STUMP » Articles » Public Finance Round-Up: Trade-offs, Chicago, Pensions, and More

Public Finance Round-Up: Trade-offs, Chicago, Pensions, and More

by meep

18 May 2019, 09:47

Remember how I mentioned some Spokane teachers got a raise…and then others got fired?

Well, the same thing has happened in Houston, to firefighters.

How Can a City Issue Pay Raises and Layoff Notices in the Same Week?

Houston’s standoff over pay parity between firefighters and police officers is coming to a crescendo after more than a year of legal battles and political posturing.

This week, thousands of firefighters received pay raises thanks to a voter-approved law to give them equal pay compared with police officers of the same rank.

But no one’s celebrating.

The raises came along with 220 layoffs — nearly 6 percent of the force — and 454 demotions within the city’s fire department. Mayor Sylvester Turner has said this was the only way the city could afford the roughly $80 million per year in additional costs.

Funny how that works.

ILLINOIS BUDGET BROU-HA-HA

The next bit is why I’m splitting this off from Taxing Tuesday.

Nothing funny about Illinois’ budget mess

The fact that the Illinois budget situation has become a farce is no laughing matter to Ted Dabrowski.

“What’s sad about Illinois is whether or not the state has a budget in place really doesn’t matter because it’s never balanced and it doesn’t tell the truth about the state,” the president of online political news publisher Wirepoints told Prairie State Wire. “Politicians are always finding ways to hide billions in spending outside the eyes of residents. Even if the budget is done on time, it doesn’t mean it’s good for Illinois because it never covers the cost of retirement or how much the state is really spending.”
…..
“Them and the legislators who ultimately get the big spending in their districts by not telling the public the truth, and the unions who benefit from all the overspending,” he said. “The winners are the people who benefit based on what’s in these budgets.”

Dabrowski said that major policy changes are the state’s only chance to get back on a sustainable course.

“We would have to have big changes in government because right now the politicians have things exactly the way they want them,” he said. “Illinois hasn’t had a truly balanced budget since 2001. The only way we will have real change now is when fiscal reality truly hits the state.”

I’ve got a lot of Illinois finance stories, and I’m just going to dump a few of them here. Enjoy.

I don’t feel like writing about the (current) problem with Puerto Rico, and its effect on munis. It’s still in process.

But the point is: holders of government bonds have found that when it comes between paying the bondholders and paying the pensions, generally the bondholders will get shafted.

GOOD LUCK TO CHICAGO’S NEW MAYOR

It’s a sucker’s game, at this point, to become the mayor of Chicago. I wish Lori Lightfoot well, as she’s going to be having a hell of a time. She does have the opportunity to be like Giuliani in getting things cleaned up… but I don’t think the crime problem is going to be cleaned up by her. The finance situation….sorry, also no.

The one thing she might be able to fix is the little fiefdoms of the aldermen, given that yet another alderman has been arrested. (Okay, he’s a soon-to-be ex-alderman in any case.) Currently, 4 Chicago aldermen are out on bond.

But the biggest problem of them all is the money. Yes, pensions are a huge part of that.

Let me just pick one of many stories to quote on the situation Lightfoot is facing:

Chicago’s 2020 budget shortfall may be more than $200 million larger than Mayor-elect Lori Lightfoot expected

Mayor-elect Lori Lightfoot could need to come up with more than $200 million beyond what Mayor Rahm Emanuel previously estimated in the 2020 city budget to cover higher pension payments and costs previously covered with expensive borrowing, Emanuel’s chief financial officer said Wednesday.

That would push the budget shortfall Lightfoot faces north of $700 million, higher-than-expected costs the incoming mayor didn’t know about until recently.

The city’s pension investments performed badly at the end of 2018 as the stock market took a dive, Chief Financial Officer Carole Brown said. That led to a negative rate of return that will force the Lightfoot administration to come up with perhaps an additional $100 million as the city shifts to actuarially based pension payments in 2020, Brown said.

In addition, the city’s move away from so-called “scoop-and-toss” borrowing — the practice of paying off old debt by creating new debt — under Emanuel has forced the outgoing administration to find new ways to pay down debt, Brown said. While last year the city’s sales tax revenue was higher than expected and covered those additional expenses, early estimates indicate there will be a need for around $130 million more to cover those bond payments in 2020, Brown said.

The city last year projected the day-to-day operating budget shortfall for 2020 would be just shy of $252 million. That figure did not include an anticipated spike of $276 million in contributions to the pension funds for police officers and firefighters.

So, it was expected that when Lightfoot took office and prepared her 2020 budget, she would have to come up with a combined $528 million in tax increases and budget cuts.

But the increase in pension contributions was an estimate, based partly on an expected return of 7 percent on current investments in the police and fire pension funds. As it turned out, those funds lost money in 2018, which in turn requires the city to increase its contributions.

Now, if the Chicago pensions had been well-funded all along, the hit would not have been as great. If, after years of a bull market, the pensions had been sitting at 100% funded, having a negative 5% or so return would have dinged the pensions only a little bit. The shortfall could easily be amortized over the average working life of participants (which is less than 30 years, y’all).

Anyway, best wishes to Chicago and Lightfoot. It’s going to be rough.

More Chicago finance stories:

Chicago says IL comptroller wrongly intercepting millions in state grant dollars over pensions
Radio: Chicago’s Debt Is Worse Than You Thought
Chicago Mayor-elect Lightfoot names her fiscal team
Chicago Sun-Times: Rahm Emanuel’s financial legacy: He left the city better off than he found it
Politifact: No, Chicago isn’t ‘often bailed out’ by Illinois taxpayers
Chicago Sun-Times: Lightfoot says budget shortfall more ‘dire’ than she thought, but how much more?
Bloomberg Tax: Chicago’s Incoming Mayor Faces Revenue Reckoning

Just because I link a story doesn’t mean I agree with it or I think it accords with reality in any way. That’s true for any of my posts, btw. Sometimes I don’t feel like making an explicit comment about what I think.

But I bet you can tell which of the above stories I find to be utter bullshit.

NO SURPRISE: BIG CITIES IN BIG DEBT

Of course, Chicago leads the way (as it were) for cities in the hole, but it’s not the only one with trouble:

Our Largest Cities, Many of Them Democrat Strongholds, Are Drowning in Municipal Debt

America’s 10 largest cities, largely Democrat strongholds, are drowning in municipal debt, according to a new report from government watchdog Truth in Accounting.

The report sought out “to determine what … overlapping financial entities mean for taxpayers’ bottom line.”

Truth in Accounting said its purpose was to “calculate the various bills (and surpluses, when available) at the city government level and divide them out to determine a per-Taxpayer Burden.”

The two cities with the highest burden are Chicago and New York City.

Chicago’s combined taxpayer burden is $119,110 — while New York City’s combined taxpayer burden is $85,600.

That is per taxpayer, mind you.

Note that Chicago’s per taxpayer burden is 40% higher than NYC’s. Oof.

The report questioned if cities’ annual financial reports “comprehensively track municipal accounts such as school districts, transit agencies, utility systems, etc.”

Annual financial reports “for a city [don’t] present the full picture of their fiscal position, and is deceptive to the public,” the report said.

Tolstoy wrote that all happy families are alike, but unhappy families differ. Well, for cities, the “unhappy” cities seem to be pretty much the same: Democrat-dominated, high-tax, debt-heavy, and population-challenged (as in, people keep leaving).

You can get to the full report via this link.

STUMP » Articles » Public Finance Round-Up: Trade-offs, Chicago, Pensions, and More » 18 May 2019, 09:47

Public Finance Round-Up: Trade-offs, Chicago, Pensions, and More