STUMP » Articles » Chicago Watch: Reactions to Loss of Pension Court Case (and other stuff) » 26 March 2016, 01:42

I’ve said (for now) what I want to say:

• Chicago Watch: Money Money Money…also, there went their plans
• Public Pensions Watch: On COLAs (and Chicago)
  

Let’s see what others have to say.

WALL STREET JOURNAL: LET IT BURN

Chicago Pension Nightmare:

The hits keep coming for Chicago Mayor Rahm Emanuel. On Thursday the Illinois Supreme Court struck down the city’s pension reform, which required city workers to chip in more to their retirement plans, raised the retirement age and cut back on cost-of-living adjustments. But there may be a silver lining for the fiscal basket case known as Illinois.

….
The ruling may be better news for Illinois Governor Bruce Rauner, who has been trying to reform the state pensions amid a hostile Democratic legislature. The court said in its Chicago ruling that a reform would be constitutional if workers had a choice to go into a modified or lower-benefit structure.

Mr. Rauner has endorsed the outline of a plan created by state Senate President John Cullerton that would let workers choose between capping their pensionable salary and collecting more generous cost-of-living increases during retirement, or collecting slightly lower cost-of-living increases during retirement based on a higher pensionable salary.

Mr. Cullerton has since distanced himself from his own handiwork under union pressure, but something will have to give or Illinois and the City of Big Unfunded Pension Obligations will go broke.

It will go broke. But that’s just my sunny self.

VARIETY OF REACTIONS IN NEWS STORY

From Bond Buyer, Court Ruling Leaves Chicago Empty-Handed on Pensions:

I’m going to pull all the quotes from this piece:

“As we have explained, under the [constitution’s pension] clause, a public employee’s membership in a pension system is an enforceable contractual relationship, and the employee has a constitutionally protected right to the benefits of that contractual relationship,” the court wrote. “Thus, under its plain and unambiguous language, the clause prohibits the General Assembly from unilaterally reducing or eliminating the pension benefits conferred by membership in the pension system.”

….
“In the short run it buys them some relief and time but the city has had time to prepare for the decision and the market is going to expect a quick reaction from the city on what its contingency plan is,” said Richard Ciccarone, president of Merritt Research Services LLC.
….
“My administration will continue to work with our labor partners on a shared path forward that preserves and protects the municipal and laborers’ pension funds, while continuing to be fair to Chicago taxpayers and ensuring the city’s long-term financial health,” [Rahm Emanuel’s] statement said.
….
“Moody’s will continue assessing Chicago’s actions to address unfunded pension liabilities,” Moody’s analyst Matthew Butler said in a statement after the ruling, “including any initiatives specifically aimed at the plans affected by today’s court decision.”
….
The Civic Federation of Chicago warns that the ruling “limits the options available to financially strained local governments throughout the state and points to the need for a constitutional amendment to clarify the State’s pension protection clause.”

“This should be yet another wakeup call to every member of the Illinois General Assembly and the Governor that they need to come together and work without delay to pass a balanced budget that will stabilize the state of Illinois financially and begin to address the pension and debt crises of the City of Chicago and so many local governments in our State,” the federation added.

….
“It’s long past time for elected officials to stop trying to end-run the constitution and shirk their duty. Pension funding challenges require funding solutions that must be constitutional and fair to all,” the four unions that mounted the successful challenge said in a joint statement.

…..
“The fact is taxes cannot be the only part of the solution,” Ciccarone said, saying some cuts are also needed and other forms of union concessions. “We are in store for higher taxes but I think the next area the city has to bargain on is issues of pay.”

…..
“In addition to growing leverage, we also continue to assess the role that fiscal stress of Chicago Public Schools plays in the city of Chicago’s credit challenges,” Moody’s said Thursday.
….
It marked the court’s third ruling that has affirmed the strength of the pension clause’ protections, first in a ruling that the clause applies to state employee retiree healthcare benefits and then in the 2015 decision voiding state pension reforms.

I think this outcome was pretty much expected by everybody. It would have been a surprise if the ruling had turned out any other way.

MARK BROWN AT SUN-TIMES: SAME AS IT EVER WAS

Pension decision sends city back to square none

Mayor Rahm Emanuel and the city pension crisis landed back at square one Thursday, the main difference being that square one is now located in a deeper hole than when Emanuel took over as mayor five years ago.

Emanuel is not really to blame for this any more than the city workers and retirees who are owed the money or the Illinois Supreme Court that explained again Thursday that the city is obligated under the state Constitution to make good on its past pension promises, no matter how unrealistic.

….
Emanuel, who surely knew this day was coming as the court’s ruling was no surprise, must have developed a Plan B by now. Or are we already on Plan C? I’ve lost track.

….
Lawyers for the administration had contended that if the Municipal Employees and Laborers pension funds are allowed to continue on their present trajectory and run out of money in another decade or so, it won’t be the city’s responsibility to make good on the liabilities because the pension funds are separate legal entities.

The Supreme Court clarified that even if the pension funds become insolvent, and arguably they already are, it’s the city that is ultimately obligated to come up with the money to pay the benefits owed to its retirees.

The court doesn’t say how the city should pay these benefits, only that it is responsible for doing so.

And that leads us back to where we started.

Shows the futility of the courts.

COURT: You must pay the pensions!

TAXPAYERS: But we can’t pay the pensions!

COURT: You must pay the pensions!

TAXPAYERS: But we can’t pay the pensions!
….
….
[time passes]

[court and taxpayers look around for someone to say “I’ll pay the pensions!”]

[keep waiting]

[watches a Youtube video]

[keeps waiting]

ILLINOIS POLICY INSTITUTE: THERE’S STILL HOPE!

They find an out (that a few others have also remarked on).

LLINOIS SUPREME COURT STRIKES DOWN CHICAGO PENSION REFORM BUT OPENS DOOR FOR OTHER CHANGES:

While striking down modest reforms to Chicago city-worker pensions, the Illinois Supreme Court has effectively given state lawmakers the green light on other avenues for pension reform.

….
In trying to defend its reforms, the city used an argument that advocates of pension reform have long made: that the government can make changes to pension benefits “for consideration,” meaning the state can reduce an employee’s pension benefits if the employee voluntarily agrees to the reduction in exchange for some new benefit. The Illinois Appellate Court has said this would be permissible, but the Illinois Supreme Court has never directly addressed it.

The city argued that there was bargained-for consideration in this case because workers received a new benefit in the form of a funding guarantee. The “bargain” supposedly occurred when representatives of city-worker unions allegedly met and 28 of the 31 representatives voted to approve the changes.

The court correctly rejected that argument because the unions could not bind their members through that vote, which was not part of collective bargaining with the city.

But the court did acknowledge that “nothing prohibits an employee from knowingly and voluntarily agreeing to modify pension benefits from an employer in exchange for valid consideration from the employer.” That effectively gives the Illinois General Assembly the green light to pass reforms giving workers the option to trade some of their long-term pension benefits for less costly short-term benefits.

The decision also leaves open the possibility that unions could agree to such changes on their members’ behalf if they did it through a collective-bargaining agreement. That could make large-scale changes easier. And it should be permissible because workers represented by a union give the union the right to make a contract on their behalf through collective bargaining.

Could they do that for people already retired? Does the union represent them?

The reason I ask is that the retiree benefit, at least for some of the Chicago plans, has a value higher than are in the pension funds right now.

Those COLAs I mentioned: they kill not only because of future benefits, but due to retirees already taking benefits. The Chicago reform touched not only changes for current employees, but current retirees.

Here’s another take from somebody else at the Illinois Policy Institute:

CHICAGO TAXES TO KEEP RISING

This one wasn’t only about the court case.

6 REASONS WHY CHICAGO TAXES WILL KEEP GOING UP:

I will excerpt:

1. Emanuel’s modest law to reform the city’s municipal and laborer pension funds didn’t survive Illinois Supreme Court scrutiny.
….
2. The city budget is counting on legislation from Springfield to delay more than $220 million in pension payments to Chicago’s police and fire pension funds.
….
3. CPS has a $1.1 billion structural deficit and no plans to reform its spending this fiscal year. Instead, it continues to rely on Springfield for a $480 million operating bailout.
…..
4. The city and CPS have nearly maxed out their ability to borrow.
….
5. The Chicago Teachers Union is threatening another strike as a follow-up to their weeklong walkout in 2012.
….
6. CPS also continues its practice of borrowing more money to pay for old debt – what’s known as “scoop and toss.”

It doesn’t look like this is changing any time soon.

Until they actually go bankrupt.

GOVERNING: YEAH, CHICAGO IS SCREWED

Chicago’s Shockingly Bad Finances
:

You’ve probably read headlines about the Windy City’s financial woes. About how Chicago’s years of borrowing to pay for its operations has finally caught up to it. About how inadequate funding of its pensions has saddled it with huge annual payments.

But unless you’ve been paying close attention, chances are Chicago is worse off than you think.

The numbers are staggering. The city has about $34 billion in outstanding debt, with roughly $20 billion of that coming from its five pension plans. That’s compared with a little more than $9 billion total annual budget. The teachers’ retirement fund is short about $9.6 billion and owes an additional $6 billion to bondholders. The outstanding bonds alone exceed the system’s annual $5.8 billion budget. Overall, Chicago Public Schools has struggled to sell enough bond debt to get through the current year, and the system is even facing a possible state takeover. Both the city and the school system’s credit ratings have been downgraded to junk status.

It’s an overwhelming set of problems, but not an unsolvable one. Chicago has a stable and growing economy. It is not Detroit, whose bonds are also rated as junk, with a shrinking population and a declining job base. In the coming years, Chicago’s chief challenge will be figuring out how to end its decades-long tradition of charging city expenses to future generations of taxpayers.

….
Right-sizing Chicago’s debt at this late stage is no easy task. Last year, freshly re-elected Mayor Rahm Emanuel pushed through the largest property tax hike in decades. It’s expected to raise more than $588 million annually after it is fully implemented over four years, and the proceeds will go toward the city’s pension payments.

But many say the half-billion-dollar infusion is just one step on the road to recovery. For one, the tax increase, which represents a 70 percent hike in city property taxes, won’t completely shore up the city’s pension funds. And in March, the state Supreme Court struck down the city’s attempt to increase employee pension contributions and reduce cost-of-living increases for retirees. Without those in place, Chicago will likely face hundreds of millions more in pension costs.

The city could raise more revenue through additional tax increases. But that would be a big feat, given the controversy over last year’s property tax hike. Chicago has long prided itself on being a lower-tax city: Even with last year’s increase, Chicago homeowners still pay less in property taxes than their counterparts in the suburbs, according to a Chicago Tribune analysis. Raise taxes too much, and the middle class could flee.

Well, perhaps if you want to be an affordable city, you can’t afford to have the public employees living high on the pension hog, eh?

This is the thing. New York City is expensive. It’s expensive in services, and it’s expensive in taxes. So that’s well-matched. Some cities are cheap on taxes — and cheap on their expenditures on local services. That matches, too.

But expensive services and low taxes doesn’t quite mesh.

Maybe Chicago could try being the Second City again.

PENSION PULSE: ALL PENSIONS ARE DEAD

Leo Kolivakis at Pension Pulse:

What are my thoughts? I’ve been warning all of you that U.S. public pensions are doomed and the worst ones are at the city and local levels. These unfunded public pension liabilities are going to crush taxpayers through higher property taxes and make it increasingly more difficult for people to afford homes in the United States, not that they are affordable right now.

And while I understand the state’s high court ruling — after all, Chicago mismanaged their pensions for decades, failing to top them up so they it can spend lavishly and foolishly elsewhere — I am increasingly worried that public sector unions fail to understand that unless they agree to adopt a shared risk model and agree to some pension reforms, their city will go the way of Greece and Detroit where the bond market extracted a pound of flesh from public pensions.

In other words, Illinois’ Supreme Court can interpret the law any way it wants, in the end it’s the bond market which will impose drastic cuts to public pensions because already stretched taxpayers aren’t in a position to bail out grossly mismanaged public pensions.
….
What is important for all of you to keep in mind when I discuss Chicago’s pension nightmare, U.S. public pensions being doomed, Europe’s pension problem or more the $78 trillion global pension disaster is that the global pension crisis is deflationary and it will be with us for a long time.

Let me explain this further. When it comes to unfunded public pensions, either you increase the retirement age and contributions or you cut benefits or you ask taxpayers to bail them out. That third option is political suicide but let’s say politicians are able to ram this through.

What do all these options mean? Less spending for the economy by consumers and less spending on much needed infrastructure projects. And less personal and government spending on infrastructure is very deflationary. Period.

Below, CBS Chicago reports on the Illinois Supreme Court’s decision to strike down the Emanuel administration’s attempt to bail out the severely underfunded pension systems for city workers and laborers, placing more pressure on taxpayers to top up these funds.

Get ready, Chicago’s pension nightmare will spread throughout the world and there will be no resurrecting pensions from the dead.

And I thought I was gloomy.

Compilation of Chicago posts.