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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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Mark-This is just a question that you know more about than I do. In the event of bankruptcy or even implied bankruptcy that certain bondholders will get paid first by getting future sales tax revenue for 40 years or so even above pensioners. Who does that apply to? Municipalities/police/fire/teachers? Bankruptcy is a long way off but many cities/towns are suffering from the weight of pension payments. If one or two cities default on pension payments and certain bondholders exercise their right to sales tax revenue that could quickly cascade to other cities thereby something would have to be done by… Read more »
“If one or two cities default on pension payments and certain bondholders exercise their right to sales tax revenue”
Are you sure Freddy that secured revenue bonds are in front of pensions? The Puerto Rico bankruptcy is teaching us that the courts do not need to follow this hierarchy. SCOTUS also refused to overturn this ruling. The bondholders are receiving massive cuts but pensioners are left relatively unscathed.
Thanks for replying. That’s why I’m not sure because Jeanne Ives brought this up at the City Club a while back about the implementation bill. She said even pensioners were sold out or something to that effect. Maybe this just pertains to Chicago. Here’s the interview starting at minute 35. https://www.cityclub-chicago.org/video/1274/hon-jeanne-ives PPF-you may know what she means if it is for Chicago or the entire state and who it may affect. Just thinking that if anyone lends money to some municipality that is close to broke what collateral could be put up? Future revenue comes to mind because assets are… Read more »
I hope Mark responds to you but just keep in mind that Jeanne’s comments were 13 months before the March 2019 ruling.
https://www.reuters.com/article/usa-court-puertorico-idusw1n27h042?utm_source=34553&utm_medium=partner
PPF and Freddy, whether a particular secured transaction is upheld and prioritized over unsecured debt such as pension UAALs is very dependent on the particular facts sand circumstances at hand. The “securitized bond” legislation that Illinois passed, which has been used by Chicago and some other municipalities was drafted to be as strong as conceivable. As we wrote at the time, it was clearly drafted by somebody in the muni bond legal field who really did their homework, and covered every conceivable base to try to make them bulletproof. I I have not yet read those lower court decisions on… Read more »
Thank you Mark. I remember Jeanne Ives saying something about that. I will never get a pension and am in the process of going on a very meager social security in April at age 70. To me it seems like everyone thinks they are protected by various laws but I learned that change is inevitable. A few years no one knew about Covid. Look how quickly everything changed. Blink of an eye.
And Freddy, I did just read some of the underlying litigation. As usual, PPF is exaggerating and misleading. The full answer is a mess because the US circuit courts are split on the issue. The most relevant of the underlying documents is here. It’s from the parties who failed to get SCOTUS to hear the case, but that does not necessarily mean anything. https://www.supremecourt.gov/DocketPDF/20/20-126/149154/20200731131736859_ERS%20Bondholders%20Cert%20Petition%20TO%20FILE.pdf.
Moreover, it doesn’t matter much for now. With the states and municipalities awash in federal bailout money, IL is not going to authorize municipal bankruptcy and Congress is not going to authorize state bankruptcy. For now.
Where did I exaggerate Mark? Are you sure Freddy that secured revenue bonds are in front of pensions? This is a question so not sure how there could be any exaggeration. The Puerto Rico bankruptcy is teaching us that the courts do not need to follow this hierarchy. This is TRUE. SCOTUS declined to hear the case. The bondholders are receiving massive cuts but pensioners are left relatively unscathed. This is also TRUE. “but that does not necessarily mean anything.” Talk about an exaggeration. I’m guessing the PR bondholders that thought they had additional protection don’t feel the same as you.… Read more »
Paid from what? If a place living on money borrowed from the bond market has no money left, and if it stiffs existing bondholders, where’s the money going to come from. I think they’ve already eaten all their seed corn. What collateral is left to pledge? Who’d want to re-possess the island’s electrical system. Courts will perhaps order payment and may be able to order additional taxation. What we have in Puerto Rico is a test case of a place being completely and utterly broke with citizens who have a marginal living standard. Most profitable businesses (e.g., pharma) left the… Read more »
The lesson is quite clear. Pension benefits are almost certainly going to get paid. Other debt obligations will be cut while pensioners will receive most if not all of their benefits.
Class dismissed.
“. . .most if not all. . .” Looks like you are starting to see that you are not gonna get paid in full. HUGE change in language from the champion of pensioners. Balanced budget amendment will save you.
You have a reading comprehension problem Aaron. I have consistently stated that Pensions will be paid first. Hell…it’s in the name. This does not mean that pensions will never be cut. It just means that everyone else will feel much greater pain before anything happens to pensions. When pensions have been cut they have been quite small compared to other debt. Remember Aaron, pensioners receive 3% compounded raises. So that 100k pension in 15 years will be 155k per year. If pensions saw a Detroit style cut of 5.5% then that 155k pension would be reduced to 147k. Yes the… Read more »
Back in the 30’s, Chicago teachers were paid in scrip and told to make their own deals with merchants. Some stores honored it at 30% to 50% of face value. Dec. 19th, 1979, Supt. Of CPS Joseph Hannon refused to issue paychecks because there was no money. Then and now teachers are the last on the list. The general public didn’t care and in ‘79 as now strike was the only tool the Union had. A good rule of thumb is now and was then when teachers looked like professionals is no one really cares if they get the shaft… Read more »
PPF, that’s clearly an overstatement. See my long comment above. Yes, the black letter law has tended to bend in favor of pensions, but it depends on lots of things. Secured debt is a constitutionally protected property right, and there is a limit to how far judges will go impairing it.
Honoring the benefits already earned likely requires money they don’t have.