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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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It is my understanding that municipalities in Illinois cannot declare bankruptcy without the permission of the state. Am I wrong? And if I am not wrong, then why would the state give Chicago permission, when it would likely mean the state would have to assume Chicago’s pension debt and put itself in an even more financially precarious position? One more thing: we just had elections in both the city and the state in which some candidates advocated radical proposals such as bankruptcy and/or changing the state constitution. These candidates lost by resounding margins, and the winning gubernatorial and mayoral candidates… Read more »
I hear you. Elections have consequences, so I’m fine with continuing with the gov’s and mayor’s agenda that has no chance of correcting the problem. Eventually the bills will grossly exceed all borrowing and revenue, and the bills (pensions, salaries,….) won’t get paid. “Seriously, I’m fine with it.”, says this former Illinois resident.
Hey Dan – I am fine with it too LOL . Madigan and Burke win elections too in IL …. so everything is good….. no need to worry about Andy’s pension it is lockbox safe like the Southside. Just keep reading Capital Fax and keep paying ….am I right ??? not me but thanks I am good….. watching and not paying from afar.
Yes, the state would have to authorize it. They would do so in order to reduce the debt load on Chicago, which would work to benefit all levels of government, and help give IL its needed fresh start. And, yes, election wins would be needed first. Then again, they probably won’t come in time, and we will end up with the state, whether Democrat or Republican, going to Congress to ask for bankruptcy-for-states.
My personal opinion is that the state will be a zombie debtor for many many years, with bills not just being paid late, but never being paid; with infrastructure crumbling, state parks closed down, vital state services going unfulfilled; and eventually taxes going uncollected because there aren’t enough workers; and institutions will just collapse, and then go under federal court supervision. The bankruptcy option is always the last resort, usually very far down the road, when the state’s population is half of what it is today, things have already collapsed, downstate is hollowed out, corporations (or foreign nations) have bought… Read more »
Andrew, this is exactly why I’ve been predicting Chicago and Illinois is doomed to go down the corrupt Democrat “Scorched Earth Death Spiral.” Will Texans, Nebraskans, and Floridians be willing to bail out the Chicago/Illinois mafia and corrupt union machine? The voters are stupid in Illinois.
“some candidates advocated radical proposals such as bankruptcy and/or changing the state constitution. These candidates lost by resounding margins”
Except these were not the reasons they lost. “Pensions are a promise” was waaaaay down the list of voter issues. I guarantee you that, if given the choice, if voters had to choose between cutting funding for education, social services, public safety, infrastructure, or pensions, that pensions would be first on the list cut. No doubt. You need to get past this fantasy.
“Except these were not the reasons they lost. “”
They lost because they were Republicans in a state full of democrats.
notice how Andy uses terms like “Radical” to describe Bankruptcy…..whats next “Draconian” as well. These are terms right out of union handbook. Andy flaunts his union privilege and knows the system is completely rigged and protected….. all paid for by the un-represented taxpayers …..ironically via confiscatory taxes and fees.
Some people get it….Some people don’t trust the corrupted system and are voting with their feet and their checkbooks. That is only non-corrupt vote left to pull in that State for the people that are footing the pension scam.
“union privilege ”
I love it! I’m going to start using that term.
Although tempting, you can’t really compare the situation of Chicago/Illinois and Detroit/Michigan. When Detroit filed for bankruptcy, Michigan had a AA- credit rating. While that’s not great, it’s better than the current Illinois rating of BBB- . In other words, Michigan still had one hand free to try and lift Detroit back up. Illinois is totally handcuffed and can only watch Chicago try to save itself.
Check out http://www.teacherpensions.org. Then search History of pensions. Then click First Pensions (in red italicized) There were funding problems in 1917 and ever since then. According to that article the Illinois Constitution guarantees a pension but NOT the funding. In 1917 after working for 25 years and be 50 years teachers would get a $400 annual pension basically regardless of salary. Interesting read. Since then funding requirements by the state have not changed but the rules have numerous times. Regardless the taxpayers seems to be on the hook ALWAYS. That is the only Constant.!!
A couple of my old neighbors are examples of what’s wrong with the pension systems. First is one who retired, whose job was filling out paperwork. Rough job where the risk of blisters and paper cuts abound, yet her pinion this year is an astounding $74K. Second is a neighbor who’s a retired detective. If you’re you or me you tell the wife “leaving for work, see you at 5:30.” If you’re a beat officer you tell the wife “leaving for work, don’t know if I’ll ever see you again.” Those guys deserve a good pension. But if you go… Read more »
Bankruptcy is unconstitutional if it diminishes the pensions, so it’s basically useless for the one main issue. Also I wouldn’t trust anyone near city hall running a proper bankruptcy. Chicago is different than anywhere else, corruption here is basically accepted as business as usual. There is simply no entity that can run the kind of bankruptcy that is needed here, nowhere, they don’t exist. Not anywhere. Picking the team will be harder than even getting it considered.
Rick, no, bankruptcy can diminish pensions. It trumps state constitutional pension protection clauses. But your point about who runs the bankruptcy is dead on. If the same folks who did this to us run the bankruptcy it would only cement the casket shut. The key would be the right emergency manager to run the bankruptcy (Detroit had a great one) or an oversight panel panel of some kind in that role.
Well I learned something new on the state constitution, there is some hope. But 200+ billion dollars of debt is going to put a lot cooks in the kitchen each wanting the best recipe for them! It will be a real circus.
You fundamentally misunderstand bankruptcy law. You’re not a bankruptcy lawyer so that’s OK. Bankruptcy is not the real world – it’s the bankruptcy world. For starters, bankruptcy is a right delegated to the federal government in the constitution. It literally says that in the constitution …”The Congress shall have Power to…establish…uniform Laws on the subject of Bankruptcies throughout the United States…. Article I, Section 8, Clause 4″ Bankruptcy law is federal law and thus superior to all state law – even the IL constitution. Bankruptcy can absolutely diminish pensions as part of a reorganization. As for trusting anyone in Chicago… Read more »
While there is no trustee in chapter 9 in most cases, the debtor still has the power to control their affairs and reorganize. My above comment about the feds running a chapter 9 isn’t entirely correct, as with everthing there is a lot of nuance.
A number of municipal bankruptcies occurred during the Great Depression. There were few (if any) public pension plans then. Recent 21st Century muni bankruptcies treated pensioners relatively well, vis a vis bondholders. Unions and well-informed public retirees and high-seniority public employees must be aware of this. Until the pension trusts run out of money, pensions and retiree health will continue as promised. A State takeover of municipal plans will make bankruptcy harder and will possibly make a federal bailout more likely. Meanwhile, municipal unions are double- or triple-hedging. Persistently making the promised pension grow while opposing municipal bankruptcy signifies that… Read more »
You are right, of course, to fear that the state would assume liability for the local plans. We think the most like way that would unfold would be that they would stick it into the last second bills that traditionally get dumped on the legislature at the end of the Spring session.
In terms of state takeover (consolidation) of municiple pension/benefit plans, how does that work? With all the 600+ cop & fire plans, are all those contracts negated? and one overriding state benifit plan put in place? And a cop in Rockford will get same benifits as a cop in Peoria? Or do they all get to keep there individual 600+ plan differing benifits and the states picken up the tab? Don’t forget the ctu very much didn’t want to have there pensions being lumped in with state trs, but were happy to have state pick up part of the payments.
NB: a full answer would be long and not that interesting. This response will only be long.. As a general rule, the state could take over a municipal plan through an “assumption” or a “merger.” (There may be other ways.) If the state “assumes” the plan, the state would agree to pay the required contributions although that could be done under an agreement with the municipality where the municipality would continue to share the funding obligation. The state would take over the pension fund and make decisions on how to invest assets. The state would want to make certain that… Read more »
Zzzzzzzz (kidding) Wasn’t Michigan in much better shape than Illinois is now when Detroit went belly up?
mike: I can’t address the relative financial positions of MI and IL at the time in question. A major issue was a provision in the Michigan Constitution that arguably provided that the state was a guarantor of ALL municipal pensions. The state did not want that issue to be litigated. Also, the City owned the Detroit Institute of Arts with the result that most of the collection of paintings might have to be sold to satisfy creditors. Presiding Federal Judge Rosen — not the bankruptcy judge — worked out a Grand Bargain where both the state and local charities would… Read more »
Cass–fantastic response/education! thanks. Sure with assumption or more probable merger model the state would be looking at years and years to implement with all the 100s of different plans. And tons of legal challenges. Also could see a situation where, if your police pension fund is in desperate situation, like Harvey, your desperate for state merger/ deal but if your police pension fund is in Winnetka then you don’t want to be part of any state merger /deal, and would be like affordable care act where only the sick opt in (which are the vast majority of pensions). Also, like… Read more »
And, as I recall, from Jane the Actuary article Illinois municipal pension plans make up and astounding 43% of all state pension plans in us combined!!! So how you consolidate all those plans would seem a nightmarish task and ton of work for lawyers, actuaries, etc. but maybe that gets of the subject of Chicago bankruptcy…
Fantastic writing–Cass,, keep it up!!
Even bankruptcy needs to happen before it’s too late. Once a city starts to look like a ghost town, it may be beyond returning to normalcy. If Mayor Lighthead let’s the situation drag out, an increasing number of neighborhoods will never have to worry about traffic problems ever again.
It may indeed be too late because Chicago has already pawned off most of its assets, making them unavailable in bankruptcy. The city’s share of sales tax receipts was pawned to secure bonds. The prospect of an assetless bankruptcy looms, which means death.
if assetless bankruptcy is inevitable, then per Cass’s fantastic comment above, wouldn’t the cities various pensions get a way better deal if they could get the state to take over pensions (what Llightfoot’s begging for)? You would think all the city workers and there handlers would be petitioning JB/ Madigan & the machine to make that happen? Instead, the state flatly says NO DEAL because Chicago guys like Madigan know Chicago’s hopeless. After all the $100 of millions city unions have dumped into Madigan, Cullerton, JB, etc campaign war chests..WHEN DO THE CITY UNIONS WAKE UP AND REALIZE THEY’VE BEEN… Read more »
The state cannot afford to absorb municipal pensions. In the short term, it would drive the state immediately into deep junk status, and in the long term, the state will be completely insolvent, to depths not even thought of at present.
The unions haven’t been played, not at all. Unions exist to assist their more senior members at the expense of junior members. And in this case, the union members who’ve been taking pensions the longest are getting the best deals. It’s the junior members who get stiff if pensions are reduced. But the senior members ‘got theirs’.
Fantastic writing,,,seem theres a consensus lately that we’re past the point where amending pension clause is a solution. Bankrupcys the only mathematical way out..lets get on with it!!
An excellent article. I am sure most citizens in Chicago would be in favor of bankruptcy. Too bad the only thing standing in the way are the politicians.
Will Lori be reading Wirepoints on her cell phone this morning? I hope she is. I hope she reads this article. Don’t forget that federal bankruptcy law supercedes the state constitution – pensions can be cut, shrunk and diminished and the Supreme Court of IL can’t do anything about it. I can only hope that one of the better, more fiscally austere judges gets randomly assigned the case. I’d love to see one of them immediately strip the 3% COLA provision from every city pension in perpetuity. “But meh IL constitution…” – some COLA recipient “TAKE IT UP WITH CHIEF… Read more »
We’re told she does read us routinely.
That’s encouraging. So she does know how to read.
Of course she knows how to read. She’s one smart mayor. She’s no dummy. The question is though, in the words of Blago, does she have the “testicular fortitude” to pull the trigger on the bankruptcy. And I don’t mean that in any sort of condescending way. I’m just using Blago’s words.