Rahm Emanuel forgot to mention the biggie: Much More Debt.
Wolf here: Chicago is trying to dodge municipal bankruptcy for as long as possible. Having gotten in trouble over borrowing too much to pay for political promises, it’s now struggling to raise new revenues to pay for those debts and promises. And since these new revenues too are insufficient, it is planning to incur more debt to deal with its debt. The latest batch of new debt: pension obligation bonds. This is when the city borrows from investors to fund its pension obligations, putting taxpayers directly on the hook.
Here’s Bill Bergman, of Chicago, who for years has been poking holes into the murky accounting covers thrown over municipal, state, and federal budgets.
By Bill Bergman, Chicago, Director of Research, Truth in Accounting:
Chicago Mayor Rahm Emanuel today delivered a pension address to the Chicago City Council. At the outset, the mayor reasonably identified some of the sources of the city’s horrible financial condition, including longstanding failures to fund promises distributed to government workers.
“The truth is; going back decades too many elected officials, labor leaders, and civic leaders; people in positions of responsibility; agreed to a funding and benefits system that was not sustainable and therefore not responsible. Some knew it, and others should have known it. Simply put, leaders in the past made commitments without the resources to back them up. And now, inevitably, the bill has come due.”
So, how is the bill going to be paid?
With weed, gambling, COLAs, and more gambling.
Reporting on the pension address, a story in Crain’s was headlined, “COLAs, pot and gambling: It’s not a party—it’s Emanuel’s pension Rx.”
Legalizing and taxing marijuana will produce some new revenue for the government, as will expanded gaming. How much, and how much might come at the expense of other existing ‘sin tax’ revenue sources, remains to be seen. The incremental revenue gains from taxing weed and gaming are certain, however, to fall far short of what is needed to balance the books.
The mayor did say that he would support amending the Illinois Constitution to allow for restructuring agreements with government worker labor unions, with his support specifically for reducing so-called “cost-of-living” increases for government pensions. Here, too, however, the reduced obligations would fall far short of filling the total gap between assets and liabilities in government pension funds.
So what can fill the void?
Granted, headlines have to be short, but the Crain’s headline, ““COLAs, pot and gambling: It’s not a party—it’s Emanuel’s pension Rx,” was a little too short. It excluded the most significant drug prescribed by the “Good Doctor“ – a plan to issue bonds and put the proceeds into the pension funds.
This would undeniably strengthen the city pension funds. It also would undeniably shore up the expectations of city workers that they would be paid.
Would these benefits come from out of nowhere? Or from somebody else’s pockets, like taxpayers?
Effectively, pension obligation bond proposals like this strengthen pension funds at the expense of the entity assuming the risk, and higher leverage, associated with borrowing.
Emanuel asserted ”It is not more debt. It is the same amount of debt, but at a much lower and cheaper cost to taxpayers and the city.”
In a limited but mischievous sense, he is right. The city of Chicago owes money to the pension funds, and to the city’s bondholders. The city could borrow money on a bond offering and deliver the proceeds to the pension fund, replacing the money owed to the pension with more money owed to bondholders.
But in a world where employees and bondholders each share risks from possible government insolvencies, shoring up the employee positions can’t come from out of nowhere.
p.s. Crain’s isn’t alone. The Chicago Tribune’s story on the mayor’s pension address was headlined “Mayor Emanuel pushes public pension fix to City Council, including legalized marijuana, Chicago casino, constitutional amendment.” No mention of the pension bonds either. By Bill Bergman, Chicago, Director of Research, Truth in Accounting
Detroit and Stockton have already filed for bankruptcy. So how have they done since then, compared to Chicago, which is traipsing that way. Read… Did the Bankruptcy of Detroit & Stockton Hurt their Economy?
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1. Public unions are, by far, the largest all time political campaign donors. And they give nearly every penny to democrats.
2. No democrat candidate could win a primary of general election without the public union’s money and support.
3. Democrats pay back public unions with insane benefits and pensions in government/public union contracts.
4. In turn, public unions are usually “closed shop” forcing, as a condition of employment, membership. Public unions also take their union dues before a public union employee ever sees their paycheck. It is one corrupt feedback loop.
4. The democrats will never turn on public unions. Even when their city turns into a Detroit.
https://www.opensecrets.org/orgs/?id=
It appears you are against a free market economy.
Companies can merge and consolidate. Employees should be able to do the same. Let the market sort it out.
For every negative you’ve listed about unions, I could list 10 negatives about corporate power and consolidation (i.e., outsourcing, wage suppression, lobbying, restricted competition, too-big-to-fail issues, corporate welfare, etc.).
Do you know the difference between a PUBLIC union and a PRIVATE union?
He is a hint.
When an insane PRIVATE union forces GM to price a crappy vehicle for $30,000 to cover their insane contracts and there are far higher quality vehicles to purchase in a competitive marketplace for less money – it is self-correcting. GM can either go bankrupt, close facilities and/or renegotiate their PRIVATE union contracts. Or every PRIVATE union employee will lose their job. Self-correcting and you are not forced to use them.
PUBLIC unions have no competition. You are forced, AT THE POINT OF GUN, to pay your taxes. Don’t pay your property taxes? A public union police officer will come and take away your house. Don’t pay your car taxes? A public union police officer will come and take away your car. Don’t pay your local or state income tax? A public union police officer/DA will come and put you in jail.
And it doesn’t matter if you are barely making it and the public union employee has a $150,000 COLA pension for life and free medical and is bankrupting their city and state. You will pay. The PUBLIC unions worked very hard to have politicians in power to make sure that will never change
There is no competition or alternative or MARKET with PUBLIC unions. You will either pay or have your property taken/go to jail.
Nailed it 2Banana:
What makes you believe the pensions are excessive? If you are saying they are excessive simply because they are unfunded, that’s one heck of a leap.
Maybe it’s a revenue problem. Why didn’t legislatures raise taxes to cover the pension costs everybody knew were there? Only spineless worms would agree to the pensions then complain about underfunding, especially if they were the same people pushing for tax cuts.
I think it all starts with a determination of whether teachers, police officers, fire fighters, etc. are overpaid, all things considered. If they aren’t overpaid for what they do, then it’s a revenue problem.
@Bobber
“Maybe it’s a revenue problem.” ????
From the fiscally conservative, Rahm “Never Waste a Crisis” Emanuel’s own mouth, “The truth is; going back decades too many elected officials, labor leaders, and civic leaders; people in positions of responsibility; agreed to a funding and benefits system that was not sustainable and therefore not responsible.”
Here are your facts Bobber:
https://www.illinoispolicy.org/reports/right-sizing-illinois-state-governments-payrolls/
In CY 2014, Illinois state-government compensation was $85,839 per job, which is 29 percent higher than the private-sector compensation of $66,492 per job.
As shown in Charts 2 and 3, in CY 2014, Illinois state-government wages and salaries were $59,679 per job, which is 7 percent higher than the private-sector wages and salaries of $55,623 per job. In CY 2013, Illinois’ wage-and-salary ratio ranked as the ninth-highest in the country.
As shown in Charts 4 and 5, in CY 2014, Illinois’ state-government benefits were $26,160 per job, which is 141 percent above the private-sector benefits of $10,869 per job. In 2013, Illinois’ benefit ratio ranked as the 14th-highest in the country.
AMEN 2banana!! Definitely nailed it!
And RagnarD just won too!! You couldn’t have said it any better. Rham’s own quote(too funny that he hung himself and his predecessors while trying to do a soft Mea Culpa), add in the facts….and the case is closed. Theft is really the only word to describe what’s going on.
If you don’t like the taxes, you can move. Florida is full of ex-Chicagoans who made that choice.
Complete paranoid delusion. You just want all your public services for free and don’t want people to use the tools of the market and the blessings of liberty to negotiate competitive wages for their labor. You likely are convinced of a natural hierarchy in which you by virtue of birth or genetics are somewhat higher than regular folks and are entitled to freeride, to enjoy the privileges you deserve just for being you.
Do you want to hear a funny inversion of your paranoid delusion? Consultants hired at the behest of Republican fantasies of free market efficiency earn double the cash, equivalent benefits plus profit sharing and stock options for taking public money and producing the products of government-plus they have more public money to donate to their preferred political proxies who direct more public money into public private partnerships and consulting studies for more money creating a virtuous circle where accountability always falls to some green jacket AFSCME schmoe who is legally prevented from defending his interests even to the point that weaselly scumbags can go to court to demand his right to freeload on others because Libertarianism. That’s the reality some among us are not remotely prepared to face.
Unions in America and in particular American public unions, are some of the most, if not the most, corrupt unions, on the planet.
If you do not protect assets from them, they will steal them with then law, to feed their pension system, Every time.
Bobber, I’d say 2banana is only against corrupt exploitation. He wrote not about unions in business, where the evils inflicted by corporate power against powerless workers are well understood.
He wrote about the vicious cycle of politically entrenched public employee unions in a corrupt city.
It’s entirely possible for public-union corruption to be just as evil as business corruption.
I’d say both of you are highlighting ways in which misguided people are prone to exploit the productive-yet-passive in order to enrich themselves beyond the limits of justice.
I’m not saying public unions make sense. I don’t know. But I hesitate to generalize because a single bus driver in town worked overtime five years straight with the sole purpose of juicing his pension. Before public unions can be blamed, I’d need to see evidence that public workers are generally overpaid. Based on my knowledge of teacher and police officer pay, I don’t think they are overpaid. That’s also the reason most of us didn’t go down that route.
In my city (Nanaimo, BC Canada) fire fighters recently ‘settled’ for 95 K after five years. The mayor opined it seemed rich but there was no point taking to arbitration because all awards were based on public sector fire raises.
Most fire fighters are hired, with no post high school needed, in their twenties. Thus while barely 30 they will get triple the national salary and more than triple the Nanaimo average.
This is ridiculous. It should pay well but double would be plenty.
But what about the mantra (sung along with police) about how dangerous the job is?
If your car breaks, see a mechanic. If your arm breaks see a doctor. If you want to know how dangerous a job is, see a life insurance actuary.
The life cos eagerly seek the business of both. They are good risks.
Wow.
Just wow.
There is nothing “free market” about a public union.
Why not? The government can negotiate with whichever market participants it chooses. The governments can hire union or non-union.
The greedy public unions control both sides of the bargaining table and you call that freedom? Any corporation that is inefficient goes out of business. Do governments go out of business?
Yikes, and here I thought the Kochs would’ve been the number 1 donor on that list. They hardly even registered on the all time list… with all the exposure from our media, you would’ve thought the Kochs were far and away the #1 donor all around and crushing the workers of America under their bucketloads of money. Turn out, they hardly even rank. Hmm, and we hardly ever hear about Tom Steyer or the unions on NPR, New Yorker, or our other media outlets. I almost wonder why.
I suggest you stop spread Fake News and will falsehoods, and stick to the facts.
Rahm when he was in charge of the DNC, sabotaged every actual left Dem candidate on earth. He recruited right wing Republicans to change party registration to Democrat and give them millions to run against actual Democratic leftists in primaries, so that these Republican with a “D” in front of their name would win against the real Republicans (usually the didn’t but Rahm spend big $$$ funding his loses).
And every DNC head since the 1960’s and continuing the very day has done basically what Rahm did…go read Down With Tyranny, it reads like a broken record the plot never changes.
There are 2 right wing pro corporate pro eternal war anti peace anti union and anti working people Republican Parties in America – they are called The Republican Party and the Democratic Party.
Since we’re on Rahm, he presided over 2 of the most massive electoral losses any Party has ever suffered: Congressional elections under Bill Clinton and Barack Obama. This is directly attributable to Rahm’s masterful campaign policy decisions like telling Dem candidates he would pull their funding if the spoke against the then extremely unpopular War in Iraq.
Yet despite at least 2 career ending performances – historically catastrophic and extremely massive election losses which I think shatter records for scope and breath of there failures under his guide – Rahm has ever failed upwards and is now doing what he has always done his entire career, destroying everything he touches like Chicago with decisions like given hundreds of millions of tax dollars subsidies to his Ultra Rich friends to build private sports stadiums no one needs, and paying for it with severe and draconian closings of public schools mostly in minority neighborhoods in Chicago.
Absolutely spot on observations. The 2 parties are just instruments of wall street and corporate America to be used against the people. The only difference is in what illusions and sakes pitch the parties offer the dupes who continue to support them.
Rahm encouraged centrist Democrat candidates because the far left socialists can’t win.
So you think schools with zero pupils should be kept open?? Chicago’s population and thus the number of CPS students has fallen over the past few years because of draconian confiscatory tax increases to pay for the greed-crazed unionistas solid gold guaranteed risk-free pensions.
Ragnar, that’s Chicago. You going to make sweeping generalizations about public unions based on that?
Show me a teacher, cop, or firefighter that is overpaid in your city.
The real reason we have pension crisis is that spineless legislatures didn’t plan for it. Legislatures have no business cutting taxes unless they also cut costs.
Lots of over-pensioned retired police and firefighters in California. Scandals hit the news here about as often as the media bother to inquire.
Statewide:
https://calpensions.com/2018/01/29/why-1-4-million-payouts-top-annual-pension-list/
LA:
https://www.latimes.com/opinion/editorials/la-ed-drop-pension-20180206-story.html
Stockton:
https://www.theatlantic.com/politics/archive/2012/08/-204-000-per-year-is-this-retired-cops-pension-too-high/260629/
Bell:
https://www.latimes.com/local/lanow/la-me-ln-bell-pay-scandal-pension-disputes-20150625-story.html
Ventura County:
https://www.foxnews.com/politics/california-sheriff-who-says-276000-pension-not-enough-fuels-push-for-reform
a new form of Gambling will just cannibalize the other Video gambling is the only sort that has showing any of increase.
unfortunately voters have been sold on Pot money going to Schools rather than Pensions and healthcare for those pensioners
Gambling (and the taxes collected) is nearly a 100% tax on the poor.
Legalizing and taxing marijuana (and the taxes collected) is nearly a 100% tax on the poor.
Yes – you can see a pattern.
“Legalizing and taxing marijuana (and the taxes collected) is nearly a 100% tax on the poor.”
So you are saying that poor people currently do not purchase marijuana, but once legalized, will purchase?
Interesting theory.
This is why Prop 13 is a must have.
Must have? Of course.
Which is why Prop 13 is going away in California. Public union pensions will be paid. Taxing texts will only go so far…
California to Vote on Partial Repeal of Sweeping Tax Law
But it’s now likely that an effort to significantly roll back Proposition 13, the famed property tax limitation initiative enacted by voters in 1978, will be on the ballot in 2020
http://nymag.com/intelligencer/2018/08/california-to-vote-on-partial-repeal-of-sweeping-tax-law.html
You know, the way they are going about killing prop 13 is just the best. They leverage the homeowners against the corporations first. After all, who wouldn’t want a better school district, and all the money to pay for services. Let the big companies pay it.
Once that is accomplished, wait a few years, then attack the homeowners, who by then will be totally hosed. There will be fewer of them to start with, and then no corporate supporters.
It’s frigging magic. More funds for the public unions. I think I need to join one of those somehow. If you can’t beat them, join them in screwing over all the tax paying suckers.
There is a ton of crap on the ballot at every election, sometimes two dozen of bewildering state and local propositions. The default response for voters, if they’re not sure, is NO. It’s not easy to get something passed. It can take a lot of money.
Just because something gets on the ballot doesn’t mean anything.
There would be a lot of money lined up to defend prop 13. So I think this will be really tough to pull off. The state has already twice run out of money and had to issue IOUs instead of paying its suppliers with real money. Even that did nothing to weaken the defenses of prop 13.
The only hope opponents of prop 13 have is that millennials will gang up on older property owners that largely benefit from this. Now there’s a thought….
If millennials could only figure out how to motivate themselves to vote.
“If millennials could only figure out how to motivate themselves to vote.”
I can’t really blame the millennials. Frankly the quality of politicians put up for elective office is horrible. And what’s worse, they all seem to be the same people who’ve been there for 40 years. How did a generation that used to run around with bumper stickers stating “Never Trust Anyone Over 30” end up staying in office when they are over 70?
The older I get the more I believe there has to be a limit in how old someone can be and hold office. I really don’t think judges and politicians are capable of making the correct decisions on issues that will be contentious long after they are gone.
Wolf, I think time is going to kill prop 13. The majority of the people who are against it will sooner or later have sold their homes. At that point, prop 13 may not longer hold any appeal. Then it’ll be all about sticking it to the corporations. I don’t even think it’ll be all of the corporations, not sure how many corporations will support it.
As for millennials, like their boomer progenitors, they’ll figure out how to do the worst thing at the worst possible time. So, don’t you worry, they will vote, when it becomes most disadvantageous for everyone else.
@KGC-easy answer: upon passing thirty too many quit trusting ANYONE, including themselves…(i.e.: “he who dies with the most toys, wins…”. Wins what I’ve never been clear on). May we all have a better day.
@Wolf,
By the way, have you listened to our lovely public radio lately? KQED has this anti-prop 13 segment tonight. Basically everyone talking about why prop 13 is bad. How it’s killing the California dream. It is really hilarious. Whiners will always get what they want.
As for Prop 13, that by itself will eventually expire as the boomers and the older people who benefited die off. And everyone gets equalized paying higher taxes.
I would say that Chicago could sell its parking meters, but they already did that during the GFC.
Those damned Elephants, someone ought to run them out of the office in Chicago, and let the Jackasses have a turn. They’ll fix things up, just like the Jackasses in CA have done once we obtained power, look here, we have the best funded school in the country, happiest teachers, and even crapping rainbow unicorn out of our ass. And well on our way to universal health care in CA.
Why Not! The Elephants are always the problem. The biggest was when Elephant Hoover crashed the market in 1929 and allowed Jackass Roosevelt to become the first emperor of the United States in 1933. I just can’t wait to see the Jackasses in the House do a Number to Trump.
Note the distraction:
The sexy headline about weed, gambling, and parties.
The, oh, by the way, we are going to cut retirees cost of living increases, that already fall short of covering real inflation due to the changes in how the consumer price index is computed.
But hey, lets not get distracted by old people who spent their lives working for the citizens of Chicago being forced to try to survive on less in an expensive urban area just as the Fed is worried about increasing inflation. Not at all, don’t pay any attention, move along, these are not the droids you were looking for. You were looking for the sexy headline about weed, gambling and parties.
The greedy unionistas already get a guaranteed minimum 3% COLA in Illinois despite the fact that inflation is far below that and despite the fact that overtaxed illinoisans can’t afford the solid gold retirements of the greed-crazed unionistas
Retirees in Chicago might have to go get a yellow vest.
public pension obligations are supplanting money needed for basic services. this is a dire tipping point. Desperate municipalities are resorting to civil asset forfeitures to raise revenues.
I am interested about a few things.
1)These pension funds are accustomed to 5-8% yearly returns on stocks over the past decade. It seems that party is coming to an end as returns will become smaller, probably in the 3-5% range. I know this is not the “collapse” many have been preaching and hoping for, but given the sums involved and that this will be a long term decline with no end in sight it may as well be for pension funds which will see one of their main sources of financing shrink. How they are going to plug this shortcoming is an interesting question and I am ready to bet we’ll see a lot of financial creativity at play over the next decade.
2)Bonds are fine… as long as bondholders are so blinded by financial repression they will accept any yield you are offering them. Surprise, bondholders are very slowly coming back to their senses, as proven by financial market darling Netflix, which had to offer 6.84% yield on bonds that until last year were yielding 200bps less. Netflix can still turn to the Reverse Yankee market to save money, but US munis cannot.
3)Gambling may look glamorous, but it’s actually pocket change when it comes at plugging holes in a city budget. Selling licenses to casino/gambling parlour operators is a great way to raise cash one-time but the temptation to overdo it is always strong, and muni-owned casinos usually start great but become financial black holes in their own right in a few years.
4)Semi-legal cannabis is another good way to pick pennies off the sidewalk when you need a steady stream of pounds and financial markets love it (apparently financial speculators have just discovered Cheech & Chong flicks from the 70’s and find them hilarious) but I want to see what will happen when the stuff will be legalized and weed will be sold by tobacconists after being imported from India by the 20ft container.
We’ll count the children who die in car accidents involving drivers under the influence of marijuana.
Ah yes, gambling and speculation…the sure for our ills now we don’t have many factories – plus coffee shops and tattoo parlors, of course. And recreational drugs.
The gift of the ‘post-industrial’ society.
Ne’er mind – the anointed one is going to bring back all those well-remunerated, skilled manufacturing jobs that forged the middle class post-WWII.
…isn’t he..?
Every police officer in Chicago makes over 70k after their 2nd year. Most make more than 100k with OT, then retire by 55 or 60 with 60-70k pension, 457, IRA and SS. Find me a private sector job with that payout and requires only 2 year degree. Thats why Chicago is going broke because most union jobs pay that way here.
“Find me a private sector job with that payout and requires only 2 year degree.”
Lets not be silly. A big part of the cops salary is hazard pay and rightfully so. They can get shot their first day of work. Would you take a cop job for less than $70k per year if you knew people would be shooting at you at some point? I doubt it.
Strange how you’ve been brainwashed into thinking civil servants doing dangerous/important jobs on your behalf shouldn’t be well-paid…
You’ve been conditioned to think like that by decades of right-wing propaganda (amazingly even attacking teachers…) geared up to ensuring that wealthy individuals ad corporations pay less tax.
Tragic, really.
Cops jobs are dangerous because they drive all the time, if you strip that out not very dangerous at all. Being a taxi driver or a commercial fisherman is far more dangerous. I’m using the police as a proxy for the umpteen overpaid bureaucrats. On top of this retired city workers have all their healthcare paid for.
You have CEO’s making 400x the average worker, and you have Wall Street bankers receiving billions in corporate welfare every week, yet you choose to pick on teachers and police officers. Doesn’t strike me as very observant.
how many of the public union workers in Chicago are cops or firefighters? What is that percentage relative to the overall numbers on the public unions?
Just curious that’s all.
By the way, I do think cops should get hazard pay, for all the crap they have to put up with. What I don’t like are the few jerks who milk the system for all they are worth. I remember there is some cop around LA that has a 300K or 400K annual pension because he knew how to game the system. (I probably have the numbers wrong, but I remember it was egregious)
Perhaps a simple solution:Change the name to Chicago Blockchain.Issue a coin depicted as a golden toilet seat. Give it a lot of hype and problem solved.
https://www.illinoispolicy.org/number-of-chicago-city-workers-making-100k-has-doubled-since-2013/
“Six-figure pensioners enrolled in those systems contributed an average of $160,100 toward their own retirements over the course of their careers, and retired on average at age 59.”
https://www.illinoispolicy.org/more-than-19000-illinois-government-retirees-receive-pensions-over-100k/
That which cannot continue will eventually end.
Having lived in Chicago for a number ofyears, I have a simple solution to raise a ton of money for the city. Impose a transaction tax on trades done at the Chicago Board of Trade. Granted, it only affects the most wealthy and the biggest corporations, but we couldn’t possibly do,can we?
And the business will go elsewhere.
FACT
TOBBIN TAX does not work.
As a municipality somewhere will always offer a good deal to money handlers. For a while at least.
Them Chicago will LOOSE, another source, of high tax paying workers.
TAX THE RICH.
Is NOT, the answer.
Perfect response, d!
I think the City of Chicago should publicly apologize to Charles Ponzi, Bernie Madoff, and Leland Stanford, among others. What Ponzi, Madoff, and Stanford did was criminal and they went to prison for it. Why should the Chicago politicians be let off the hook?