the teachers strike going on in Chicago. Day 4 and counting. While many Chicago public school teachers are probably worth every red cent of the $71,017 median salary they command- and more- when all things are considered, considering the precarious financial situation of the Chicago Public Schools, a larger crisis looks to be right around the corner.

Looks like we’re almost there.

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

Source:

Perez, Juan. “Chicago school board approves more than $1 billion in new borrowing.” Chicago Tribune. 24 June 2015. (http://www.chicagotribune.com/news/local/breaking/ct-school-board-meets-met-0625-20150624-story.html). 24 June 2015.

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

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

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

A2 rating applies to $3.6B of GO debt

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

The Global Credit Research division explained:

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

As for that negative outlook:

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

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

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

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

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

Illinois Tax Hikes Coming Warn Municipal Bond Fund Managers

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

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

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

(Editor’s note: Bold added for emphasis)

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

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

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

(Editor’s note: Bold added for emphasis)

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

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

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

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

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

Sources:

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

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

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Signs Of The Time, Part 85

Monday at lunch I finally got the chance to read my Sunday paper. From the Chicago Tribune “Perspective” section, in the part entitled, “Voice Of The People”:

Do not allow silencers

I cannot believe that there is serious consideration to permitting gun silencers to be used by gun owners in Illinois. Anyone with an ounce of common sense will recognize that guns with silencers are the weapon of choice for assassins, terrorists and murderers. What would happen if a nut entered a school and starting shooting randomly with such a weapon? No noise to alert the rest of the teachers and children?

Two things came to mind when I saw the above:

1. The author has quite an imagination.

2. Yet another argument leaning heavily on emotion (plea for “common sense” is often a giveaway), but devoid of facts.

Emotionally-driven arguments. Very much a sign of the time.

But now the facts on this subject.

An ABC7 Chicago I-Team Investigation recently looked into suppressors as legislation legalizing such devices has been introduced in the Illinois House (HB0433) and Senate (SB0803). Chuck Goudie reported on the ABC7 website on April 30:

Silencers used by criminals on TV and in movies; this is how most people know of the device.

Sponsors of a bill to make them legal in Illinois say the Hollywood interpretation is pure fiction…

A 2007 study found silencer use in crime is rare…

(Editor’s note: Bold added for emphasis)

“Guns with silencers are the weapon of choice for assassins, terrorists and murderers.”

Whatever you say.

And all those “assassins, terrorists and murderers” will be lining up for silencers if they’re legalized in Illinois, right?

As I blogged back on February 11:

Firearm suppressors (or sound suppressors and silencers as they’re also known) are highly-regulated in the United States. J. Guthrie reported on the Guns & Ammo website back on May 13, 2012:

If you lived in Scotland, they would be required for hunting. If you lived in Finland you could saunter down to the local gun shop and buy one over the counter—one more reason to like Finland. In the U.S., suppressors are regulated by the National Firearms Act and you have to first make sure they are legal in your state, fill out a federal form and send it, a couple of photos and some fingerprints into the BATFE for approval. Once approved—the process can take six or seven months—the BATFE sends you a little stamp and some paperwork and you can take possession of the suppressor from you dealer. There are legal considerations for interstate transportation and transferring the suppressor too…

Just like most felons don’t acquire their firearms lawfully, neither will they be obtaining suppressors legally- particularly in a highly-regulated environment like the one that currently exists.

Fears of a proliferation of legally-manufactured, lawfully-obtained suppressors among the bad guys in the “Land of Lincoln” are unfounded.

As for the “Voice Of The People” on these devices? I sure as hell hope it isn’t.

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

Source:

Goudie, Chuck. “Are Gun Silencers A Threat To Safety?” ABC 7. 30 Apr. 2015. (http://abc7chicago.com/news/are-gun-silencers-a-threat-to-safety/689952/). 18 May 2015.

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Cook County Public Pension Fix Could Mean Property Tax Hike

Blog readers in Cook County, Illinois, should prepare themselves for the possibility of higher property taxes shortly. Hal Dardick and Monique Garcia reported on the Chicago Tribune website Friday:

Cook County Board President Toni Preckwinkle is trying to revive a plan to overhaul government worker pensions, with supporters arguing the proposal is vastly different from changes to state retirement benefits recently struck down by the Illinois Supreme Court.

The proposal would cut benefits and raise retirement ages but also guarantee health care benefits for workers when they retire. It calls for the county to put almost $147 million more a year into the pension fund, though Preckwinkle continues to be vague about how she’ll fund that increase by repeatedly saying “all options are on the table.”

If the County Board chooses to foot the bill with a property tax increase, the average homeowner would pay up to $65 more a year starting in 2017, according to one internal county document the Tribune obtained when Preckwinkle sought the same legislation last year.

That measure was approved by the Senate last year but stalled in the House. It is now scheduled to be heard by a panel of House lawmakers next week…

(Editor’s note: Bold added for emphasis)

Readers shouldn’t be surprised about the prospect of higher property taxes. I blogged back on January 13:

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)

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

Source:

Dardick, Hal and Garcia, Monique. “Preckwinkle tries again on Cook County pension changes.” Chicago Tribune. 15 May 2015. (http://www.chicagotribune.com/news/local/politics/ct-cook-county-pension-proposal-met-20150515-story.html). 17 May 2015.

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Tax Hikes Coming As Illinois Public Pension Crisis ‘Fix’ Shot Down By State Supreme Court?

This weekend Illinoisans heard about the Friday ruling by the Illinois Supreme Court on a law that was celebrated by many as a big step in resolving the state’s well-publicized public pension crisis. Rick Pearson and Kim Geiger reported on the Chicago Tribune website Friday:

The Illinois Supreme Court on Friday unanimously ruled unconstitutional a landmark state pension law that aimed to scale back government worker benefits to erase a massive $105 billion retirement system debt…

At issue was a December 2013 state law signed by then-Democratic Gov. Pat Quinn that stopped automatic, compounded yearly cost-of-living increases for retirees, extended retirement ages for current state workers and limited the amount of salary used to calculate pension benefits.

Employee unions sued, arguing that the state constitution holds that pension benefits amount to a contractual agreement and once they’re bestowed, they cannot be “diminished or impaired.” A circuit court judge in Springfield agreed with that assessment in November. State government appealed that decision to the Illinois Supreme Court, arguing that economic necessity forced curbing retirement benefits.

On Friday the justices rejected that argument, saying the law clearly violated what’s known as the pension protection clause in the 1970 Illinois Constitution…

(Editor’s note: Bold added for emphasis)

Can’t say I was too surprised to hear that ruling handed down.

As for the ramifications on Main Street? Pearson and Geiger added:

The ruling means Republican Gov. Bruce Rauner and the Democrat-controlled General Assembly will have to come up with a new solution after justices appeared to offer little in the way of wiggle room beyond paying what’s owed, which likely would require a tax increase. Coming up with a way to bridge a budget gap of more than $6 billion already was going to be difficult with little more than three weeks before a scheduled May 31 adjournment, and now the pension mess has been added to the mix.

Rauner, who argued during last year’s campaign that the law was unconstitutional and didn’t go far enough to reduce the pension debt, said the court ruling only reinforces his approach of getting voters to approve a constitutional amendment that “would allow the state to move forward on common-sense pension reforms.”

(Editor’s note: Bold added for emphasis)

“A constitutional amendment”

I’m not so sure how that would work out. Consider what Natasha Korecki reported over on the Chicago Sun-Times website Friday:

But it was unclear how such an amendment would help solve the crisis. It arguably could not bring savings because, according to the court ruling, a new law cannot retroactively affect those who are already in the system, said Charles N. Wheeler III, Director of the Public Affairs Reporting program at the University of Illinois at Springfield…

“Likely would require a tax increase”

I suspect- as Survival And Prosperity has been warning for some time now- that Illinoisans will soon be hit with significantly-higher taxes as a consequence of those $6 billion state budget and $105 public pension gaps. Korecki added:

An Illinois Supreme Court ruling that struck down a pension reform law on Friday could have just opened the door even wider to the prospect of deep cuts to services and new taxes for Illinois residents.

With only three weeks left until lawmakers have to pass a balanced budget, legislators now have even more political cover to raise taxes and cut spending following the high court’s decision that it was unconstitutional for the state to pare back promised pension benefits for state employees…

“This ensures that however we resolve this, the citizens of Illinois will be paying more for less service from the state of Illinois,” Kent Redfield, professor emeritus of the University of Illinois at Springfield, said of Friday’s ruling. “I think that’s an inevitable outcome from this.”

(Editor’s note: Bold added for emphasis)

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

Something I’ve kept warning about on this blog, with regular observers of Springfield now talking it about these days (if they weren’t already).

I wonder to what extent Illinoisans have prepared/are preparing for such a scenario? I’ll be talking more about this later.

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

Sources:

Pearson, Rick and Geiger, Kim. “Illinois Supreme Court rules landmark pension law unconstitutional.” Chicago Tribune. 8 May 2015. (http://www.chicagotribune.com/news/local/politics/ct-illinois-pension-law-court-ruling-20150508-story.html#page=1). 11 May 2015.

Korecki, Natasha. “State Supreme Court pension ruling provides political cover to cut more, tax more.” Chicago Sun-Times. 8 May 2015. (http://chicago.suntimes.com/politics/7/71/590030/state-supreme-court-pension-ruling-provides-political-cover-cut-tax). 11 May 2015.

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Chicago-Area Democrats Push To Expand ‘Assault Weapons’ Ban Throughout Illinois

After a federal court upheld an “assault weapons” ban by the City of Highland Park, gun “control” supporters in Chicago’s far north suburbs are trying to expand the ban on these military-pattern semi-automatic rifles throughout the state of Illinois- under the guise of “local control.” Deb McCarver reported on the Illinois Senate Democrats website Tuesday:

In response to a recent federal court ruling in support of Highland Park’s assault weapons ban, state Senator Julie Morrison introduced a measure to restore the right to ban assault weapons to every city and village in the state.

“This is about local control,” the Deerfield Democrat said. “Highland Park decided to protect its citizens by banning assault weapons. Every other city and village in Illinois should have that same right.”

The highly controversial 2013 law that allowed Illinois residents to carry concealed weapons also prohibited local governments from banning assault weapons…

(Editor’s note: Bold added for emphasis)

According to the “synopsis” of Illinois Senate Bill 2130:

the Firearm Owners Identification Card Act. Deletes provision that the regulation of the possession or ownership of assault weapons are exclusive powers and functions of this State. Deletes provision that any ordinance or regulation, or portion of that ordinance or regulation, that purports to regulate the possession or ownership of assault weapons in a manner that is inconsistent with the Act, shall be invalid unless the ordinance or regulation is enacted on, before, or within 10 days after the effective date of Public Act 98-63 (July 9, 2013). Deletes provision that any ordinance or regulation described in the stricken provision enacted more than 10 days after the effective date of Public Act 98-63 is invalid. Effective immediately…

This Tuesday I noted something Robert McCoppin reported on the Chicago Tribune website April 28. From his piece:

A federal court Monday upheld Highland Park’s ban on assault weapons — possibly setting the stage for a showdown over the issue before the U.S. Supreme Court…

Illinois State Rifle Association Executive Director Richard Pearson said he was confident the law could be overturned on appeal to the Supreme Court, but the National Rifle Association would have to decide whether to make a costly appeal.

“The Second Amendment is about the right to keep and bear arms,” Pearson said. “The government doesn’t get to pick the list.”

After Senator Morrison’s action- supported by Highland Park Mayor and Democratic candidate for Congress (10th Congressional District) Nancy Rotering (as evidenced later on in that McCarver piece)- don’t be surprised if an appeal is now launched by pro-gun rights forces- costs be damned.

As for Highland Park, which is making a strong bid for wrestling away the title of “Ground Zero for Gun ‘Control’” from Oak Park, Illinois, these days, I suspect they could be on the hook for some astronomical legal fees after all is said and done.

You can track the status of SB2130 on the Illinois General Assembly website here.

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

Source:

McCarver, Deb. “Morrison: Illinois should let cities ban assault weapons.” Illinois Senate Democrats. 5 May 2015. (http://www.illinoissenatedemocrats.com/index.php?option=com_tag&task=tag&tag=sb2130). 7 May 2015.

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Illinois’ Largest Foreign Trading Partners Weigh In On State’s Attractiveness For Investment

Illinois blog readers might be interested in the following, which appeared on the State of Illinois home page earlier this week:

In order to obtain an independent assessment of Illinois’ competitiveness, the Governor’s office asked the state’s largest foreign trading partners to share their confidential views on Illinois’ attractiveness for investment from their countries

(Editor’s note: Bold added for emphasis)

The survey focused on ten nations, and the findings were posted on the state’s website along with this accompanying memo:

From: John DeBlasio, Director for International Trade and Investment
To: Interested Parties
Date: May 4, 2015
Subj: Key Reforms Needed to Strengthen Foreign Direct Investment in Illinois

In order to obtain an independent assessment of Illinois’ competitiveness, the Governor’s office asked the state’s largest foreign trading partners to share their confidential views on Illinois’ attractiveness for investment from their countries.

Collectively, these nations have invested tens of billions of dollars in factories, warehouses, office buildings, and transportation facilities across America, and employ hundreds of thousands of American workers. They are in a unique position to compare the relative strengths and weaknesses of individual states with which Illinois must compete. Every year they make important decisions on where to locate major new facilities and high-paying jobs. Their comments taken together create a policy roadmap of strategic recommendations that we can use to drive powerful new economic growth and job creation in our state.

Attached are the letters, memos, and priorities the Governor’s Office has received, with names, locations, and specific stories redacted to protect the confidentiality of individual countries. The letters deserve to be reviewed in detail, but some of their key comments are highlighted below:

“Top Concern: tax issues-too high, property & corporate, worries about further increases due to financial condition of the state”
• “There are large (and growing) perceptions that infrastructure improvements are not keeping up”
• “Foreign firms place a premium on opportunities to “cluster” – to work with concentrations of talent in their sector”
• “The plethora of universities, research institutions & accelerators headquartered in the region constitute a significant positive – firms and entrepreneurs are drawn here by the world-class innovation taking place”
• “Chicago is attractive to college students – which therefore enhances the quality of the workforce pool”
• “Vast difference in perception between Chicago and downstate Illinois. While the former has plenty of positives, the latter is not seen to be competitive with Indiana, Wisconsin, etc.”
• “Costs in particular linked to Unions are high. It’s a problem, especially with Wisconsin and Indiana as neighbors – if there is a legal dispute with workers….Cook County is known for being anti-boss or pro-employee”
• “Right to Work is being used by other states to position them favorably compared to Illinois. This is similar to other labor market regulations and workers compensation, unemployment insurance levels, etc. that put Illinois at a disadvantage compared with other states”
• “The manufacturing workforce is aging and vocational training for the next generation of skilled employees is lacking”
• “Chicago is one of the most expensive trade show locations in the world. Being an expensive/bureaucratic trade show location often carries over to the state being perceived as a high cost/bureaucratic location for investing”
• “Illinois overseas offices are primarily focused on exports not investment attraction, which is two very different tasks”
• “Many states have modernized their structure by founding Economic Development Corporations tasked specifically with pursuing investors”

(Editor’s note: Bold added for emphasis)

Sifting through the trading partners’ letters and memos which contained remarks on foreign investment in Illinois, this one from so-called “Nation #3” stood out:

Even (redacted) companies have a high degree of ignorance about Chicago and the region and rarely see beyond Capone and Jordan

High crime rates- hugely amplified internationally. Chicago is seen as the crime capital of the USA

(Editor’s note: Bold added for emphasis)

“Crime capital of the USA” I get. Jordan too. But Capone? Really?


“F**k that, I’m going to Vegas!”
Scene From Chicago Overcoat (2009)
(Warning: Language, violence, “Chicago Typewriter” in all its glory)
YouTube Video

You can read more on that survey from Governor Rauner’s office here (.pdf format) on the State of Illinois website.

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

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Chicago Warned By Moody’s About Pension Liabilities

In early April, Standard & Poor’s warned the City of Chicago:

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.

Now Moody’s has fired a shot across the city’s bow in 2015. From their Global Credit Research unit on Friday:

Chicago’s (Baa2 negative) pension plans face an uncertain future. Statutes that govern the city’s pension funding requirements have come under legal and political fire, particularly during the last year, as pensioners, politicians, taxpayers and investors have questioned the laws’ constitutionality and affordability, Moody’s Investors Service says in a new report.

Regardless of the ultimate answers, one outcome is certain: Chicago’s unfunded pension liabilities and ongoing pension costs will grow significantly, forcing city officials to make difficult decisions for years to come.

If current laws stand, Chicago’s annual pension contributions are projected to increase by 135% in 2016; by an average annual rate of 8% in 2017-21; and by an average annual rate of 3% in 2022-26.

The 2016 increase alone equals a significant 15% of the city’s 2013 operating revenue, Moody’s says in “Chicago’s Pension Forecast — Tough Choices Now or Tougher Choices Later.”

(Editor’s note: Bold added for emphasis)

“Touch Choices Now or Tougher Choices Later.” That pretty much sums up the situation not only in the “Windy City,” but in the state of Illinois as well.

Blame Emanuel? Blame Rauner? Whatever. As is if these guys have been around long enough to help put Chicagoans and Illinoisans in their respective financial messes.

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

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

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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

Chicago To Be Run By Emergency Financial Control Board Within 2 Years?

Last Wednesday, I reminded Survival And Prosperity readers (local ones in particular) that Chicago- upon reelecting Rahm Emanuel as Mayor- remains in serious financial trouble. From that post:

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…

Some readers might feel I was being a little too “sensational” with that statement. Therefore, I’d like to offer up the following for your consideration. Reuters’ Megan Davies and Karen Pierog reported on April 8:

Chicago has not seen the population losses Detroit did and its business and commercial real estate markets remain healthy, but its current circumstances are more dire than any other major American city today, with aggregate debt of $21.4 billion, up 60 percent since 2004.

Although Chicago’s situation isn’t bad enough yet to warrant a bankruptcy filing, that threat is out there if it fails to tackle its problems.

“People say Chicago’s not Detroit,” said Tom Metzold, a senior portfolio advisor at investment manager Eaton Vance. “Not right now. Chicago is Detroit ten years from now. I don’t care how economically strong your economy is. They don’t have a printing press. You can only tax so much.”

Metzold estimated the odds of a Chapter 9 bankruptcy in the next five years are “virtually zero” but said in the next 10 years that could rise to 25 percent if it fails to act

(Editor’s note: Bold added for emphasis)

In case readers are wondering, Metzold’s s “Street cred” includes serving as VP and Co-Director of Municipal Investments at Eaton Vance (one of the oldest investment management firms in the U.S.- established 1924), and as its Portfolio Manager since 1991.

Not as “optimistic” about Chicago’s financial future is Joe Mysak, Editor of Bloomberg Brief. He warned in an April 8 commentary:

I’m not a betting man. If I were, I’d bet that Chicago is going to be run by an Emergency Financial Control Board, or something like it, within two years, the same as New York City back in 1975 (and until 1986)…

(Editor’s note: Bold added for emphasis)

Mysak, who’s been covering the municipal bond market since 1981, pointed out the city’s abysmal Moody’s credit rating (“one step from the basement of investment grade”) and wrote:

So a cut to junk may well be in the cards, and with it diminished and eventually lack of access to capital. Chicago has already creatively used, and some would say abused, the municipal market to subsidize city operations…

When the banks no longer want to lend to Chicago is presumably when the state of Illinois would come in, offering cash, loan guarantees, intercession with the federal government and whatever else the city needs in exchange for external management via an Emergency Financial Control Board…

(Editor’s note: Bold added for emphasis)

The author of the Encyclopedia of Municipal Bonds signed-off with:

Two years. That’s how long I give the city of Chicago. Good luck, Rahm.

Good luck Chicago…

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

Sources:

Davies, Megan and Pierog, Karen. “Chicago Mayor Rahm Emanuel confronts fiscal nightmare as he begins second term.” Reuters. 8 Apr. 2015. (http://www.rawstory.com/rs/2015/04/chicago-mayor-rahm-emanuel-confronts-fiscal-nightmare-as-he-begins-second-term/). 12 Apr. 2015.

Mysak, Joe. “Next Stop for Chicago: Emergency Financial Control Board.” Bloomberg Brief. 8 Apr. 2015. (http://newsletters.briefs.bloomberg.com/document/3fz176niqylzjr6oax/commentary). 12 Apr. 2015.

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April Is Pet Preparedness Month In Illinois

My girlfriend is lucky enough to have an office dog. Meet “Kodi”:

Kodi

Even though we’re not her owners, we’re still planning to sock away some food and other items for her in case of an emergency or “ruff” times.

Illinois readers- did you know April is Pet Preparedness Month in Illinois?

From the Illinois Government News Network website on April 1:

Don’t Forget Pets When Planning for Disasters

IEMA, local emergency management agencies to focus on pet preparedness throughout April

SPRINGFIELD – Pets are treasured family members in more than half of Illinois households. If your family includes a dog, cat, hamster or other furry, feathered or scaly friends, don’t forget to include their unique needs in your home emergency plans.

That’s the message the Illinois Emergency Management Agency (IEMA) and local emergency management agencies will promote throughout April as part of Pet Preparedness Month in Illinois.

“Every home should have an emergency supply kit and plans for how to stay safe when disaster strikes,” said IEMA Director James K. Joseph. “Make sure your kit and emergency plans address the needs of every family member, including your pets. Your preparedness efforts today can help keep everyone in your family, including your pets, safe when disaster strikes.”

Joseph said home emergency supply kits for people should include a three-day supply of such items as food, water, first aid kit, weather alert radio, flashlights, spare batteries and other items. Pet owners should also have a pet preparedness kit stocked with items such as:

• At least a three-day supply of food and water
• Extra supplies of pet medicines
• Copies of pet registration, vaccinations and other important documents
• Photo of your pet in case you are separated during an emergency
• Collar with ID tag, harness or leash
• Crate or other pet carrier in case of evacuation
• Pet litter and box, newspapers, paper towels, plastic trash bags and household chlorine bleach for sanitation
• Toys, treats or other familiar items to reduce your pet’s stress during the emergency

If it’s necessary for you to evacuate your home during a disaster, take your pets with you. An evacuation could last several days, even weeks, and your pets likely cannot survive without care. Plan now for places you and your pets can stay following an evacuation, as many public shelters do not allow animals inside.

It’s also important to have a back-up emergency plan in case you can’t care for your animals yourself. Talk to neighbors, friends and family to make sure someone is available to care for or evacuate your pets if you are unable to do so.

Additional pet preparedness and general emergency preparedness information is available on the Ready Illinois website at www.Ready.Illinois.gov, the Ready Illinois Facebook page at www.facebook.com/ReadyIllinois and on Twitter at Twitter.com/ReadyIllinois.

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

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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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Illinois Emergency Management Agency: Develop Post-Disaster Communications Plan With ‘Text First, Talk Second’ Approach

Severe Weather Preparedness Month is almost over here in Illinois. But the Illinois Emergency Management Agency is still passing along valuable information to state residents on what to do when a disaster occurs. From a press release on the Illinois Government News Network website yesterday:

‘Text First, Talk Second’ Often Best Way to Contact Loved Ones When Disaster Strikes

IEMA Encourages People to Have Plan for Communicating with Family Members, Friends during Emergencies

SPRINGFIELD – When disaster strikes, your first instinct probably is to call loved ones to make sure they’re OK or let them know you’re safe. It’s likely everyone else affected by the emergency is thinking the same thing. In these instances, telephone lines can quickly become overloaded, preventing not only your call from going through but also blocking critical 911 calls.

During Severe Weather Preparedness Month in March, the Illinois Emergency Management Agency (IEMA) is encouraging people to develop a Family Communications Plan that includes the “Text First, Talk Second” concept.

“Communicating with family and friends immediately after a disaster is important,” said IEMA Director James K. Joseph. “We’re encouraging people to plan now so they’ll know how to reach their contacts in the chaotic aftermath of a disaster.”

Joseph said short, simple text messages, such as “R U OK?” and “I’m OK,” are more likely to get through to your loved ones than a phone call when phone service is disrupted. As phone congestion eases, you can follow up with a phone call to relay more information.

Data-based services like texts and emails are less likely to experience network congestion during an emergency. You can also use social media, such as Facebook and Twitter, to post your status to let family and friends know you’re OK.

While Text-to-911 is on the horizon for emergency communications, it currently is available only in limited areas of the U.S. If you need to contact 911, do so by landline or cell phone unless your community has notified you that this service is activated in your area.

Additional emergency communications tips include:

• Keep all phone calls brief by conveying only vital information to emergency personnel and/or family.
• If you are unsuccessful in completing a call using your cell phone, wait ten seconds before redialing to help reduce network congestion.
• If you lose power, you can charge your cell phone in your car. Be sure your car is in a well-ventilated place, not in a garage.
• Another resource for letting friends and family know your status after a disaster is the American Red Cross’s Safe and Well Registry at https://safeandwell.communityos.org/cms/index.php.
• Your communications plan should identify an out-of-area contact and household members should carry that information with them at all times. If a disaster occurs when you are separated, it often is easier to call outside your immediate area. Family members can call the contact to provide location and coordinate reunification plans.

For more information about developing a family communications plan, visit the Ready Illinois website at www.Ready.Illinois.gov.

Great advice regarding that “Text First, Talk Second” strategy.

Even I can text on my vintage “dumb phone” with its Shaun of the Dead ringtone.

To find out more about IEMA, you can visit their website here.

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

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Survival And Prosperity
Christopher E. Hill, Editor
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