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The Fate of All Municipal Governments – Look to Peoria, Illinois

December 13, 2018

The Fate of All Municipal Governments – Look to Peoria, Illinois

The system we have is totally corrupt and it outright UNSUSTAINABLE!!!! In Illinois, the city of Peoria has been forced to eliminate 22 firefighter and 16 police positions even after they made 27 layoffs earlier this year. Besides eliminating employees, they are now looking at adding a tax of $50-$300 to try to cover their own pension schemes as pension spending consuming everything. Pension costs are forcing Peoria to cut 38 emergency worker positions and to raise property taxes further. Peoria joins the south Chicago suburb of Harvey which is yet another warning of what is coming over the next three years into 2021.

New York City Joins The “Imminent Bankruptcy” Club

November 2, 2018

New York City Joins The “Imminent Bankruptcy” Club

The “public pension crisis” is the kind of subject that’s easy to over-analyze, in part because there are so many different examples of bad behavior out there and in part because the aggregate damage these entities will do when they start blowing up is immense.

But most people see pensions as essentially an accounting issue – and therefore boring – so it doesn’t pay to go back to this particular well too often. Still, New York City’s missing $100 billion can’t be ignored:

New York City Owes Over $100 Billion for Retiree Health Care

(Bloomberg) – New York City faces future health costs for its retired workers of $103.2 billion, an increase of $40 billion over a decade. It has about $5 billion set aside to pay the bill.

The so-called “other post-employment benefits” liability was disclosed in New York’s comprehensive annual financial report released by the city comptroller’s office Wednesday. The city’s $98 billion unfunded liability for retiree health care exceeds the city’s $93 billion of bond debt and $48 billion pension-fund shortfall.

“The numbers are huge,” said Maria Doulis, a vice president at the Citizens Budget Commission, a budget watchdog group funded by the business community. “If you’re looking at the big three liabilities, this is the one that’s problematic, because there’s nothing set aside to address this and there’s absolutely no strategy on the part of the city.”

New York, the most populous U.S. city, has almost 300,000 current employees and is responsible for more than 230,000 retirees and their beneficiaries. City employees with 10 years of service qualify for free retiree health care.

The city’s post-employment benefits include health insurance, Medicare Part B reimbursements, and welfare fund contributions. Medicare Part B covers doctors’ services that are received from a federally approved facility or a medical practice. Welfare funds are administered by unions and provide supplemental benefits such as prescription drug, vision and dental coverage.

…click on the above link to read the rest of the article…

Moody’s: Illinois pension debt-to-revenue ratio hits all-time high for any state

September 1, 2018

Moody’s: Illinois pension debt-to-revenue ratio hits all-time high for any state

According to a new report by Moody’s Investors Service, Illinois’ unfunded pension liabilities equaled 601 percent of state revenues in 2017, a U.S. record.

Illinois’ pension debt has set a new record to which no state should aspire.

Credit ratings agency Moody’s Investors Service released a report Aug. 27 comparing unfunded pension liabilities across all U.S. states. According to the report, Illinois’ unfunded pension liabilities grew 25 percent in fiscal year 2017 to $250 billion. That equates to 601 percent of “own source” revenue, meaning money brought in by the state excluding federal funds. That ratio of pension debt to revenue is the highest on record for any U.S. state, according to Moody’s. The national median is 107 percent.

This matters much for the same reason banks look at an individual’s debt-to-income ratio when considering applications for a personal loan. Banks typically won’t issue a qualified mortgage to anyone with a debt-to-income ratio of more than 43 percent.

When a state’s pension debts far exceed its revenue, that means those debts are less likely to be repaid. Illinois’ inability to manage its pension system in a sustainable and affordable way is one of the main reasons both Moody’s and S&P Global Ratings put the Prairie State’s bond rating just one notch above “junk” status. The state’s credit rating has been downgraded 21 times since 2009, primarily due to runaway pension debt.

illinois credit rating downgrades

A low bond rating increases the cost of borrowing money for taxpayers and makes it difficult for state government to invest in core services residents want, such as needed infrastructure improvements.

Other measures of the state’s ability to repay pension debt tell a similarly bad story for Illinois. The state has the worst pension debt in the nation as a percentage of both GDP and personal income, which are broad economic measures that indicate how much money is being brought in by the funding sources for government expenditures: individual and corporate taxpayers.

…click on the above link to read the rest of the article…

Five Trillion Dollars! Doomed US Pensions’ Shortfall Now The Size Of Japan’s Economy

August 1, 2018

Five Trillion Dollars! Doomed US Pensions’ Shortfall Now The Size Of Japan’s Economy

Scores of public pensions across the United States are so massively underfunded that the shortfall is roughly equal to Japan’s GDP – the world’s third-largest economy, according to Moody’s Investors Service.

State and local pension plans in the U.S. now have less than three- quarters of the money they need to meet their promised payouts, their lowest level since at least 2001, according to Public Plans Database figures weighted by plan size. In dollar terms the hole for state and local pensions is now $5 trillion, according to Moody’s Investors Service. –WSJ

If governments don’t increase taxes, convince pensioners to take less than they were promised or divert funds from elsewhere, an increasing number of funds face insolvency, reports the Wall Street Journal.

In Kentucky, for example, a major pension for state employees had around 16% of what it needs to fulfill its obligations based on 2017 fiscal year figures, according to the Public Plans database which tracks state and local pension funds. A Chicago municipal employee fund had less than 30% of what it needed during the same fiscal year, while New Jersey’s state pension is so underfunded it faces insolvency in 12 years according to a Pew Charitable Trusts Study.

For an example of what happens when a pension hits a brick wall, look no further than Central Falls, Rhode Island – a city of 19,359 which was forced to cut monthly checks to retired police and firefighters by as much as 55% as the entire town tried to stave off bankruptcy. Alas, the town still filed in 2011 – and while its financial situation has improved, retired city employees aren’t getting their full pensions back.

Paul Grenon

…click on the above link to read the rest of the article…

Illinois to Impose 1% Property Tax on Top of Everything Annually for 30 Years

May 14, 2018

Illinois to Impose 1% Property Tax on Top of Everything Annually for 30 Years

 

In Illinois is a State that should just commit suicide and be emerged into surrounding states. It is following the EXACT pattern as the fall of the city of Rome itself. Constantine the Great moved the Roman capital from Rome to Constantinople around 330AD. Rome lost its status as corruption and taxes rose. More and more people just walked away from their property for there was NO BID.

Property values are already collapsing in Illinois.  The Pension Crisis is worldwide, but Illinois is leading the charge. The words of Edward Gibbon from his Decline & Fall of the Roman Empire are very applicable to Chicago. This is how empires, nations, and city-states die. It is always the abuse of taxation that drives people from their homes. Illinois is the NUMBER ONE state that now has a NET loss of citizens and people are fleeing that state. Bureaucrats cannot see the trend any more than they can see their own nose. They only see raising taxes. To them there is just no other way. They come first. Gibbon wrote:

“Her primeval state, such as she -might–appear in a remote age, when Evander entertained the stranger of Troy, has been delineated by the fancy of Virgil. This Tarpeian rock was then a savage and solitary thicket; in the time of the poet, it was crowned with the golden roofs of a temple, the temple is overthrown, the gold has been pillaged, the wheel of Fortune has accomplished her revolution, and the sacred ground is again disfigured with thorns and brambles. The hill of the Capitol, on which we sit, was formerly the head of the Roman Empire, the citadel of the earth, the terror of kings; illustrated by the footsteps of so many triumphs, enriched with the spoils and tributes of so many nations. 

…click on the above link to read the rest of the article…

Full Faith and Credit in Counterfeit Money

May 4, 2018

Full Faith and Credit in Counterfeit Money

There are nooks and corners in every city where talk is cheap and scandal is honorable.  The Alley, in Downtown Los Angeles, is a magical place where shrewd entrepreneurs, shameless salesmen, and downright hucksters coexist in symbiotic disharmony.  Fakes, fugazis, and knock-offs galore, pack the roll-up storefronts with sparkle and shimmer.

Several weeks ago, the LAPD seized $700,000 worth of counterfeit cosmetics from 21 different Alley businesses.  Apparently, some of the bogus makeup products – which were packaged to look like trendy brands MAC, NARS, Kyle Cosmetics, and more – were found to contain human and animal excrement.

“The best price is not always the best deal!” remarked Police Captain Marc Reina via Twitter.  Did you hear that, General Electric shareholders?

Yet the Alley, for all its dubious bustle, offers a useful public service.  It provides an efficient calibration for the greater world at large; a world that’s less upright and truthful than an honest man could ever self-prepare for.  In 30-seconds or less, the Alley will impart several essential lessons:

The price you’re first quoted is the sucker’s price.  To negotiate effectively, you must appear to care far less about buying than the merchant cares about selling.  Don’t trust someone that says, “trust me.”  And, most importantly, don’t believe what you see and read…or what you hear.

Reality Bites

For everything worthwhile, there exists a counterfeit.  This modest insight extends well beyond the boundaries of flea markets and tent bazaars.  It extends outward to news, money, prescription drugs, wars, public schools, Congress, corn ethanol, medical insurance, public pensions – you name it.  There’s plenty of fraud, phony, and fake going on.

For example, in the year 2018, the most reputable news outlets have been reduced to mere purveyors of propaganda.  The stories they spread are stories of fiction.

…click on the above link to read the rest of the article…

Our Approaching Winter of Discontent

February 16, 2018

Our Approaching Winter of Discontent

The tragedy is so few act when the collapse is predictably inevitable, but not yet manifesting in daily life.

That chill you feel in the financial weather presages an unprecedented–and for most people, unexpectedly severe–winter of discontent. Rather than sugarcoat what’s coming, let’s speak plainly for a change: none of the promises that have been made to you will be kept.

This includes explicit promises to provide income security and healthcare entitlements, etc., and implicit promises that don’t need to be stated: a currency that holds its value, high-functioning public infrastructure, etc.

Nearly “free” (to you) healthcare: no.

Generous public pensions: no.

Social Security with an equivalent purchasing power to the checks issued today: no.

As for the implicit promises:

A national currency that holds its value into the future: no.

High-functioning public infrastructure: maybe in a few places, but not something to be taken for granted everywhere.

A working democracy in which common citizens can affect change even if the power structure defends a dysfunctional and corrupt status quo: no.

A higher education system that prepares its graduates for secure jobs in the real-world economy: on average, no.

Cheap, abundant fossil fuels and electricity: during recessionary head-fakes, yes; but as a permanent entitlement: no.

High returns on conventional capital (the kind created and distributed by central banks): no.

A government that can borrow endless trillions of dollars with no impact on interest rates or the real economy: no.

Pay raises that keep up with real-world inflation: no.

Ever-rising corporate profits: no.

You get the idea: the status quo will be unable to keep the myriad promises made to the public, implicitly and explicitly. The reason is not difficult to understand:

…click on the above link to read the rest of the article…

$1.2 Trillion Asset Manager: Forget Volatility, The Real Financial Timebomb Is Public Pensions

February 13, 2018

$1.2 Trillion Asset Manager: Forget Volatility, The Real Financial Timebomb Is Public Pensions

As we have reported over and over and over (and over, and over), public pensions are in deep, deep trouble.

In addition critical funding shortfalls (U.S. public pensions had just 71.8% of assets required to meet obligations as of June 2016), many of the country’s largest pensions have completely unrealistic target rates-of-return of 7% on average.

(Millman 2017 Public Pension Funding Study)

And while interest rates and therefore the cost of leverage has been at historic lows, and markets at historic highs (until they underwent a brief Vol-fib cardiac arrest last week), the question is what happens when the music stops, liquidity dries up, and economic contraction besets (or catch up to) the markets?

David Hunt, CEO of $1.2 trillion asset manager PGIM, is asking this exact question.

“If you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list,” Hunt said in a Friday interview with Bloomberg, discussing what municipalities and states will do when local tax revenues decline and unemployment worsens. “So we’re worried about those pension obligations.”

PGIM, owned by New Jersey-based Prudential Financial, advises 147 of the 300 largest pension funds around the world. Hunt joined Prudential in 2011 after leaving McKinsey & Co., where he doubled assets under management, renamed the business PGIM, and bought a Deutsche Bank AG unit to expand in India.

In other words, he knows the business like the back of his hand.

Hunt said that corporate retirement funds typically outperform their public counterparts. To that end, one of the most difficult aspects of managing money for public plans, says Hunt, is the fact that lawmakers are promising unrealistic goals to retirees. 

…click on the above link to read the rest of the article…

What Could Go Wrong? For Public Pensions, More Than You Know

September 28, 2017

What Could Go Wrong? For Public Pensions, More Than You Know

Here’s a loaded question for you: “What could go wrong?”

In some contexts, it can express mistaken confidence, as in, “Sure I’ll put my hand between that crocodile’s jaws. What could go wrong?”

Investors should ask the same question before entering a position. “What risks am I taking with this trade? What could go wrong if it doesn’t go as planned?”

But here’s the problem: What if you never think to ask the question because you have no idea you’re in that trade?

And guess what—this is your problem if you are a taxpayer anywhere in the US.


Photo: DWS via Flickr

Pension Pain

Part of my job is helping John Mauldin with the research for his Thoughts from the Frontline letters. Regular readers know John isn’t a doom-and-gloom guru. He’s optimistic on most of our big challenges.

Except for a few things—like the brewing state and local pension crisis.

The more John and I dig into it, the worse it looks. We have both spent many hours trying to find any good news or a silver lining, without success.

All over the US, states, cities, school districts, and other governmental entities have promised their workers generous retirement benefits, but haven’t set aside enough cash to pay what they will owe. At some point, perhaps soon, either they will have to cut benefits to retirees or stick taxpayers with a huge bill, or both.

You can read John’s September 16 letter, Pension Storm Warning, to learn more. Then you’ll see why he says to Build Your Economic Storm Shelter Now.

What else could go wrong? Plenty.

…click on the above link to read the rest of the article…

Pension Shocker: Plans Face $2 Trillion Shortfall, Moody’s Says

July 19, 2015

Pension Shocker: Plans Face $2 Trillion Shortfall, Moody’s Says

Last month, in “Cities, States Shun Moody’s For Blowing The Whistle On Pension Liabilities,” we highlighted a rift between Moody’s and some local governments over the return assumptions for public pension plans.

To recap, when it comes to underfunded pension liabilities, one major concern is that in a world characterized by ZIRP and NIRP, it’s not entirely clear that public pension funds are using realistic investment return assumptions. The lower the return assumption, the larger the unfunded liability. After 2008, Moody’s stopped relying on the investment return assumptions of cities and states opting instead to use its own models. Unsurprisingly, this led the ratings agency to adopt a much less favorable view of state and local government finances and as WSJ reported, rather than admit that their return assumptions are indeed unrealistic, local governments have opted to drop Moody’s instead.

The debate underscores a larger problem in America. Almost half of the states in the union are facingbudget deficits.

Underfunded pension liabilities are one factor, but the reasons for the pervasive shortfall vary from plunging oil revenues to plain old fiscal mismanagement. The pension issue gained national attention after an Illinois Supreme Court decision threw the future of pension reform into question and effectively set a precedent for other states, sending state and local officials back to the drawing board in terms of figuring out how to plug budget gaps. One option is what we have called the “pension ponzi” which involves the issuance of pension obligation bonds. Here is all you need to know about that option:

…click on the above link to read the rest of the article…

 

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