STUMP » Articles » Chicago and Illinois Update: Summer 2019 Catch-Up Edition » 21 September 2019, 17:33

Where Stu & MP spout off about everything.

Chicago and Illinois Update: Summer 2019 Catch-Up Edition  

by

21 September 2019, 17:33

I’ve not been blogging about Chicago/Illinois pensions much this summer… mainly because I’ve been very busy and been having pain issues. (I’m trying a new treatment next Thursday…here’s hoping it works!)

But it seems like a good time to do a summer wrap-up over what’s been going on. Especially since summer ends on Sunday.

I started this post back in the beginning of July, to give you an idea (I have 20 other posts in draft, too).

But first… a darkly amusing cartoon.

NOT A FINE BOI, THAT’S FOR SURE

Eric Allie at the Illinois Policy Institute:

If you are not familiar with the meme, here’s some background.

THE STORY, IN SHORT: CHICAGO AND ILLINOIS FINANCES ARE SCREWED

Let me set the scene. I’ve blogged extensively about both Chicago and Illinois finances since the beginning of this blog.

These finances are not appreciably better than the last time I blogged about it. Both Chicago and Illinois have amassed ginormous pension obligations, not to mention that they’ve been having to issue bonds to cover other operational costs (people keep forgetting pension contributions are operational, not capital, costs).

While both the city and state look to increase taxes to cover some of these legacy costs, as well as to feed whatever goodies-packed agenda the new mayor of Chicago (Lori Lightfoot) and new governor of Illinois (JB Pritzker) have in mind. While they are attempting to tax, the Illinois taxpayers are increasingly becoming ex-Illinois taxpayers.

The following things have happened this summer:

  • New mayor Lightfoot took a look at Chicago finances, “hinted” at a state bailout, and new-ish governor Pritzker said no. She has tried this a couple times.
  • Downstate (aka not Cook County or Chicago) pensions are not in much better condition than Chicago’s. Some have been touting a consolidation of these loads-of-little-plans… and maybe a state bailout.
  • During Rauner’s term, a bill limiting teacher pension spiking was passed. This has been undone under Pritzker.
  • Chicago teachers are threatening a strike. Because money. Which we know Chicago is flowing in.
  • Both the city and state CAFRs were late. The city’s was late by about a week or so. The state’s… I believe it was over a month.
  • There has been a minor brou-ha-ha over one of the items in the Illinois CAFR, as a liability that had not been explicitly counted for is now on the balance sheet. And officials act like it’s nothing important.
  • A lawsuit over Illinois bonds was thrown out of court. The lawsuits were based on the point that the bonds weren’t legitimately issued due to a number of conditions (exceeding state debt limit, not a specified purpose)
  • There is no way in hell Chicago can cover the pension contribution schedule that Rahm Emanuel had agreed to when he was mayor. Nor pay whatever the teachers want. Forget about the other public employee groups.
  • Pritzker has been hawking a progressive income tax for the state, which requires amending the Illinois state constitution. The state income tax is currently flat rate, as per the constitution.
  • Some have noted that if you’re going to open up the state constitution for amendment, why not amend the pension protection clause? As things stand, even COLAs and co-pays can’t be adjusted, even decades before someone retires.

I believe that covers most of the finance-related bases.

Below, I am going to group Chicago & Illinois stories since July, based on the threads I have at the Actuarial Outpost (it’s just easier, and I’ll provide you with the thread link for each one). These will be in no particular order. Some items may have popped up in Taxing Tuesday in prior weeks, but it does help to have everything in one place to look at.

CHICAGO DEBT WATCH

Chicago debt watch thread at the Actuarial Outpost. It started in 2013, and I have never lacked for stories to fill it.

From that last, I will excerpt:

We have also started looking at our borrowing practices
and making changes there to save money. For example,
we will be replacing high-cost debt – kind of like how
homeowners refinance their mortgages – which we expect
will generate $100 million in savings alone.

Sigh. Okay, if you switch out higher-coupon bonds with lower-coupon/-yield ones, fine. That is a refinancing.

When I started as Mayor on May 20th, we walked into a
projected deficit for next year of $1 billion. Yes, that’s
Billion with a B.

As a result of all of the efforts we have made to date, and
changes in our forecasting, that number has decreased by
almost $200 million dollars. But that still means that the
budget gap for 2020 is $838 million.

…..
A third of the gap comes from increased pension costs.

Another third increased labor costs

So… you’re looking at increasing those costs?

To put this into perspective, folks, for every dollar you
pay to the city, 80 cents goes to pay for the cost of
personnel and benefits, along with pensions.

So, how much of that 80 cents goes to the old pension liabilities?

But let me be clear: I don’t see the provision of pensions
or city workers as the problem. The key problem is the
decades’ long failure to meet our pension obligations and
fix the structural problems that have led to this crisis.

…..
While we are working toward balancing this year’s
revenue with this year’s costs, two years from now – in
2021 – we will have to figure out how to pay for the
increased annual cost of over $200 million for public
safety services.

Followed by another increase of $400 million for our
municipal and labor pensions the year after that.
In other words, no matter what we do for this coming
budget, Chicago will be on the hook for over half-a-billion
in new pension obligations over the next three
years.

But as I made clear many times, pension obligations are a
challenge we must meet. Dedicated city workers have
fulfilled their careers with the agreement that they will
retire with the dignity and the certainty pensions afford.

Our obligations are not optional.

And I will take every action necessary to fulfill the
promise we made.

Including declaring bankruptcy? Oh wait, that would mean cutting promises.

But it will inevitably occur, because Chicago can’t actually afford the pensions.

She does go on to talking about the other Illinois towns having pension problems. Yep, I would say almost all of them are. So you can all be bankrupts together.

ILLINOIS DEBT WATCH

Illinois debt watch thread at the Actuarial Outpost. That has been going on since 2010.

By the way, in the CAFR press release, we get this:

A primary reason for delay in the release of the fiscal year 2018 CAFR was the need for the new administration to try to piece together data lost by an IT vendor working for the previous administration’s departments of Healthcare and Family Services and Human Services.

This text looks odd on the press release page, on my browser:

I don’t think it means anything, other than some sort of clumsy copy & paste or something. It popped out in the page while I read it.

As for something more substantive: I find the OPEB brou-ha-ha interesting. The PR person for the state comptroller wrote:

Had your columnist Jim Dey called the Illinois Office of Comptroller for comment before accusing us of “an intentional misdirection play” in his Sept. 10 column, we might have been able to save him from getting his facts wrong and misleading News-Gazette readers.

He bought hook, line and sinker the (Dey’s word) “apocalyptic” rantings of a fringe website that our office highlighted only rosy economic news from the Comprehensive Annual Financial Report (CAFR) because we wanted to make Gov. J.B. Pritzker look good and former Gov. Bruce Rauner look bad.
….
“The state’s total assets were approximately $53.9 billion on June 30, 2018, a decrease of $400 million from June 30, 2017. The state’s total liabilities were approximately $248.1 billion on June 30, 2018, an increase of $33.3 billion from June 30, 2017. The state’s largest liability balances are the net pension liability of $133.6 billion and the other post-employment benefits (OPEB) liability of $55.2 billion.”

That $55.2 billion OPEB number is a new calculation required to be included in every state’s CAFR’s this year, which made most states’ numbers jump, as did most states’ pension debt projections. That was all in our news release and extensively detailed in the CAFR itself.

Comptroller Mendoza has been outspoken about Illinois’ need to address its pension shortfall.

So I do want to point this out to everybody: all states are likely to see jumps in their officially reported liabilities this year. Before this year, most states would record the payments for retiree health benefits for that year, but not record the value of the retiree health care promises made.

Now, some states have not tested the ability to cut retiree health benefits (and some have). Illinois is not allowed to cut a damn thing, so they should have been reporting this liability every year since the dumbass court decision that Illinois is not even allowed to bump up co-pays on retiree healthcare.

I remember various pension actuaries telling me that OPEBs (that’s other-than-pension employee retirement benefits) are easily cut, unlike pension promises. Well, that’s not been true for Illinois for five years. From accounting principles alone, they should have been booking this liability since fiscal year 2014.

But, of course, many states have not recorded the value of OPEBs until this year (fiscal year 2018 reporting), once they’re being forced to.

These liabilities have been sitting there the entire time. It’s not a real “loss” because the liability has just been recognized. But it does look ugly on the paper, doesn’t it?

CHICAGO PUBLIC PENSIONS

2019 public pensions watch thread at the Actuarial Outpost. I’ve been making these threads since 2009, and I have to create a new one each year. Originally, I was going to have it be one big thread… until somebody complained about it going over 1000 posts.

As I type this, the 2019 Public Pensions thread is over 1600 posts. Yes, most are by me, and most are just links & copy/paste of pieces. If you ever just want to read stories, go there. I hoover up a bunch of stuff I never blog about.

Re: the concept of a state bailout of Chicago (and downstate pensions…)

Really?

Is the bigger bankrupt supposed to bail out the smaller bankrupt?

How is that supposed to work?

ILLINOIS PUBLIC PENSIONS

2019 public pensions watch thread at the Actuarial Outpost. Yup, same thread, but I’ll try not to repeat the stories from above.

And that’s all I wrote.

Okay, it’s not all. I omitted some of the posts, just due to repetition. I don’t need to share all the pieces on the teachers pension spiking bill.

This was idiotic.

Illinois teachers pension… is not well funded.

AN ANNOUNCEMENT: NEW PROJECTIONS

As mentioned earlier, I wanted to look back at what happened (or, rather, didn’t happen) this summer re: Chicago and Illinois, because some things are about to happen.

First, the aforementioned teachers strike. Chicago really can’t afford to give the CTU a damn thing – the Chicago Teachers pension gives you a good idea of the problem. Let’s ignore the funded ratio for now… this is the contribution pattern:

Do you think that Chicago can afford a pension plan where the cost is 40% of payroll?

Second, there have been reports coming out and I know one is coming out next week. I’ll want to use that.

Third — remember my cash flow model? Back in April 2017, I debuted my model by testing Chicago’s MEABF — and matched another projection for when the money would run out:

I now have two more years’ worth of data. I’m going to run the Illinois and Chicago pension funds again.

Will anything have changed? We’ll find out….


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