-- Connecting the dots between our economy, government and business --
Summary and audio linked here.
Chicago’s political leadership is floating a pension buyout program as evidence it is seriously addressing the city’s thirty-six-billion-dollar unfunded pension liability, but Mark Glennon, founder of the Illinois policy research organization Wirepoints, said that the proposal moves debt from one column to another rather than reducing it, and that the broader fiscal picture facing the city continues to deteriorate across every measurable dimension. Audio here.
Expect no retraction or apology. This what they do.
The state’s existing buyout program for its own pensions is the precedent for Chicago, which should be a warning: Look out for similar exaggerated claims and shoddy analysis.
Full interview and summary linked here.
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The statement made in the article that when Detroit went bankrupt, pensioners received 35 cents on the dollar is grossly inaccurate. Indeed, in present value terms, factoring in lost COLAs, the pensioners received over 80 cents on the dollar. This is, in fact, more than what typical Illinois state pensioners would have received if the pension “reform” legislation that had been enacted in 2013 had been upheld by the ISC. The rich people that own virtually all city and state government bonds (because they are in the high tax brackets making it most worthwile for them to invest in tax-exempt… Read more »
Great points, Prof. Szakmary, and thanks for hanging in as an alternative voice on this site. You are absolutely right that pensioners did not get cut to 35% in Detroit. They got over 90% on average as best as I can tell. And bondholders indeed have generally fared worse than pensioners in municipal bankruptcy. As for your final point, I, for one, am happy to let bondholders’ chips fall where they may under the rule of law in bankruptcy, and most of the free market types who follow this site probably agree. You bring up a major, ultimate issue: Will… Read more »
The pension participants were creditors to the extent their benefits were not previously funded. So when the larger haircut is mentioned, it refers to the unfunded pension. The 80-90 percent figures represent the sum of what had been previously funded plus the amounts contributed by the state and the charities (via the “Grand Bargain”). I still think it’s true that the bondholders received a lower payout than the pensioners from the bankruptcy assets, but we should not lose sight of the special circumstances of potential state liability under the Michigan constitution PLUS the amounts donated by charities for the purpose… Read more »