Despite a massive rally in the stock market, Illinois public pension liabilities continue to grow.
GARS, the Illinois General Assembly Retirement System, is only 13.52% funded, down from 17% funded in 2013. How long can GARS last?
Meanwhile, Illinois has accrued a combined net pension liability of roughly $130 billion on which it assumes a 7% return.
Effectively, that is an interest liability of $9.1 billion a year even though that liability technically does not bear interest.
This is a guest post from Michael Lucci at the Illinois Policy Institute.
Interest on Illinois’ Pension Debt is $9.1 Billion Per Year
Illinois isn’t covering the interest payments on its pension debt. Those interest payments total $9.1 billion a year.
This is the reason Illinois’ pension debt continues to grow. As with personal credit card debt, until the interest is paid off none of the actual debt gets erased. Illinois’ pension debt is so large that it’s unlikely payments will cover the interest on the pension debt until 2028, according to a November 2016 special pension briefing from the Commission on Government Forecasting and Accountability.
Illinois politicians have known for years about the state’s pension crisis, even if they have not taken serious steps to address the problem. Gov. Bruce Rauner recently spoke out on the cost of interest on the pension debt. Former Gov. George Ryan weighed in as well, saying:
“First off, the biggest problem we got with the budget right now is the interest they are paying on the debt. If I were the governor, … I’d say we are never going to be able to pay the full debt back, so let’s eliminate half the debt right now and write it off.
“If that’s not constitutional, it might be worth changing the constitution. That would dramatically reduce the amount of interest that they’re paying. The bond ratings would go up and the interest would go down.”
Ryan seemed to be referring to the annual “interest cost” on Illinois’ pension debt, which is about $9.1 billion per year, or $25 million per day. The portion of interest cost that isn’t covered each year is simply added to the debt.
Why Illinois’ pension debt keeps growing
Illinois has about $78 billion in assets on hand to pay for pensions. But the present value of the state’s accrued liability is $208 billion. That leaves a difference of $130 billion, which is money the state owes – but doesn’t have.
Illinois pension math assumes an annual investment return rate of just over 7 percent on $208 billion in pension assets. If pension assets end up returning less than 7 percent per year, then the actual pension liability will end up being much larger than is currently assumed.
However, $130 billion of that accrued pension liability doesn’t exist, which is considered the pension debt. This debt does not bear interest like a bond does – but it functions the same way in reality. Because $130 billion is missing, Illinois will automatically miss out on the 7 percent annual investment return on that nonexistent $130 billion. This “missed” investment return is about $9.1 billion per year, and is essentially the interest cost on the $130 billion pension debt.
Illinois’ type of payment plan, which fails to cover interest, is called “negative amortization.” The debt principal continues to grow because the pension payment does not cover the interest cost. The portion of the interest payment that isn’t covered is added to the debt.
As actuary Tia Goss Sawhney explained, a full pension payment is made up of three parts:
Full payment = Employer normal cost + interest cost + principal reduction payment
However, Illinois’ scheduled pension payments are too small to cover the normal cost and interest cost, causing the unfunded liability to go up. For example, in fiscal year 2018, Illinois will make an $8.9 billion pension payment, which will cover the $2.1 billion employer normal cost and $6.8 billion of annual interest cost. However, the annual interest cost is actually $9.1 billion, meaning that after the employer’s portion of the normal cost, Illinois will come up $2.3 billion short on the interest payment. The unpaid portion of the interest cost is added to the debt, just as if a person didn’t cover the full interest payment on a home loan or credit card. In Illinois’ case, that $2.3 billion shortfall will be added to the pension debt.
The reason the principal reduction payment is negative is because the debt grows.
Illinois needs a constitutional amendment to allow for real pension reform
As Ryan pointed out, Illinois’ pension math might never add up without reducing the $130 billion pension debt, which the Illinois Constitution currently protects from being restructured. Even though Illinois is already overtaxed, and pension costs are driving up taxes more each year, the state still can’t cover the interest cost on the pension debt until 2028. On top of that, many local communities like Chicago have pension problems that are even more severe than the state’s problems. And the math gets even worse if Illinois doesn’t hit investment returns of 7 percent per year.
A golden rule of finance is this: Debt that can’t be paid won’t be paid. The state should develop a contingency plan to repeal the Illinois Constitution’s pension protection clause and restructure pension obligations to pull Illinois out of a potential death spiral should the need arise. Such a plan should preserve benefits for government workers with modest pensions while means-testing the richer pension benefits. This would almost certainly be challenged as a violation of the contracts clause of the U.S. Constitution, and the U.S. Supreme Court might ultimately decide the matter.
Illinois might be one serious recession away from a financial death spiral. A deep recession would reduce the value of pension assets while also causing tax revenues to decline. Illinois’ pension obligations would increase just as tax revenues dried up. After such a recession ended, out-migration would likely surge as Illinoisans increasingly realized the impossibility of financing their government’s spending promises. If financial assets fall and do not recover, Illinois’ pension math might be doomed.
The battered ship of Illinois’ finances is lurching toward a rocky shore. Lawmakers should develop a contingency plan for an emergency situation, and be prepared to enact it in order to salvage the state’s finance.
Michael Lucci
Start Mish Comments – Death Spiral
Lucci noted: “Illinois might be one serious recession away from a financial death spiral.”
He is too optimistic. Illinois’ pension is in a financial death spiral whether a recession hits or not.
Despite a massive rally, state of Illinois pension liabilities grew. It will not take a recession for a crisis to hit. Illinois is in a crisis now.
That crisis will be obvious to everyone when a big correction hits the stock market. Like it or not, a big correction is guaranteed at some point.
Blowing Bubbles
Thanks to the monetary policies of the Fed, ECB, Bank of China, Bank of Japan, and central banks in general, stock markets have now surpassed the 1929 high in bubbliness.
Only the dot-com bubble was bigger.
John Hussman has an excellent write-up of the bubble in When Speculators Prosper Through Ignorance.
Pater Tenebrarum at the Acting Man blog continues the discussion with Speculative Blow-Offs in Stock Markets – Part 2
Destructive Bubbles
Central banks’ seriously misguided attempts to fight routine consumer price deflation, fueled very destructive asset bubbles that eventually collapse.
Worse yet, many pension plans did not even benefit from the speculative boom, but they sure will participate in the next collapse.
GMO 7-Year Forecast
As of the end of 2016, GMO forecast real (inflation-adjusted) losses in both US stocks and bonds for the next seven years!
Things are so bubbly now, that GMO now foresees nominal losses in US equities. At this juncture, even gains of say 3.5% for the next seven years would sink the system.
Pension Reality
Public unions are already screaming for tax hikes to bail them out. Giving in to such an approach would do nothing but further drive businesses and wealthy Illinoisans out of the state, compounding the problem.
It’s time to admit reality: The Illinois pension system is insolvent, and not just at the state level. Illinois cities are also impacted.
Illinois Cure
- At the municipal level, we need bankruptcy legislation so that cities and municipalities can shed liabilities in bankruptcy proceedings.
- At the state level, we need pension reform. I propose taxing pension benefits above a certain level at a high enough rate to make the system solvent.
How likely is that?
For the answer, please recall my opening remarks: GARS, the Illinois General Assembly Retirement System, is only 13.52% funded, down from 17% funded in 2013.
Illinois is in a pension crisis. Forced admission of that fact will soon be thrust on Illinois politicians who will undoubtedly have an eye on your pocketbook. In fact, they already do: Mary Pat at Stump reports Illinois wants to tax ALL THE THINGS!
National Problem
Lest you think only Illinois is affected by this mess please consider:
- Dallas on Verge of Bankruptcy Due to Pensions; Just a Matter of Time (For Dallas, Houston, LA, Oakland, Chicago, etc)
- Criminal Witch Hunt in Dallas Pension Fiasco
- In Search of a Fix (When None is Possible): What Happens?
National Cure
Every state in the union will be affected as soon as the stock rally subsides. Even flat returns for seven years would bankrupt most state pension systems.
Corrupt states like Illinois will never address the problem properly.
We need national bankruptcy legislation to allow municipal bankruptcies in every state, national right-to-work legislation, and the end of prevailing wage laws to lower cost burdens on cash-strapped cities and states.
Mike “Mish” Shedlock
WOW… Don’t nobody be standing near the stateline borders of Illinois when the GREAT SUCKING noise starts……
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….long torches and pitchforks…also starting a position in tar and feathers
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I had to tell my state gov’t clients that their PERS employer contributions would be rising this June.
Washington state, (a very well funded pension state) had it’s PERS 2/3 plan increase its pension liability deficit nearly 40% in one year.
The employer rate is already 11.18%. I expect it to go to 14% or so, while the employee rate remains unchanged. (Thanks, unions!)
Citizens may expect their property taxes to go up. I recommend living in a state with tax caps or passing state tax caps on property tax.
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At least Bernie Madoff admitted his guilt and took his punishment like a man. These guys are wussies.
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Frankly in this era of low interest rates, contributions to pensions cannot keep up with duties, so the Fed has to intervene and take them all over or bail them all out. The Fed can use its ability to get thin air money at no interest and simply do it. No other way exists except bankruptcy and that’s not an option, politically at least. Many don’t like the idea the fed has the constitutionally permitted ability to buy all its debts, but tough! It’s a fact.
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First and foremost, like any institution, the Fed values self-preservation. If the Fed buys pension debt of the least funded states, politicians from even modestly funded states will go apoplectic. “End the Fed” would go straight to the top of the political agenda as prudent states would be effectively forced to bailout the spendthrifts. It’s never going to happen. States like Illinois better get their act together or ask Congress for a bailout (won’t happen, but they can ask), because no lifeline is coming from the Fed. It’s a fact.
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You’d have to be a believer in mainstream economics to make such a case.
Macroeconomic reality kills your version. The Fed is an arm of the government and does what the government says via instructions to Treasury. The moment Congress passes a relevant law the funds to pay for it are set.
It’s a net credit operation without a liability side, i.e., free – from “thin air”. [Commercial banks also get their loan sums equally from thin air but as liabilities, so only the Fed has such powers]. In fact every dollar the fed uses to buy debt is new money.
Any thought the fed values its self preservation is total baloney. Where did such a silly notion come from? You have NO solution to the problem, but the mainstream lies are still hard to kill off, so I’m not surprised.
It’s also highly likely the resulting spend into the economy along with the savings in citizens’ income due to not paying retirement taxes will make the economy grow to match the rise in spending, improving GDP etc so there will only be a modest inflation.
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Greece.
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The Federal Funds Rate, the inter-bank lending interest rate of the Federal Reserve, has nothing to do with pension plans annual returns. The Florida Retirement System has had an average 9% return over the last 10 years.
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You are really missing the point here. This is not real debt!!!! It is an unfunded mandate. It is impossible to buy an unfunded mandate. Someone would have to pay the money into the plan and they will getting nothing, zilch, zero. So it is outside of the feds ability!
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If the law changes to allow municipal bankruptcies won’t the contracts be required to honor the law that was active at the time the contract was signed?
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Sure, but it will only apply against taxpayers that are feeding from the public trough (the public unions themselves)…. everyone else will have moved away
Those pension “promises” were made by politicians, and are not enforceable in the real world. Not saying the slimey judges who are on said pensions won’t rule blah blah blah… just saying the tax base they want to rape is not a given. People can and are leaving
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Nope, the point of bankruptcy, largely, is to abrogate or modify contractual obligations the debtor no longer has the capacity to pay. The underlying state law has no application in bankruptcy court except as specifically designated in the bankruptcy code, e.g., homestead exemptions allowed under state law, etc.
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The first step seems obvious, eliminate further pension accruals for all state employees . Very few workers get these kind of pensions today. If the state workers feel they cam find an employer that still offers a pension for their line of work then they can seek employment there. I expect that very few employees would find new employers offering pensions. There would be no disruption of state services.
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It never made sense that an employer should manage an employees retirement. Nor the employees health insurance.
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Merely the Tip of the iceberg’…..lolol Can you even Imagine how totally ‘Underwater’ ALL the Various City~County~State and Federal Government Pension funds sit at this present Moment..? One does not have to worry about an Earthquake dropping California into the Pacific….it will merely be ‘Sucked-In’ by CALPERS…lolol thanks for reading,aloha
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Might expect some way higher taxes,,,especially if the Judges Pensions are involved. As usual, those with no pension at all will be forced to pay for absurdly high .gov pensions.
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Mish, what happens if the GLOBAL SOVEREIGN DEBT DEFAULT dove tails with the meltdown you forecast for Illinois ?
Answer > “KABOOM”
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Best thing that could possibly happen.
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Real estate in Illinois will eventually be completely worthless, as property taxes skyrocket to obscene, incomprehensible levels. The entire state will be a “no-bid” real estate market.
I would posit that many parts of New York and New Jersey will also eventually find themselves in the same boat.
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If you’re right, that will be the only sorta-kinda upside of this mess. The biggest underlying reason the looting has been allowed to go on unopposed by the politically active class for as long as it has, is because a primary effect of the financialization, asset pumping and attendant “ownership society” nonsense, has been allowing Donald Dimbulb and cohort to pretend the “made a smart, savvy investment” in their “home.”
But, as Thatcher pointed out, eventually, you really do run out of other people’s money. When those “other” no longer have anything left for even Zimbabwe Yellen to debase, nor ever more militarized “law” enforcers to shake out of them in taxes, mandated spending and “shared sacrifice”, even those living off of robbery obfuscated by debasement, will eventually see their share of the loot start shrinking.
And then, as always, they’ll start cat fighting amongst themselves. About who “deserves,”‘ this, who was “promised” that blah, blah. While the vast majority, who haven’t ever experienced anything more than being robbed, bullied, looted and “managed” for as far back as they can remember can, or at least could if they weren’t almost to a halfwit a bunch of indoctrinated sheeple indoctrinated to feel camaraderie with their robbers for doing nothing more than wrapping themselves in a flag, sit back and sing Bobbi McGee.
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And the words echo back again:
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Unfortunately, the US has had some really, really, really bad presidents in both parties — until the past three we were lucky enough not to have three morons in a row.
Obama, up against some very steep competition, managed to out-stupid all others…. It is telling that his home base Chicago is now among the first banana republic like municipalities to get banana republic like outcomes.
The fact that Obama’s cronies are going to lose their pensions because of Obama’s governing style? That’s karma.
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We had our fair share of crappy Fed Chairs too… 0-1% for 12 years is insanity.
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President X has been worse than President X-1 since Jefferson. It’s an unbreakable law of any stable country. If government was properly limited instead of a totalitarian junta, it wouldn’t really mater. But ours isn’t, so it does. Increasing so, as the Xs get bigger.
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private void Hindsight(object sender, EventArgs e)
{
int startYear = 1776;
int currentYear = DateTime.Now.Year;
int totalPresidencies = (currentYear – startYear) / 4;
int[] popularity = new int[totalPresidencies];
Random economy = new Random();
for (int times = 0; times < popularity.Length; times++) popularity[times] = economy.Next(10, 90);
Random changingSentiment = new Random();
for (int thisPresident = 0; thisPresident < totalPresidencies; thisPresident++)
{
for (int earlierPresident = 0; earlierPresident 90) popularity[earlierPresident] –;
if (popularity[earlierPresident] < 20) popularity[earlierPresident] ++;
}
for (int rearView = 1; rearView 0) popularity[thisPresident-rearView]++;
}
}
startYear = 1776;
}
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🙂
I once talked to some students who were playing with rewriting the legal code in a Haskell inspired DSL, in order to enforce a cleaner separation between what is straight deduction, and where “human judgment” (aka the opinion of some privileged hack) has to be allowed some leeway.
I would honestly call it a great success if implemented, as it would make the law more predictable, decisions more open to analysis and criticism. And, as anyone who has banged their heads against Haskell’s more esoteric features soon realize; it would ensure those who “practice law” are actually intelligent people, or they’re found out real quick. Outsourcing most legal work to AIs, with all the auditablility, repeatability and consistency benefits that would bring, would be a big boon, as well.
Natural languages work fine for “proper,” genuinely necessary, inevitable laws. Ten Commandments type stuff. Everyone knows what those are, and everyone interprets them the same. Attempting to make the legal code much more complex than that without introducing a more rigorous specification language than English, just turns the whole thing into a free for all for charlatans bent on obfuscation, and for providing justification for what is essentially arbitrary rule by those with the privilege to “interpret” things, or to influence the interpreters.
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….. And neither did I! But I stole that, so now it’s still mine! And I’m famous and on TV! While you’re just an anonymous stiff who worked your hole life! So the sheeple still hail me as the good guy! And that, is democracy!!!
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Yeah right, I didn’t build that? How the hell would that asshole know/ He never built anything.
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Never New York, the real seat of government.
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California is rapidly following in Illinois foot steps. How any one will lend Illinois money is beyond me.
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Democratic countries, states and cities are dysfunctional. The bigger government gets, the less able it is to function. No one is able to live within their means, not people, cities or countries. No one is willing to lower expectations especially our politicians. I see violence ahead in America, Europe and the Middle East. Time to move to Austrailia or Fiji.
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The level of shock & frustration when realisation hits could easily be enough to cause violence to erupt.
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hey mish and others
come to NC where everything is already taxed. or go to Michigan which I left…hey Michigan has great water, great enough to give me breast and ovarian cancer.
save money, dump your waste here in Michigan.
I still am foolish enough to somehow think prudent fiscal decisions should some how survive …even if all washes away, if it zero outs for us all, the start over for savers will be easier if only, well, because of well thought out habits.
pensions…if it looks too good to be true , it probably is.glad I am not relying on one.
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any hard assets the state can sell ?
highways ?
buildings ?
state parks ?
utilities ?
airports ?
bridges ?
canals ?
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Chinese may be happy to oblige if allowed.
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Good point. The Chinese might be buying. They certainly couldn’t mis-manage Illinois any worse than the democrats.
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great way to get some of our money back
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In a green world – recycle – greenbacks.
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The Chicago Skyway Toll Road is owned by a Canadian pension fund :
http://www.chicagotribune.com/business/ct-chicago-skyway-operator-sold-20151113-story.html
They bought it from a Spain-Australian consortium who owned it for about ten years or so.
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Think the Canadian system owns “rights” to collect tolls, they don’t own the roads or the land underneath. And the toll amount is set by Chicago politicians, while the legal definition and term of those “rights” are set by Chicago courts.
Essentially the Canadians own a specific revenue bond backed by tolls that are set by Chicago politicians. A much bigger credit risk than G.O. bonds
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Thanks for that “bottom line” that I did not have to research, Medex.
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Who wants to buy immovable assets in a jurisdiction that will just seize them back? And probably try to fine you for the fraud that the bureaucrats themselves committed?
Chicago’s physical assets are worthless because Chicago’s government controls them (even if the Chinese or someone has a “promise” from Chicago saying they own the assets, that promise isn’t worth the paper it was printed on).
Its just matter of time before a corrupt ambulance chaser shows up with a title challenge that says the property is owned by a dead pet who voted in the last election. And while you are pointing out how that can’t be… one of Obama’s supporters will murder you with a gun obtained from Eric Holder’s operation fast and furious
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Hey great post Medex. I would give you a like but it’s too difficult to sign up for that with this system, so you got it here.
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I gave you both a like
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Me too. Here’s something to think about Mish:
Perhaps “government” and its ideologies – Dem/Repub, Communist, Mixed Economy, Socialism – should be viewed as camouflage for crime. Bad people using “perception management”, propaganda, public relations – just plain lying – to get away with doing bad things. And having us thank and worship them for it.
Perhaps this “compassion state” will end with $2000 per month pensioners getting perhaps $50. That’s your means test. Venezuela.
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“Take care to sell your horse before he dies. The art of life is passing losses along.” Robert Frost
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Soldier Field and Whatever The Name Is This Week ballpark at 35th & Shields should be the first to be sold. But why by them when the city and state would then just tax the hell out of them?
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I think the Cubs were owned for a time by Sam Zell. He is the real McCoy when it comes to real estate.
I wonder if he got ownership of Wrigley Field, too, in that deal to buy the Tribune Co. I can’t recall.
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I don’t get your IPI calculation. It seems absurd to to compare the total plan liability stretching out for the next 30 years with assets existing today. Why not compare with accumulated assets (interest + contributions) over the next 30 years? It would seem to be so grossly misleading as to fall into scaremongering.
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Mish is comparing the PRESENT VALUE of liabilities versus the present value of assets– Oh good grief, its pointless and frustrating to try to explain real world math to a liberal who’s entire belief system is based on not getting it.
Mish’s calculations, if anything, are a bit generous. But its over your head (over your warped politics really) to explain how.
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Hey don’t be so mean, Medex. I didn’t understand it either until I emailed Mish and he explained it in a very different way.
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No, he’s not. Market Assets is not the present value of assets.
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They’ve been doing nothing about this for years. There’s article from way back about this fund. Peruse their web site and and see if I missed anything… There is no discussion of this anywhere. If this is how they twnd their business, i don’t think they deserve one tear of sympathy.
https://www.srs.illinois.gov/GARS/home_gars.htm
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“twind” ? I cannot find that in the dictionary.
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Keep in mind that of all these forward obligations tank, the USG and MUNIs will crater. For the employees of the State, thats OK because they will use some other asset to cover their minions. The private sector-that can go to hell for all they care
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Hey Mish and all of you people,
Get a load of this. In California the politicians are going to make teachers exempt from the state income tax. How much you want to be that will only apply to teachers at the government schools and not private schools?
This at a time when the California teachers’ pension fund is woefully underfunded.
Well, I hope the politicians do it. And while they’re at it I hope they exempt all government employees from ALL taxes. And I hope the politicians vote themselves in on that deal. (The same way they vote themselves raises.)
Maybe then the tax paying sheep will wake up and realize the government is not their friend and that those in government really are a different class.
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I live in CA and my wife has 2 masters degrees in education. She was a teacher and moved up to a principal. She says “No Child Left Behind” is a farce and the Dept of Education should be abolished. We have retired to CA and we have found the public schools in CA are just plain awful. CA High School grads are lucky if they know basic reading and writing.
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“We have retired to CA and we have found the public schools in CA are just plain awful. CA High School grads are lucky if they know basic reading and writing.”
Bill, in thanking the voters for passing an extension to prop 30, the CA teachers union ran an ad aired on KNX Los Angeles, during which the spokesperson said they were going to promote social justice. Leftist Agenda activism is more important than education, to the teachers union.
A woman in Glendale, called in to Dennis Prager last week and complained that her child was being subjected to social justice ranting by one of the teachers.
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Once again you blame central banks for all our problems, yet states like IL are imploding without a CB. The common problem with state govt, US govt, and EU is career politicians, not CB’s or a gold-backed currency.
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Elected Officals and executive level managers should fund their own retirement plans. This plan should be phased out for these employees
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Good idea! But, it’s probably “illegal”?
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Mish got this re-posted on ZeroHedge.
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“Ryan seemed to be referring to the annual “interest cost” on Illinois’ pension debt, which is about $9.1 billion per year, or $25 million per day. ”
Wow, $25,000,000 per day!
By the time ZH re-posts a day after Mish posts, the IL taxpayers are on the hook for another $25M. Something that cannot go on forever will stop.
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“Illinois’ pension debt is so large that it’s unlikely payments will cover the interest on the pension debt until 2028….”
Isn’t the Illinois pension system a Ponzi? A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources. As a fraud, regardless of when it was set up or what the intent was, could a Ponzi labelled a “Pension” be unenforceable as a contract?
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The first step is to eliminate defined benefit pensions going forward, in favor of defined contributions. This would apply to corporations as well as public entities. There should not be an opportunity to throw liabilities into an uncertain future which will be someone else’s problem.
Second, bankruptcy laws should be modified to allow existing defined benefit plans to be converted, without destroying the entity. It is assumed that voters and stockholders will replace the culprits.
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I can’t seem to get friggin GOOGLE Gmail to allow me to get MishTalk, one.of my favorite blogs, in my Primary file. Always sends it to my SOCIAL file. Jeez I hate them (Gmail). Any Suggestions?????
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again mish misses the facts of the this situation, Illinois residents and businesses have reaped a benefit from not paying into the pension fund as THAT money was used on spending programs so Illinois governors and legislatures, democrat and republican alike did not have to rise taxes…and Illinois state income tax is at the low end of the spectrum…combine that with payroll pension contributions each state employee has taken from their paycheck that never made it to the pension fund…nothing but IOUs…so now…because of this…lets screw the workers…the easy answer that allows all those years of benefits of state projects and low income tax rate….to be placed on the back of the employees….the employees did not cause the problem, they did their work, they paid into the pension fund and funds were swept and state part not paid….now the whining…..
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Bob your position is laughable. I did not miss anything, you cannot think.
Here’s the deal: corrupt politicians got in bed with corrupt union leaders and the politicians padded their own pensions as well.
They did not hike taxes to pay for the promises they made. Illinois is not a low tax state. All things considered, Illinois is one of the highest tax states and one of the worst in which to do business. My property taxes are close to $15,000 per year on a $450K home. That money does not go for the kids, it goes to inane pension promises.
The employees, led by the SEIU are indeed part of the problem. And it is not just Illinois.
Your sense of entitlement for public “servants” is over the top amazing. Public employees, in general, are underworked and overpaid. That does not apply to everyone, just most, especially big-city police, fire, and teachers.
My proposal is sound. Tax the hell out of excessive pensions. If that is not done, those at the bottom end will suffer the most.
Mish
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“.the employees did not cause the problem, they did their work, they paid into the pension fund and funds were swept and state part not paid….now the whining…..”
…
You’re the one doing the whining.
Did a bit of sleuthing … about the employees contributions … for regular retirement (and with social security) a whopping 4% taken out of paycheck … and can retire as early as 60 and get up to 75% of annual end salary. Nice gig … for the pensioner. The taxpayer gets the massive sh!t sandwich if pension not cut.
https://www.srs.illinois.gov/SERS/home_sers.htm#
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Dear Illinois Tax Payer,
We would appreciate it if you would just cough up an extra $2-3 Billion in taxes to fund pensions that are 3 or 4 times what the private sector workers will ever see from Social Security. We’ve earned it by electing corrupt politicians who promised way more than they can ever deliver. Now it is time for you, the taxpayer, to deliver.
Thanks,
Your friendly public union
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Mish, what about allowing state bankruptcies?
In my utopia, Illinois declares bankruptcy, the state is put into receivership overseen by Treasury, 5 or 6 newly-created states are formed to take its place, (each with new constitutions and fresh accounts) and Illinois is dissolved. Same could be done with most states and we’d wind up with 120 or so states instead of 50.
The idea that 100 Senators and 450 Representatives are somehow sacred numbers is most of the problem with the governing of the nation. We have the same representation with 350 million people as when we had 150 million people. You can call that democracy if you wish, but it’s sure ain’t representative government.
If that sounds unmanageable, well that’s because it already is as bad as the EU – geographically within the US we don’t share moral, personal, nor economic values and we should stop pretending that we do or that we should.
To paraphrase The Clash, I want a Brexit of my own.
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Mish, price deflation has its own problems: specifically, consumer debt taken on under false assumptions of future income.
That may be what triggered the housing bubble crash, when under the case of restricting availability of energy and goods, inflation was set to zero by the Fed. At that point, the wages had to crash.
Wages crash, and repayment of debt must crash.
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The system is structured such that debt is a binding, legal contract, enforceable by law. Your wages, unless you are union or executive management, are not.
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The fall of the Illinois Empire. See fall of the Roman Empire.
These cycles repeat over and over and over again. Mish had a housing bubble graph- “you are here”, comparing the point at which the U.S. bubble was, compared with a previous bubble. Illinois is at a certain “you are here” moment.
“You are here”, in the fourth Turning.
ZH headline: “The Powers-That-Be Have Looted Everything” – Greek Farmers Fight Riot Police With Shepherd Crooks
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“Negative Amortization”
…
No good comes out it. None.
Just a means for banksters to kick the can a bit further …. until the hole is so deep that taxpayers will be forced to backfill …. if not, civilization will end as we know it ….
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How do they keep this POS afloat anyway?
If I lived in Illinois I would start planning my escape today. Sooner or later they are going to call this a catastrophic emergency that requires an immediate taxpayer bailout – just like TARP.
And they are going to tack on a HUGE tax when you sell your home in an effort to keep you in the state.
Get out NOW!
Save yourselves!
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