US Pension Crisis: This is How Families Get Squeezed to Bail Out Pension Funds in Chicago

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Coming to a municipality near you.

Chicago is another trailblazer. But it’s not alone. Other cities are lining up behind it. Bankruptcy may still be the route to go. But until then, homeowners, renters, drivers, users of phones, etc. – in other words regular families who’re just sitting ducks – are going to get squeezed dry, in order to slow the momentum of the public-employee pension crisis eating up the city’s and the school district’s finances.

“Because of a new accounting rule, Chicago now has to report its pension debt on its balance sheet,” explains Truth in Accounting. “As a result, the city’s reported pension debt grew from $8.6 billion in 2014 to $33.8 billion in 2015.”

The funding hole for pensions amounts to $18.6 billion, according to current estimates, despite six years of booming asset prices. What is this going to look like when asset prices sag?

The City Council approved Mayor Rahm Emanuel’s $8.2 billion budget yesterday. Crisis or no crisis, it’s up 4.8% from last year. There wasn’t anything to debate because the tax and fee hikes had been done outside the budget process.

But this is what Chicago has to deal with. On November 9, S&P Global Ratings cut Chicago Public Schools (CPS) to deep junk (triple-C), citing the district’s “continued weak liquidity in its most recent cash flow forecast and reliance on cash flow borrowing, combined with the increased expenditures in the district’s new labor contract that exacerbate the district’s structural imbalance challenges.”

On Monday, the district scrapped efforts to sell $426.3 million of bonds this year, citing “changing market conditions.” It coincided with the post-election jump in interest rates. A spokeswoman told the Chicago Tribune, “We’ll sell the bonds when market conditions are optimal.”

Last January, the district already delayed an $875-million bond sale “that became tainted by bankruptcy talk,” as Reuters put it at the time.

On November 7, Moody’s affirmed its junk rating for the city (Ba1), with negative outlook, citing “a very weak balance sheet arising from high and growing unfunded pension liabilities.”

The rating acknowledges the benefit of significant tax hikes [we’ll get to this “benefit” in a moment] that will fund increased pension contributions and reduce the risk of plan asset depletion. However, the city’s unfunded pension liabilities will continue to grow, albeit at a slower rate.

Moody’s also stamped its “negative outlook” on Chicago’s rating due to the risks of “potential contagion” from the school district:

Sustained fiscal stress at CPS could pressure Chicago’s credit profile in various ways, from constraining the city’s practical ability to raise revenue for city obligations to raising the city’s borrowing costs.

The city’s borrowing costs have already blown through the roof, as our Chicago gadfly from Truth in Accounting, Bill Bergman, points out: Sinkhole City Chicago in Worse Fiscal Shape than Detroit?




But even squeezing the families in the city for their last dime isn’t going to solve the problem, according to Moody’s:

Further, although the significant tax increases adopted by the city will support higher pension contributions, high and growing pension debt remains a key credit challenge.

These families have been hit, and will continue to get hit, by a hail of tax, fee, and fine increases. Pension promises, made by politicians to buy votes and curry favors with special interest groups years or even decades ago have turned out to be toxic for municipal budgets. Chicago may well be the next big city to be felled by them. Meanwhile, families are getting squeezed.

According to the Chicago Tribune, the endless series of tax and fee hikes, once they take effect in full, will make life for the average family $1,692 a year more expensive than it was in 2011, when Mayor Emanuel took office and started addressing some of the shortfalls. And that still doesn’t fix the problem. It just slows the momentum toward bankruptcy.

Here are some major nuggets of this endless series of squeezes that started five years ago:

Property tax hikes of eventually $994 a year on a typical $250,000 home. Some of it already kicked in. $348 will kick in next year. Another $106 per average homeowner will commence in 2018 and 2019.

Water and sewer tax hikes, passed in September, phased in over four years, eventually totaling $355 a year in increases, after already having been doubled in 2011.

Garbage pickup fee increase of $114 a year, approved in 2015, for a single-family home.

A fee per store-provided disposable bag of 7 cents. This is supposed to raise $13 million in 2017.

Parking gets more expensive: 685 new parking meters in and around the central business district and in neighborhoods. Parking rates at both airports will jump to pay for airport improvements and operations. To render drivers even closer to insanity, surge pricing will come to parking meters near Wrigley Field for games and events. Parking rates at commercial loading zones will also jump.

A 911 phone tax hike of $50.40 a year for a maximum of three phone lines (mobile or landlines), passed in 2014.

A new cable TV tax of $19.40 a year, on a monthly bill of $80, approved in 2014.

The tax, fee, and fine increases over the past five years “approach $1.9 billion,” according to the Chicago Tribune. Alas: “That doesn’t include new sales and beverage taxes approved by the County Board under board President Toni Preckwinkle, which are slated to eventually raise another $698 million.”

Much of this moolah squeezed is supposed to prop up municipal pension liabilities:

The 911 tax is going to the laborers’ retirement fund at about $40 million a year. The city property tax hikes are being poured into the police and firefighters’ funds at $543 million a year. Another $250 million or so a year is going to the CPS retirement fund. The new water and sewer tax will result in an additional $239 million a year for the municipal workers’ pension fund.

Chicago is not alone in its plight. Many states, cities, and municipal entities are sinking into a similar pension quagmire with massive costs for the people who live there. But Chicago is just a little further down the long road than some of the others.

Already there are signs of an impact on the housing market. Read…  Is Chicago’s Housing Market Next?




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  100 comments for “US Pension Crisis: This is How Families Get Squeezed to Bail Out Pension Funds in Chicago

  1. chillbro
    November 17, 2016 at 5:43 pm

    The old taking from the young, I am sure millennials are breaking a leg to move to a cold place with an obnoxious tax regime.

  2. Bookdoc
    November 17, 2016 at 5:47 pm

    I figured Chicago was rolling in cash after they said they’d continue as a sanctuary city. Trump may just make things a little worse as he has threatened to take much needed action on the sanctuaries.

    • Lawrence Schneider
      November 19, 2016 at 7:55 am

      as he should. why should “our” money go to folks who won’t support “our” laws?

      • Frank Miata
        November 21, 2016 at 4:18 pm

        Oh, it’s the immigrants who have trashed the Chicago pension system: did I miss that part of the analysis?

  3. Petunia
    November 17, 2016 at 5:57 pm

    The minimum wage in Illinois is $8.25 an hour or $330 for a 40 hr. work week before taxes. Most of those nuisance taxes hit the poor the hardest and they know it when they pass them. The tax on phones, cable tv, and parking meters are things that the poor need to use. Yes, they need phones to keep in touch with work, and yes they need cable tv to entertain their kids, and yes they need to park on metered spots because they can’t afford the garages.

    This is an example of why the democrats crossed party lines across the country. It is also an example of why people need to stay mobile and not over invest in housing. The taxpayers, especially homeowners, are nothing but an ATM for the govt. Stay mobile and don’t tie yourselves to an expensive ATM.

    • chillbro
      November 17, 2016 at 6:09 pm

      I would disagree re cable TV, internet is must and netflix is 10 bucks. But otherwise, very much true. This tax regime is targeting least able to pay for the benefit of old fat cats who lived through unprecedented prosperity and now want people without any opportunities to pay for their old age.

      • Meme Imfurst
        November 17, 2016 at 6:42 pm

        the old saying is ” Nickel and dimed to death”. People will learn that they can do without Netflix, Cable TV, and a lot more as time goes on. Without the FED buying…oops, propping up these companies behind the scenes via SNB, they would see red quotes on CNBC.

        This is smelling a bit like the mid-late 70’s when costs went north so fast that everything was being quoted by the day.
        Jobs were vanishing, construction truck had bumper stickers that said” when construction stops, I am on welfare”. BUT, governments STILL gave ‘cost of living increases’ to the employees and insulting pay raises when everyone was in panic.

        Get ready.

    • RD Blakeslee
      November 17, 2016 at 9:23 pm

      “(Chicago’s tax squeeze) is also an example of why people need to stay mobile and not over invest in housing.”

      Our family built its house 39 years ago and I will die there. Nothing mobile about that.

      Does anybody care to know how to do that?

      • Petunia
        November 18, 2016 at 9:14 am

        You can afford to stay in your house that long because you had stable employment or family money. This is not the case for the rest of us. My parents lived in the same New York City apartment for 30 years because my father had the same job for 45 years.

      • Petunia
        November 18, 2016 at 9:36 am

        RD,

        I would also like to respond to your post in a different manner. I have recently moved from Florida, ground zero of the housing bust, to an area that was untouched by the financial crisis because they have a more diverse economy. When I tell people that we lost our home and my husband was unemployed for two years, I get a blank stare. They cannot relate to the experience in any way.

        What I have learned from this is that there really are two Americas, the haves and the have nots. There are those that remain untouched by the financial crisis, who think it can never touch them, but I know better. You are not as financially secure as you think.

        • PapitoElDulce
          November 18, 2016 at 12:08 pm

          Oh, I was in Miami during 2008-2010. I was a recent arrival from the island down under and oh my oh my. What I saw was a shock that have stayed with me to this day.

          Entire neighborhoods in foreclosures, good hoods in Kendall and El Doral. People were on and off of shitty jobs for all those years and still are.

          These were good people, people that have done the right thing according to American Society and the morals of today. The result is that I’m no quick to judge others or myself when hard times knock on their door, neither I trust banks or the debt system that government and people with money has allowed to flourish in America.

          Nobody owns anything. Everything is borrowed. I just hate that. I have been contemplating getting a home but the feeling that all my equity can be wiped out in a month causes me to skip this step of buying a house

    • Frederick
      November 17, 2016 at 10:46 pm

      If they are that poor they certainly SHOULD NOT be driving a car to work Theres this thing called mass transit for that How absurd people have become in the US

      • November 17, 2016 at 11:27 pm

        I’m not “poor,” but I walk everywhere I go. It’s great exercise, cheap, fast (given our traffic mess here), and best of all, I don’t have to screw with parking. Sometimes, if I have to go further than 8 miles round trip, I take the train. But I live in San Francisco where you can do that. If you live in Oklahoma City, or most other US cities, you most often MUST have a car to do the normal things in life because public transportation sucks. This has nothing to do with being poor. It’s just how we get around.

        Chicago has decent public transportation but many people still need a car to do what they need to do.

        • Frederick
          November 18, 2016 at 1:03 pm

          Not really In 2008 with gasoline at over five dollars a gallon and living in the Hamptons area of NY I took my BMW off the road and started taking my bicycle on the local bus Two bucks for an hours ride was much easier on my wallet than 4 gals @5 bucks It took alittle elbow grease but I met alot of new people and got lots of needed exercise All good Americans are for the most part extremely spoiled when it comes to transport believe me Ive traveled extensively and I see that very clearly

        • Steve M
          November 20, 2016 at 11:05 pm

          If you live in Phoenix or Dallas a car is must have, the only mass transit is a bus or rail to downtown or a few other areas…not to mention how many people can walk a mile + in 100 degree heat.

        • November 20, 2016 at 11:45 pm

          Totally agree. I spent a big part of my life in Texas and Oklahoma. The weather is only part of it. You might get arrested if you try to walk (look mom, no sidewalk). These places are built for cars. And mass transit, well, mostly forget it.

      • Petunia
        November 18, 2016 at 9:38 am

        If you have only lived in a metropolitan area in America, you really really don’t know America.

      • Mike B
        November 18, 2016 at 1:03 pm

        Mass transit in most second tier cities in this country is a sick joke and it’s virtually non existent outside of that.

        As noted above. If you have only ever lived in a first tier city urban area you really need to get out more to see how bad the rest of the country has actually gotten.

    • Bob Wilson
      November 18, 2016 at 9:33 am

      Maybe the folks making low wages should read to their kids rather then spending for cable TV. But spending time with your kids would take them off the street.

      • November 18, 2016 at 9:52 am

        “…folks making low wages should read to their kids…”

        All people regardless of income should do that.

      • Petunia
        November 18, 2016 at 12:43 pm

        Bob,

        Most poor working people spend their time working, commuting to work, picking up their kids from child care situations that a PHD in physics couldn’t maneuver, shopping for food, cooking, doing laundry at the place you have to drag your laundry to, helping with homework, dealing with other family members who are sometimes in worse situations than they are, and worrying about all the hoops they have to jump through trying to just stay alive. All this while all you worry about is poor people spending money on cable tv.

    • November 18, 2016 at 7:43 pm

      The same folks are supposed to prop up the oil industry by purchasing gasoline … oops, sorry.

      All sorts of things are going to go, eventually people will stop paying taxes, fees, etc. and Chicago & Co. will become Detroit.

      Detroit, where the future in in America happens first.

  4. NotSoSure
    November 17, 2016 at 6:14 pm

    The solution is so easy, it’s mind boggling. Obviously we just need to sell all of our real estates to the Chinese, Japanese, and any other suck .. investors. That way we can have people from other countries pick up the bill.

    Sarcasm aside, perhaps that’s why they need a constant housing bubble just to keep this one from imploding.

    The time is very near for moi to leave this place.

    • Meme Imfurst
      November 17, 2016 at 6:44 pm

      WE DID NOT HAVE bubbles before Clinton and Grahamm killed the protection in 1999 and the banks and the FED drank champagne.

      • NotSoSure
        November 17, 2016 at 6:56 pm

        You need two hands to clap. Let’s not forget all the muppets who played along. Even if Clinton didn’t roll it back, Senor Bush would most likely pick up the torch.

        The muppets were not even supporting Occupy Wall St, etc.

        Also there was a bubble in the early 70s involving the Nifty Fifty.

        Muppets are super dangerous because they believe in the notion that “the best things in life are free.”

        • meme Imfurst
          November 17, 2016 at 8:00 pm

          “Also there was a bubble in the early 70s involving the Nifty Fifty.”

          I appreciate that point, however it would be hard, even factoring in inflation, etc, to hold a candle to 2007, and the monthly bubbles we face now. That was pocket change. Now, It is like how many fingers in the dike before it is all fingers? It started with Linclon Fed and LTCM, and when they got bailed all I could see was America burning it’s last tree to keep the light on. We are running out of trees.

          Macy”s puts out a sign that says ” buy one pair of shoes and get two free” was not a good idea, but none the less the women flock in JUST to buy shoes and nothing else. So you need two hands to clap has it’s point too, but does not fix the mistake of faulty thinking.

          With all due respect, I do not think President Bush was that savvy, perhaps his dad was, but they all seemed to be lost on everything except oil and war.

          Indeed, the Muppets …..but at least they understood how many cookies made a dozen and when they were gone, that was that. We as of today face not just under a trillion in debt for the LAST YEAR but 2.4 trillion for THIS YEAR. That under a trillion, Must be seasonally adjusted for folks who have no idea their Muppet kids have been sold to the plantation.

      • wkevinw
        November 18, 2016 at 1:15 am

        The dot.com bubble inflated before 1999. That is Clinton’s “hidden failure”. It was a giant, smoking time bomb that is taking decades to deal with- by blowing more bubbles, essentially.

      • roddy6667
        November 18, 2016 at 8:22 am

        We had a HUUUUGE housing bubble in the Eighties. It crashed starting in 1989. Where were you?

        • Kent
          November 18, 2016 at 12:38 pm

          We did! But not everywhere. IIRC correctly it was primarily in Cali, and the Northeast with a smattering in TX. And, IIRC, it was after Reagan removed those pesky regulations on the Savings & Loan industry. Which no longer exists because it blew itself up.

      • Dan Romig
        November 18, 2016 at 8:35 am

        The Senate passed the GLB-Act in May of 1999 by a vote of 54 to 44, but Bill Clinton vetoed it. Why did he do that? Because he wanted it rewritten with other goodies like the Community Reinvestment Act to be included.

        The House passed the Financial Services Act of 1999 on 1 July by these votes: Republicans 205 to 16 & Democrats 138 to 69. Note that the Dems favored this by two to one initially.

        During the summer, a lot of people put forward how to word the repeal of Glass-Steagall. Robert Rubin and Larry Summers were among the cast and crew that worked to unleash Wall Street, but Neal Wolin was the mastermind of drafting the ‘Financial Services Modernization Act of 1999’. On 4 November, it passed the Senate 90 to 8 and the House 362 to 57.

        Turning the clock forward, we see the housing bubble and financial meltdown in 2008. Obama wins the election and is inaugurated in January 2009. But here’s what people finally learned about the Democratic power structure being tied to Wall Street (and why HRC lost): One of Obama’s first appointments was to put Neal Wolin into the position of Deputy Secretary of the Department of Treasury. Damn straight; Obama put the man who wrote the the repeal of Glass-Staegall into being Timmy Geithner’s right hand man. Oh, and by the way Loretta Lynch served under Timmy on the Fed’s New York Bank’s Board of Directors from 2003 to 2005 when Timmy was President of the Board.

        Now, just to make sure there’s no dispute of where the Democratic Party’s power is, Chucky ‘Mister Wall Street’ Schumer was just anointed the Senate Minority Leader.

    • Frederick
      November 17, 2016 at 10:48 pm

      I left in 2014 and have never been happier Life off the hampster wheel is nice VERY nice indeed

  5. Chicken
    November 17, 2016 at 6:15 pm

    “There wasn’t anything to debate.”

    There never is, is there? Well, at least we can vote for commander in chief. Problem is, 8 years will fly by so after that they’ll be back to having contractor MSM do their bidding and turning tricks for hire.

    • Meme Imfurst
      November 17, 2016 at 8:02 pm

      Lets see December 14th go by before we get carried away.

  6. Maximus Minimus
    November 17, 2016 at 6:36 pm

    The solution is to force Chicago public pension funds to invest in debt issued by the city.

    • William Charles
      November 17, 2016 at 8:15 pm

      Sorry, they may have no choice to default. Public servants will be marching to Washington with torches and pitchforks demanding a bail-out from taxpayers, only one problem, they have Trump to deal with from the private sector, doesn’t look good!

      • Petunia
        November 17, 2016 at 8:27 pm

        They have money to be a sanctuary city and fund the illegal population. They should be saving those resources to keep the tax burden low.

      • Marty
        November 17, 2016 at 8:33 pm

        Chicago already tried this, at least a partial default, and the IL supremes said they can’t.

        • Zap
          November 17, 2016 at 10:55 pm

          Then let the supremes pay the pensioners ;-)

    • EVENT HORIZON
      November 18, 2016 at 6:32 pm

      Another option, is that one ONLY get’s their full Pension IF they reside in Chicago. If they move out, like to a lower tax State, then their Pension is cut so as to help out their home-town.

  7. Dan Romig
    November 17, 2016 at 6:47 pm

    ‘Surge Pricing’ for parking meters has been in place in Minneapolis and St. Paul for Vikings and Wild games for a while also. It cost $28 for a parking meter near the US Bank football stadium on game days; otherwise it’s a buck an hour.

    Compared to Chicago, we in Minneapolis have a pretty sweet set up, but our police, fire and teachers’ pension plans are quite underfunded.

    • nick kelly
      November 17, 2016 at 8:48 pm

      Saying that police and fire pensions are underfunded is like saying the sky is blue.
      How can they not be underfunded, given that the average hire makes double the average wage after two years and triple after 5 years.
      Then having been hired at double the average wage in their twenties they retire at 50.
      Fire and police pensions have literally bankrupted several California cities like San Jose- ya that San Jose.
      In my city Nanaimo, BC, Canada. Fire just ‘settled’ for 95K after 5 years.
      The mayor said it seemed rich but there was no point taking it to arbitration because by law only public sector fire fighters salaries could be used as guidelines.
      The fact that perfectly equal service could be arranged for at the MOST 70 % of this settlement is irrelevant to the shake down.

      • Mary
        November 18, 2016 at 9:39 am

        Good points. Most commenters seem to envision pensioners as greedy civil servants and school teachers. But as you point out, a vast majority of pension funds are earmarked for police and firefighters. Their pension deals are unbelievably sweet.

        Why? I lived in Chicago for several years. Granted it was decades ago, but I doubt things have changed all that much. Corruption reigned and nowhere more than the police force. The Department was a shakedown racket operated by brutal thugs. No one said no to those guys, not ordinary citizens and certainly not politicians.

        People who normally despise unions tend to be politically supportive of the police, which enables police unions to negotiate the pension deals that are breaking municipalities.

        • Ed
          November 18, 2016 at 4:09 pm

          Here in downstate IL the police and fire pensions are just as big a problem as in Chicago. The scale is smaller but same issues. In Illinois police and fire have such sweet deals due to various laws passed by the state legislature. Police and fire unions can pretty much tell the city governments what the deal is going to be and arbitrators will back it up.

      • Kam
        November 18, 2016 at 10:31 am

        Government workers live far better than private sector employees who, in the final analysis, pay the all taxes. Government workers pay no taxes because 100% of their pay is someone else’s taxes.
        As to Chicago, a business friend closed up a 50 employee business 8 years ago because as the union’s onerous costs increased, more and more employers left and fewer and fewer businesses existed to carry the union pensions. At around $10/hr pension cost alone, he pulled the pin.

      • Kent
        November 18, 2016 at 12:46 pm

        I’m a public sector worker in County government in Florida. Fire and Police are often nice folks. However…

        1. There are very, very few house fires these days. So they make it up by running ambulance service.
        2. But ambulance service should be privatized and run by hospitals. They are a primary source of hospital customers.
        3. You could go back to volunteer agencies, with the exception of big cities that require very specialized training and equipment.
        4. Legalize drugs and you can get rid of 90% of the police.
        5. And remember, the police don’t prevent crime. They show up afterwards.

        • Bill
          November 18, 2016 at 10:21 pm

          Totally agree. Troy Michigan is a major suburban community with multiple high rises, and has the largest volunteer fire dept in the state. With very small salary costs, they can spend all of their budget in training and equipment. They get called in by many other cities for help. Full time departments are one of the biggest wastes in local govt.

        • Petunia
          November 22, 2016 at 1:38 pm

          I lived in Palm Beach County where they staff 3 emt’s to a truck at 113K per emt. They don’t pay or staff that well in New York City.

      • nick kelly
        November 20, 2016 at 10:43 pm

        Dallas: Latest city to eye bankruptcy re: fire and police pensions

        ‘Now, the Dallas Police and Fire Pension System has asked the city for a one-time infusion of $1.1 billion, an amount roughly equal to Dallas’s entire general fund budget but not even close to what the pension fund needs to be fully funded. Nothing would be left for fighting endemic poverty south of the Trinity River, for public libraries, or for giving current police officers and firefighters a raise.’

        From New York Times

  8. Greatful again
    November 17, 2016 at 6:53 pm

    Didn’t Detroit end up bargaining down their pension pay outs? I guess chicago will follow this same path as tax payers, who can, will take urban flight and head for cities nearby. And thus bring on the BK sooner.

    • Frederick
      November 17, 2016 at 10:52 pm

      Or head for the countryside further afield if they are smart

    • Markar
      November 18, 2016 at 10:24 am

      The Ill Supreme Court shot down Chicago’s attempt to bargain down pension payouts as IL’s constitution prevents it. Bit of a pickle Ill and Chicago are in as a result. BK is inevitable short of changing the state constitution

  9. Michael Fiorillo
    November 17, 2016 at 6:54 pm

    Unmentioned here, or virtually anywhere else in discussion of the crises facing public sector pensions, is that they are underfunded because state governments deferred contributions for years. This was done to make up for operating revenue shortfalls caused by corporate welfare and refusal to adequately tax the rich.

    In the case of the Chicago public schools, their junk status is a direct result of a twenty-year effort by so-called education reformers, aided by mayors Daley and Emanuel, to undermine the public school system and replace it with privatized charter schools.

    This is a crisis generated by policies and political ideologies pushed by and favoring the Overclass, and has little relevance to the viability of the pension funds. In addition, notice how all the taxes proposed to make up the shortfalls disproportionately impact the “little people,” in an effort to turn them against public sector workers, and their unions in particular.

    It’s very disappointing to see this site, usually fair-minded and comprehensive, channel anti-worker propaganda.

    • Meme Imfurst
      November 17, 2016 at 8:11 pm

      I know a retired Chicago School teacher, she moved to Savannah. She worked hard, was a good teacher in the ‘ghettos’ of Chicago. I warned her two years ago that the pensions were looking like targets. “OH NO” she says and shut out any idea that her pension was anything but rock solid.

      This is a result of cock sure your pocket will not be picked. I can not imagine having an investment or pension and not watching it like a hawk.

      So nothing here is about ‘anti- worker propaganda” it is about lazy folks who let the fox guard their henhouse, and are insistent that any warning is from a tin hat ass.

      • Michael Fiorillo
        November 18, 2016 at 6:36 am

        How is the claim that the pensions of teachers who “worked hard in the ‘ghettos’ of Chicago” are undermining taxpayers, when it’s a demonstrable fact the funds were intentionally underfunded for years, not anti-worker propaganda?

        And it’s not about being a “tin hat ass” – something you brought up, not me; but if the shoe fits… – but about being able to reason.

    • Ed
      November 18, 2016 at 4:15 pm

      Much of this problem comes from the projections of earnings made by the actuaries who have to project the assets and liabilities of the funds. When the projected earnings on fund assets came in high, the governments made the assumption that growth of fund assets would cover the fund liabilities, and so the governments didn’t add cash to the retirement funds. When those projections turned out to be pure fantasy we arrived at the disaster we have now.

  10. chris Hauser
    November 17, 2016 at 6:55 pm

    thatsa a fine term there, deep junk.

    deep junk.

    say it a few times.

    deep junk.

    yeah.

  11. nick kelly
    November 17, 2016 at 7:04 pm

    If a company tries to corner the market on any good or service- that’s a crime.
    If a union says only it has the right to deliver a service that’s ‘protecting the middle class’
    It’s time to treat unions as what they are- they are companies that happen to be exempt from anti-competition law.
    How long can a city go without garbage being picked up- or without bus service?
    We always hear about collective ‘bargaining’
    You can only bargain in a market- both sides have to have options.

    I spent two months in Uruguay early this year. The bus companies are private and there are buses everywhere. But a bus driver doesn’t make 50K like he does here.

    As a young guy I can still remember my shock when the City of Calgary
    outside workers went on strike.
    People couldn’t bury their dead. The coffins sat on ice in a skating rink for weeks.
    In both world wars there would be truces to gather up the wounded and dead, but that scum in Calgary wouldn’t let people have closure.

  12. William Charles
    November 17, 2016 at 8:09 pm

    Soon, States, Counties and City pensions will be falling like dominos. Another problem is our Sovereign debt, if the Fed raises rates to 2006 levels they will bankrupt America.
    What I find interesting, is here you have all these academics in office, some of them coming from the most prestigious Universities America and the best they can do is bankrupt the Nation.
    What’s even more disconcerting is this is a worldwide problem!

    • Petunia
      November 17, 2016 at 8:34 pm

      Economics majors don’t have to be good at math. They take a lite version of calculus, the chairman of my math department used to call it calculus for poets, statistics and that’s about it.

      • d
        November 18, 2016 at 1:41 am

        Economic majors wear sandals a lot.

        Think about that.

        • Edward E
          November 18, 2016 at 8:38 am

          Do leaders ever study any mathematics?

          Ronald Reagan, “I am not worried about the deficit. It is big enough to take care of itself.”

          We’re getting all set up for a déjà vu.

          “You would have to go back to the 1920s to see so much Wall Street influence coming to Washington,” said Charles Geisst, a Wall Street historian at Manhattan College. “It’s the most dramatic turnaround one could imagine. That’s the truly astonishing part.”

          http://www.politico.com/story/2016/11/donald-trump-wall-street-bankers-231524

      • Ed
        November 18, 2016 at 4:17 pm

        They subcontract the hard math.

    • Edward E
      November 17, 2016 at 9:52 pm

      Twenty trillion is very possible before the inauguration ceremony. Or maybe just call it the premier of The Apprentice, White House Editions.

  13. Old Engineer
    November 17, 2016 at 8:33 pm

    Mr. Wolf, this article reinforces the concerns you voiced in your previous articles about housing prices being under pressure. The increased tax solution to the pension problem will certainly exacerbate the pressure on housing prices from increased mortgage rates. And as people who can leave do so, more houses will be put on the market, further driving prices down. The most likely model for Chicago’s future is probably Detroit. A shrunken city in area and population.
    But where the people will go as more cities shrink, I don’t know. Perhaps the favela model ( a moderate to high level core city surrounded by slums) which is prevalent in Latin America will become common here.

    • Petunia
      November 17, 2016 at 8:38 pm

      The futures exchanges in Chicago have already been trimmed down by computerization and those were the really good jobs. You are right that the whole country is going to look like Detroit, if they don’t put a stop to the parasitic practices.

    • MC
      November 18, 2016 at 4:13 am

      The problem for housing is not so much taxation: after all for the past years some the premium markets worldwide have been among those with the highest property taxes and exorbitant fees.
      The problem is what those taxpay for.

      An example from above is Chicago’s Water and Sewer Tax. It doesn’t go toward improving the water and sewage systems, carrying out long delayed maintenance (another deferred payment) or other wise anything else having to do with sewage. It goes towards the municipal workers’ pension fund.

      Investors buying the kind of super-prime property municipalities (Chicago included) drool over want, nay, demand the high taxes they pay go towards at very least maintaining if not increasing the value of their investment.
      The typical potholed roads and clogged sewers us dumb hicks have to put up with don’t fly with these investors: just look at Chelsea in London. The roads are pristine, the sidewalks are swept daily, the public parks are perfectly manicured… the billionaires living there pay extremely high property taxes and in return get services that help them maintain or even increase the value of their investment.

      If the money gets syphoned off to pay pensions or interest on debt incurred a decade ago to build a swimming pool that has been closed for years now, the sidewalks aren’t swept daily, or at least they aren’t swept as well, and rich investors pack it up and leave, resulting in property values to fall. Given the insane valuations nowadays, even a measly 10% drop is enough to play havoc with property tax revenues, forcing either more tax hikes or service cuts or both, resulting in a downward spiral which not even inflation can reverse.

    • Kent
      November 18, 2016 at 12:57 pm

      Folks go to Florida. Where else? My property taxes on a 2000 sq ft 3/2 in the leafy suburbs is $1,118 per year. That’s $93/month. Less than my cable bill. Lot’s of jobs here too. Central Florida is booming.

      No, they don’t pay that well. But many pay good enough.

  14. michael
    November 17, 2016 at 9:21 pm

    Great post. The best solution is perhaps to locate to a rural location where there is a minimum of infrastructure and taxes. That is my plan.

    Wolf what I would really like to see is your opinion on the recent California elections passed a tsunami of taxes and bonds. Here in California we do not even have to wait for the politicians to turn the tax and fee screws because the populace is is willing to impose it upon themselves

    • RD Blakeslee
      November 17, 2016 at 9:35 pm

      “The best solution is perhaps to locate to a rural location where there is a minimum of infrastructure and taxes. That is my plan.”

      Good plan! It will work:

      http://lenpenzo.com/blog/id22017-how-i-live-on-less-than-40000-annually-ralph-from-west-virginia.html

      • BrianC
        November 17, 2016 at 10:33 pm

        This guy retired at age 30 and lives on ~$26k/year:
        http://www.mrmoneymustache.com

        Best bet is to take charge of your own future and not play the game like everyone else…

        • nhz
          November 18, 2016 at 7:59 am

          Interesting that this works, in my country it would not work at all. In rural locations you pay the same high taxes as in the metropolitan areas but you get far worse service in return.

          e.g. the trains in my remote part of the country now take more time to get to Amsterdam than before 1950 or so, and I would not be surprised if in a few years there are no trains running at all or only from a private company with outrageous fees. Road tax is the highest in the country because well … almost anyone here needs a car to get around, so this is easy money.

          The national government sees the rural areas as cash cows for feeding the services for the elite in the metropolitan areas; if you don’t like that you can always move back to the big cities and pay through the nose for housing (although the difference isn’t that much, usually 20-25% extra over rural areas with only a few cities like Amsterdam much more expensive).

          I’m sure the thinking in Brussels is exactly the same and the bureaucrats there are thinking of all kinds of new taxes and regulations to make living even in the most remote outpost of Europe just as expensive as in the biggest metropolitan areas.
          To some extent this is already happening, as in many new EU countries the areas around the capital are now more expensive for housing and general services than in my own country; you could still move to rural areas in those countries and pay less, but for how long? The Empire is always short on money …

        • RD Blakeslee
          November 18, 2016 at 9:05 am

          BrianC – thanks!

          Unusual website – many strategies recounted by their devisers for getting out from under the conventional de facto supressions most people tolerate in their lives.

    • November 17, 2016 at 10:18 pm

      California is going to swim in dough until the stock market tanks. Then you’ll hear the wailing and gnashing of teeth in Sacramento and elsewhere.

      I wanted to point out in the article but didn’t because it was already so long: San Francisco’s budget is over $9 billion. SF is small compared to Chicago. And Chicago’s budget is “only” $8.2 billion. So watch the budget fireworks in SF when the hot air begins to hiss out of the bubble economy here. It wouldn’t be the first time.

      Just a few years ago, CA was even a worse “sinkhole state” than IL. But thanks to the flood of capital-gains taxes, the problem has been temporarily washed away. These capital gains revenues are terribly volatile and can disappear without warning.

      • Dan Romig
        November 18, 2016 at 8:51 am

        Intersting to compare city budgets with population Wolf. Minneapolis spends $3,192 per resident as projected for the 2017 fiscal year, with a budget of $1.3B and 407,207 residents.

        • November 18, 2016 at 9:33 am

          San Francisco spends about $10,500 per resident!!!

        • d
          November 18, 2016 at 6:01 pm

          So what do they spend it on.

          My guess very little of that is directly on the resident and 95% goes directly and indirectly into the closed access “Trough”.

      • Markar
        November 18, 2016 at 10:34 am

        Costs a lot of money to pay all those MUNI bus drivers $100K/yr!

    • Frederick
      November 17, 2016 at 10:56 pm

      Michael that is my plan as well be as self sufficient as possible Good luck to you

  15. michael
    November 17, 2016 at 11:18 pm

    Thank you to RD and Frederick for your comments. Wolf please consider doing an article on SF versus Chicago budget as it is quite interesting. Thanks for your work here, I appreciate your writing as I am sure this sentiment is shared by many of your other readers. There is a blizzard of irrelevant blather from the “ministry of truth” which in my mind is broken by the few lighthouses such as blogs like yours.

  16. interesting
    November 18, 2016 at 12:38 am

    https://www.illinoispolicy.org/the-top-illinois-pensioners-of-2015/

    “some of the images at this link may be startling to some viewers, viewer discretion is advised”

    you’re head may explode…….while the rest of us wonder each month how they are going to pay the bills these people certainly do not and i’d LOVE to know how many are “double dipping”

    • November 18, 2016 at 12:43 am

      Thanks! These lists are always shocking.

    • Ed
      November 18, 2016 at 4:23 pm

      And in Illinois you pay 0 state income taxes on your pension income. Very sweet deal.

  17. RalphZ
    November 18, 2016 at 4:53 am

    In Belgium they’re squeezing money out of cars too.

    Here are a few examples :

    1) Due to the terrorist threat, the express parking of Brussels South Airport (the low-cost airport) is indefinitely closed. People must use the more expensive parkings (why are they any safer than the express one ?)

    2) Our local mall (largest in Brussels) got rid of its free-parking attractivity, now it costs 1 euro per hour.
    The newest mall to open in the city has a 2 euros per hour parking rate.

    3) Earlier this month, my father-in-law (independent construction worker) parked his van on a spot which looked like a decent parking spot… in just 3 hours time, he received 4 fines, each for 110 euros. That’s 440 euros to spit up… that’s not regulations, it’s clearly mafia bullying

  18. nhz
    November 18, 2016 at 7:50 am

    Same story in Europe: many Dutch government employees – especially those at national or county level – are still retiring at 55 or even 52 years with gold-plated pensions while the retirement age for the normal citizen is shifting upwards every year – currently 67 but almost certainly above 70 within 5-10 years. And what people receive by then is the equivalent of social security benefits, but without all the free-everything extras and tax exemptions that most people on social security or migrants receive.

    Our retirement benefits (AOW) are 3-4x lower than the average government pension (e.g. for a teacher), and for former government workers their gold-plated pension is in addition to their retirement benefits. Although the majority of Dutch workers has a pension, in many cases it amounts to very little because the pension system strongly benefits those with the highest wages at the expense of ordinary contributors. But it can be worse, from what I understand ‘wealthy’ Germany has no retirement benefits at all…

    Of course we have similar tricks as mentioned above for Belgium to support government pensions with higher parking tariffs and traffic fines, and our government just found a new source of wealth by fining politician Mr. Wilders EUR 5000,- for saying something about Moroccan immigrants that a huge majority of the population accepts as true. With the surge of migrants I small plenty of opportunity for new revenue streams to fill the government pension fund coffers ;-(

    Also, it’s funny to read about a $1000 property tax hike for a typical home in Chicago, because in Netherlands the total property tax for a typical home is not even $1000. Plenty of room for increase there, but probably not going to happen in housing bubble paradise, they would rather raise the tax on renters.

  19. Bruce K
    November 18, 2016 at 8:07 am

    The same problems are affecting Connecticut and New Jersey with respect to underfunded pensions etc. Just visit the Hartford Courant and click on politics, or NJ.com. Same story: Democrats in charge of both chambers, enormous Union clout, and six figure retirement packages for public employees. Isn’t there a study showing the inflexible relationship between taxes and revenues, which show that one cannot tax one’s way to prosperity?

  20. roddy6667
    November 18, 2016 at 8:31 am

    I’m always amazed at how stupid people can be about not moving. In W. Virginia and other states the coal mines shut down decades ago. There are no jobs left in these places and people don’t have the smarts to get in their car and drive to an area where there are jobs.
    If it’s raining most people get under shelter to avoid getting wet. If you are walking through a cow pasture, you walk to avoid the cowflops. I see millions of people too retarded to do what it takes to help themselves and their families. They are out in the rain, getting soaked and stepping in shit.

    • November 18, 2016 at 9:40 am

      Some of us are very mobile and end up in different places or even other countries. That includes you and me. Other folks have roots! They can’t move very easily. “Roots” can be immensely strong. I’ve always admired people who have strong roots. (Sure, as you pointed out, there are some disadvantages too).

      • RD Blakeslee
        November 18, 2016 at 12:38 pm

        Wolf, the roots do not have to be an implicit threat.

        It all depends where you put them down.

      • Frederick
        November 18, 2016 at 12:57 pm

        Wolf I too had deep roots once upon a time until my now exwife decided to pour large quantities of herbacide on them Well the result was I went from 55 years in NY state to Turkey and am enjoying my new life for the most part Never thought I could do it at age 62 but Ive suceeded so evidently miracles do happen FW Muhlbauer

        • November 18, 2016 at 1:28 pm

          It makes me smile to hear you say that. Glad that you enjoy your new spot.

    • RD Blakeslee
      November 18, 2016 at 12:50 pm

      roddy, there are folks (me, among them) who have moved to WV because there is so little “modernety” here – we are left to our own devices, which we employ to our personal satisfaction.

      Also, many locals who stay here in an “impoverished” state are only so as defined by irrelevancies like the U.S. Bureau of the Census. They live lives, rich according to their own lights, in “substandard” dwellings.

      They are the ones who adopted the State’s motto: Mountaineers are Always Free”.

  21. RD Blakeslee
    November 18, 2016 at 9:11 am

    Interesting commentary from European citizens …

    My reading of it is that the U.S. remains one of the few places on earth where free enterprise can actually be used to improve one’s own life, according to one’s own lights, not according to collectivist, elitists’ proscriptions.

  22. Kevin Beck
    November 18, 2016 at 10:49 am

    This is one reason why our cities are going to get worse before they get better. Those that have the freedom to leave, will do so. Those that don’t, will be stuck with having to pay a larger share of the bill, which isn’t going away, if the current political crop has anything to do with it.

    Part of a solution: Hold these politicians personally accountable for the disasters they wreak upon their jurisdictions. And limit the amounts they can spend.

    • RD Blakeslee
      November 18, 2016 at 12:36 pm

      Trouble, is the “politicians responsible” are what lawyers call “judgement proof”.

      There’s not much that can be done to them, compared to the monstrous damage they have done to their constituencies.

      To me, the only practical solution is to avoid being one of their constituents.

      • Kent
        November 18, 2016 at 1:05 pm

        Folks don’t pay attention until the problems show up. And by then the politicians who caused those problems are long gone.

        Where I live, you can’t raise the property tax rate higher than the rate of inflation without a super-majority vote. And you can’t get a super-majority vote without a declared “emergency”. That attracts attention.

  23. Barry Disch
    November 18, 2016 at 3:58 pm

    Let them declare bankruptcy, but first divest all pension funds from wallstreet go over the CAFR and put the rainy day funds into a public bank. Have it be a partnership bank and let them use the magic of banking and loan money at reasonable rates for the things that they need like they do in north dakota. Make sure they use that model of public servants who know banking and not Wallstreet CEO types run the bank. Kick out the rentiers from the state. Give the finger to Moody’s and get things done with the needs that sit idle with the human capital that sits idle.

  24. mvojy
    November 18, 2016 at 4:39 pm

    The current payouts of pension benefits in Illinois is just insane. Take a look at the link below. The public sector is completely out of line with what private workers receive in health and retirement benefits. It’s no surprise that over-burdened taxpayers are fleeing the sinkhole states like Illinois. What kind of salaries were the teachers making to qualify for annual pensions well over $200,000?
    https://www.illinoispolicy.org/the-top-illinois-pensioners-of-2015/

    • Greg Kramer
      November 19, 2016 at 12:06 pm

      Is is it possible that the Teacher’s Union and other employee representative groups in lieu of pay raises and benefit increases accepted higher pension arrangements? And who negotiated this? It was Illinois and city representatives. So by proxy the people let government representatives “negotiate” these outlandish pension agreements in the guise of holding down quarterly labor costs until the “chickens come home to roost”.

      In the end the people of Illinois and any the state or city that fomented these schemes deserve what happens. Very few citizens were watching.

      • nhz
        November 19, 2016 at 1:36 pm

        Even if citizens were watching, do you think it would have made any difference? We have very similar problems here in Netherlands, there has been massive public outrage for years but it just continues because government worker pensions are decided by – government workers.

        In my county this scum even dared to go to the courts when they discovered that their boss had secretly received 90% of his highest salary instead of 85% like the other workers (with tax benefits etc. this works out as net income significantly above their highest salary), while normally it’s 70%. One of them got half a page in the newspaper to complain about how extremely unfair they were treated; the story included a picture of him sitting on his +/- 50.000 euro lawnmower moving the lawn of at least a hectare (= only affordable to multimillionaires over here). They already had pensions several times higher than wages for almost everyone in the area, and tried to get even more in court. Fortunately they didn’t get their wish granted thanks to procedural errors. But this clearly shows how these people and their unions think.

  25. NoRush
    November 19, 2016 at 7:15 pm

    When people retire at 50, there can be two people drawing a pension for the same position. This is the same problem Rome faced thousands of years ago. We are simply repeating the process and it won’t end well.

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