Chicago Mayor Rahm Emanuel brags about balancing the Chicago budget and fixing the city’s pension plans. Reuters writer Dave McKinney took the lies hook line and sinker.
Mark Glennon at Wirepoints Illinois separates fact from fiction in his article Chicago’s Friday Bunk Dump.
This is a guest post by Glennon.
Chicago’s Friday Bunk Dump by Mark Glennon
Fridays in the summer are a great day to dump news you don’t want scrutinized, as reporters will tell you. Today, we got a new financial report from the city, the actuarial reports for its police and firefighter pensions and news of a private offering by Chicago’s school district.
The Report
First, the city released a carefully written, glitzy, Annual Financial Analysis. At least they put it online this year, a departure from the past, but that’s probably because it’s such meticulously prepared misinformation. Hooray, said most headlines and Mayor Emanuel in his cover letter: The 2017 deficit for the city will only be $138 million.
Only under a perverted meaning of “deficit,” they should have added. The report means little because it doesn’t include losses sustained in pensions and tax hikes for pensions deferred to the future, and it’s pensions that are Chicago’s primary problem. The kicked can isn’t included. Instead, the report is centered on near term, annual contributions to the pensions, which are made up by politicians and are inadequate even using the phony accounting that goes into them. That’s a primary reason why unfunded liabilities grow routinely.
Specifically, here’s what they didn’t tell us: The deficit appears low now because taxpayer contributions gradually ramp up and then, in 2020, go up further to whatever-it-takes, sky’s-the-limit, annual amounts sufficient to fund the pensions, and property taxes automatically increase to cover those amounts.
That’s for the police and firefighter pensions. For the small Laborer’s fund, that date is 2022, paid for mostly out of a telecom tax. MEABF, the city’s largest fund, will be dealt with in a yet-to-be announced plan funded by a “dedicated revenue source,” the city tells us, which means a new tax of some kind.
Following is a schedule of taxpayer contributions to the police and firefighter contributions, taken from the report. Those will have to be covered by property tax increases. Expect the same on different taxes for the other two pensions.
The city gloats in the report that, “For the first time since 2011, the gap for the coming year is put forward without separate consideration of the City’s pension funds. As of July 29, 2016, the City has identified a permanent, reoccurring source to fund three of its four pension funds.” That source is years of tax increases that haven’t been properly explained to the public.
Most reporters have accepted the report as good news. Perhaps the worst was Dave McKinney at Reuters, whose headline is, “Chicago deficit narrows despite pension uncertainty.” To the contrary, a better headline would be, “Chicago ignores pension tax certainty to claim deficit narrows.”
The same issue plagues city budgets, which is why Rahm regularly gets away bragging about balancing the city’s. “This is the fourth year in a row we have balanced the budget,” he said in his last budget address. In fact, the city lost about $5 billion last year (though that results largely from a change to more realistic accounting standards) and about $1 billion in each of the previous four years, according to its own financial statements.
Actuarial Reports for Chicago Police and Firefighter Pensions
Today, I finally got the actuarial reports for the Chicago police and firefighter pensions, which I had filed a Freedom of Information Act (FOIA) request on July 8.
For the police pension, Net Pension Liability (that’s the term for unfunded liability under the new accounting standards) worsened by $260 million, ending 2015 at 8.97 billion. The funded ration worsened from 26% to 25.4%.
For the firefighter’s pension, Net Pension Liability worsened by $304 million in 2015, ending the year at $3.78 billion. Its funded ratio worsened from 23% to 21.7%. That’s actually much better performance for the year than I expected. However, with funded ratios near 20%, these pensions are in truly horrid shape.
Together with the two other Chicago pensions whose reports were released earlier, the total Net Pension Liability for the city is $33.8 billion and they are 23% funded in aggregate. Obviously, that’s far worse than the $20 billion total that’s been commonly reported over the past year. Much of that change results from the shift to new, more realistic accounting standards.
You can add another $10 billion for the CPS pension. We’ll try to add it all up soon for all the other overlapping pension obligations when we can — Cook County, Chicago Park District, Cook County Forest Preserve, Metro Water & Reclamation District, RTA, CTA and state pensions.
None of these numbers include healthcare obligations, which are very hard to nail down, and are not addressed in the Annual Financial Analysis.
Chicago School Borrowing
Also today, CPS announced it borrowed another $150 million. What’s unusual is that it was done as a private placement — a reflection of its difficulty accessing the usual public markets. We don’t know all the terms of the deal because CPS did not release the key documents. The CPS says it will release those on September 2.
September 2, eh? That would be the Friday before Labor Day weekend. Credit these folks with consistency.
Mish Comments
Thanks to Mark Glennon, the founder of WirePoints.
Mike “Mish” Shedlock
Mish, this hike in 2020 was easily predictable without even looking at one financial report. Rahm Emanuel’s term as mayor expires in 2019.
Greg, you just gave away the game plan for Rahm’s successor as mayor of Chicago. Everything will be in balance through 2028. You’ll see. All it takes is a few minor changes to update the old reports.
The only solution short of hyperinflation, bankruptcy or sanity is for Chicago to become sovereign and issue its own currency, which it could call the Continental. Convert all Chicago liabilities to the new currency, paying off all pensions with Continentals that are forced legal tender in Chicago; but collect all city taxes and fees in gold equivalents.
All you need is for Congress to pass a law (easily hidden as a rider in a thousand page appropriations bill as a footnote) that cities hosting new presidential libraries after 2016 can be declared special sovereign zones (like the old free enterprise zone concept). A good crisis should spur innovation, not just old solutions under new names like “helicopter money” (QE/money printing) and “shovel-ready” infrastructure projects (more pork barrel spending).
The game plan for the new mayor will FIRST be to show how bad it really is and BLAME RAHM. Then later he can use the same lies to pretend to save the day.
That will repeat for each new administration, until finally investors say “no mas” and chicago becomes detroit.
Whoa.. OT but various reports Incirlik surrounded by troops, accusation of second coup plot…
I always go here for news on Turkey Sibel Edmonds is from there and is running constant news on the coup, but she hasn’t posted anything. Post some links. I’m up listing to an august 1 Stock market update.
New Story: Reverse Ransom, by Tayyip Erdogan.
Well they did block the base purposefully for several hours, seems just a show of force and to make US note Turkey’s discontent before a visit by Dunford.
http://www.bloomberg.com/news/articles/2016-07-31/turkey-blocks-access-to-airbase-on-coup-suspicion-hurriyet-says
Very hard to get any reliable sources on what is happening.
Here is Sibel’s link for anyone interested
http://www.boilingfrogspost.com/
Trending Turkey
https://twitter.com/hashtag/GoAwayYankee?src=hash
Sadly this is the tip of the proverbial iceberg for ALL pensions save Social Security imo.
These “schemes” have been living on “borrowed growth”(pay it forward) as I think the bill for 6% payouts relative to 2% growth finally comes due.
People forget that the financial collapse of 2008 was precipitated by an INSURANCE company (AIG and Hank Greenberg) and not the Banks.
The irony that the Banks got all the money PLUS the bulk of the securities industry (only Morgan Stanley remains independent) should be lost on no one.
“Here’s the news” folks: BANKS DONT CARE ABOUT YOUR PENSION.
Meanwhile over in cubicle 12, floor 20, room 34 of Bldg Onan in Somehwere Ville is Joe Schmegeggi getting the Blue Screen of Death for the entire Ohio State Pension Fund™ … soon to be renamed Test Article 27 as various algos descend upon said “pretend monies” to determined not what is going to be paid out but what in fact is owed (“would appear Governor the State now owes on trillion dollars to JP Morgan in order to pay out 104$ next week to Granny Crabapple and her fund.
Yes the trillion dollars is due tomorrow too…
80 billion for AIG says to me 8 trillion … that would be physical cash dollars…sounds about right “this go around.”
The Ohio State Pension Fund will go and die a quiet death and be laid to rest in a “dark pool” of capital somewhere, perhaps a Maiden Lane III can be created.
Ken Lewis took the Merril Lynch cram down at Bank of America like a man. Will there be any more men left this time around? Chuck Prince danced until the music stopped. Jimmy Cayne was on the phone trying to secure bridge loans as Bear Stearns was collapsing faster than Charlie Gasparino could report the damages.
It’s going to be a spectacular collapse this time around. Half of Corporate America’s middle management have spent their entire careers in ZIRP environment and have no idea price discovery even is.
Ohio is a swing state. If pensioners don’t get paid, Hillary doesn’t get votes.
I’d like to know what Chicago’s Bond Rating is. I don’t want to presume junk status or close to it, but if it is – who’s allowed (on the institutional side) to invest at that level of rating?
First the bank inflated away corporate pensions, and now the bank is inflating away city pensions. Printing is the bank’s war on their elders.
Printing is also the bank’s war on cities in general. The purchasing power of city revenue is being inflated away by the printing press. Services keep being trimmed, and additional levies added. Inflation of things cities buy is out of control.
All that they print stays at tier 1 banks as excess reserves, or goes somewhere else to Prop, prop, prop. We got props propping the props that hold up the props. They can’t inflate anything without velocity.
There is going to be a financial crisis well before 2019 and he is not going to evade the blame.
Most difficult to predict timing but I hope you are right!
God bless you, Mike, but you don’t live in Chicago do you?
Emanuel has survived the Laquan McDonald police killing coverup which directly implicated his office in suppressing evidence. This has occurred whilst President Obama is ranting almost daily about police killings of young blacks.
There ISN’T ANYTHING of a corrupting nature that can remove a seated Democratic mayor in Chicago. Illinois governors? That’s a different species of politician. Several of those are already in prison.
Very true Diogenes, you apparently live in or near Chi-town. I used to but thank god I escaped from the State Where the Governors Make the License Plates. People that live in other states have NO IDEA how corrupt Chicago and Illinois are; the state that gave us Obummer and Hitlery.
I should add that the corruption in Chicago and Illinois has been around for so long (at least since the Capone era) that the crooks and fools that still live there just accept it as part of the system.
@CJ
The issue isn’t those in Chicago, nor other similarly position scam bastions. Instead, the problem when they fail, their State, then the Feds, will “save” them. Being code word for robbing people at gunpoint.
As long as there are enough backmarkers out there, stupid enough to fall for the sham that government robbing people who ostensibly have something to take, is somehow preferable to simply letting those who failed to take care of themselves reap as they sowed (as opposed to how they in their delusional, self righteous little minds were conveniently stupid enough to believe they sowed), the scam will always be a profitable racket to be in.
The fact that I promised you a billion a week from the day you turned 50, in absolutely no way whatsoever, generates even the slightest trifle of an obligation for anyone at all, except me personally, to make even the tiniest of sacrifices to come up with those funds.
The fact that I took the improved cashflow I enjoyed by not paying you up front, to buy guns with which to rob children, and to fund indoctrination of same and others, has no bearing on the matter whatsoever. At least not aside from the merely practical one of making me better equipped to rob and steal, and on dumbing my intended victims down so they’re less likely to complain put up effective resistance to the theft. Becasue theft is all it is. In the crassest meaning of the term. No valid excuses, just rationalizations anyone but the most well indoctrinated of outright imbeciles, sees through in a fraction of a minute.
Noone who didn’t individually and explicitly make any of these pension promises, are in any way, shape or form responsible for them. Period. And anyone who realistically backs forcing any non signatory to act as if otherwise, have no better of a moral standing than any other armed robber has, while in the middle of the act.
Great guy. I miss him.
Bob Runk
>
Does anyone else out there follow Lance Jepsen’s swing trading web site? I’m a subscriber and have been for about 3 years. He posts his weekly predictions on Saturday night every week. This week he posted his prediction, plus this warning:
The Puerto Rico public employee pension fund has a $33 billion liability against assets of $3.4 billion. The Puerto Rico pension system is using investment income for operating cash. Pension assets are being sold to pay current benefits. Employer contributions are being used to pay debt service on bonds that were supposed to help address a decade of missed contributions. The commonwealth’s general fund is liable after pension assets are depleted, Yet the general fund faces a $28 billion fiscal shortfall over the next five years.
“Together with the two other Chicago pensions whose reports were released earlier, the total Net Pension Liability for the city is $33.8 billion and they are 23% funded in aggregate.”
Holy Christ. So a major portion of the City of Chicago aggregate pension fund has an unfunded liability of over 75%? That’s pretty much the equivalent of a hospital patient being brain dead and on life support. I’m not joking. That’s a very serious situation.
Mish, you didn’t mention the ROI’s on the municipal pension fund. What have the returns been like for the last several years? 10 year average? What is the assumed ROI? 7.25% or 7.5%? Most government pension funds have missed their assumed ROI’s bigtime in the last few years. CalPers missed their assumed ROI by about 6% I believe. If that continues it’s going to sink their ships.
I read today that Japan’s government pension system is in big trouble. Their ROI for last fiscal year was something like -3.5%. Katy bar the darn doors! Japan’s economy is a tinderbox just waiting for a spark. Throw their pension problems into the mix and it’s Titanic territory.
Seriously, I have no idea how they’re keeping this ball of string from unraveling. When it finally blows it’s going to be heard all the way to Uranus.
Yay! We are less bankrupt than yesterday, based on our assumptions. About 30 people were half murdered in Chicago, leaving them slightly more than half dead.
In other news, we are also less half pregnant, more than half full of sh!t, with lots of hope coming out our ears… oh wait, we found where the rest of the sh!t went
No need for a pension. Take out student loans. No payments if you never graduate.
Hell of a deal; guess I’ll go back to school! (not that I need or want to, but I hate to miss out on a good deal)
One of those B-61 nukes at Incirlik base and soon to go missing will finally rid us all of Chicago’s problems. We will walk on the ashes of the damned.
“Reuters writer Dave McKinney took the lies hook line and sinker.”
Reuters is a propaganda outlet. A real news organization would have reported the truth.
Mish. I ESCAPED. Last Friday was my last day in IL. Heading to Colorado and on the road!!! Thank God!!!
Congratulations!
Now that Chicago’s financial problems have magically been solved, expect to hear Chicago teachers clamoring for another raise.
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