STUMP » Articles » Rahm's "Win" Means Pensions Lose or You Can't Tell Us We Can't Kick the Can, Rauner! » 31 May 2016, 12:03

Yes, I saw these yesterday:

Rahm wins big over Rauner in police and fire pension bill fight

Illinois Legislature Overrode Rauner Veto To Pass New Chicago Pension Law

Chicago Gets Some Pension Relief as Rauner Veto Overridden

ADDITIONAL STORIES:
Mayor Emanuel’s Pension Plan Survives Rauner’s Veto

Illinois Lawmakers Override Rauner’s Veto Of Chicago Police And Fire Pension Bill

I’m too pissed off to excerpt any of them. Click through and read for yourself.

Let me quote myself:

Remember I’ll gladly pay you Tuesday for a hamburger today? Everybody knew that Wimpy would never pay, even though the promised payment was less than a week away.

People need to understand that the “I’ll gladly pay you in 20 years for a skipped pension payment today” is about as sincere.

And in this case, the disaster is coming a lot sooner than 20 years.

SOME PENSION NUMBERS: ALL OF ILLINOIS

I spent some time looking at the Dept. of Insurance numbers today for Illinois pensions. I’m just going to take their numbers at face value — overly high asset return assumption, favorable payroll assumptions, etc. Let’s just pretend all those are just fine to value the pensions.

So this is all of the pension promises in Illinois:

Yes, that total is almost $320 billion at that last valuation date. And that’s 50% funded, by the way.

Note that the total liability steadily climbs, while the assets that are supposed to support these promises seem about flat.

I did a calculation — the total pension liability grew about 7% per year, compounded, from 1998 to 2014. The assets grew at 4% per year.

And so the unfunded liability grew at an almost-13% per year over that 16 year period.

13% per year?

What just plain bad luck, eh?

And let’s check out who is contributing the most to that unfunded liability:

Huh, the state-financed plans are two-thirds of the total unfunded liability. Chicago’s pension unfunded liability is only 18%, and if I add in Cook County, that total is only 23%.

I’ll give away the game right now — the big driver is Illinois Teachers Retirement System (the non-Chicago teachers). That’s almost 30% of the state/Chicago/local pension unfunded liability.

And no, it’s not because there’s something particularly evil about Illinois TRS. It is driven by a couple things: there are a lot of teachers, and of those drawing pensions, most have had a full career with the system.

But Chicago shouldn’t get cocky.

If I look at the 16-year compound annual growth rate, Chicago outpaces the others at 15% per year.

The cumulative increase has been over 800%.

This is huge. And continuing to undercontribute to the pensions will not help.

For those who want to check my numbers, my spreadsheet is here. It’s all public info, but I did have to repair some obvious errors due to adjustments/manual entries. Feel free to email me (marypat.campbell@gmail.com) if you need to understand what I did.

WHY DO THEY THINK THEY’LL GET PAID?

I saw this story about the unions being pleased with the veto overturn:

Chicago’s mayor and police and fire unions are pleased with Illinois Senate action to re-approve legislation for a five-year savings plan on pension contributions.

Mayor Rahm Emanuel and the unions issued a joint statement thanking the Senate for its vote to override Gov. Bruce Rauner’s veto of the measure.
The plan would allow Chicago to reduce payments to fire and police pensions for five years. Democratic Senate President John Cullerton says without the legislation, Chicago taxpayers would face a $300 million property tax increase.

And I thought: huh… why the hell are they happy? Chicago is skimping the pensions…..

And Mark Glennon explains:

Why Unions Are Cheering Can-Kick on Chicago Pensions: Automatic Tax Levy, Casino! – WP Original

If you’re scratching your head about why public unions are thrilled with the override of Governor Rauner’s veto of SB777, which reduces taxpayer contributions in the near term for Chicago’s police and fire pensions, here’s why:

Overlooked by our ace press corps is the funding guaranty in the bill. Starting in 2020, taxpayer contributions increase to whatever-it-takes, sky’s-the-limit annual contributions sufficient to fund the pensions, and property taxes automatically increase to cover those amounts. The bill also mandates that revenue from any casino in Chicago go towards pensions.

So, public unions are thinking that the additional cost resulting from delayed contributions is less important than statutory assurance that property taxes will increase as necessary. Rauner estimates the additional cost at over $18 billion. Reporters haven’t bothered to ask anybody for the actuarial analyses on this, so it’s hard to confirm that number.

Ironically, there’s a bit of of a consensus coming together here, which is why the override was sustained. For pension reformers, there’s certainly a rationale for kicking the can — just don’t fund the damn things. They won’t get paid anyway, the thinking goes, and taxpayers eventually will demand elimination of the funding guaranty and real pension reform (or, more likely, the city will go into Chapter 9). So, why sacrifice other services and waste taxpayer money now on the bottomless pension pit? If labor thinks their funding guaranty will hold up and that Chicago’s population will stick around to honor that guaranty, well, let them think that.

(Sorry to grab it all, Mark).

I don’t think the “thinking” was that deep on this deal. I think it was pretty clear that Chicago wasn’t going to be able to scrape up the funds to make the “required” contributions, and rather than embarrass everybody with a bill Chicago can’t pay (it’s bad enough the state has had a perpetual vendor bill backlog), they just said, sure, why not, we’ve got more road. Let’s keep kicking that can.

And nobody thinks “hey, we can’t afford these automatic tax hikes now… what is the likelihood we’ll be cool with automatic tax hikes four years from now?”
So yuk it up Rahm et. al. I’m sure it will be so funny to explain to the cops and firefighters why they’re not getting the full pensions they were promised.

Oh, you didn’t realize that a low and decreasing funded rate meant they would eventually be cutting your pensions?

Who’s the fool now?

Actually, the politicians are also a bit foolish, if they weren’t planning an exit before 2020. But eh, that’s too long-term for politician planning. Makes you wonder why anybody trusts them to make promises that are supposed to last decades.

IS THIS WHAT A WIN LOOKS LIKE, RAHM?

This is a tangent. Just to point out what the mayor of Chicago has been up to:

Documents show true time Rahm spends on care and feeding of image

Mayor Rahm Emanuel has long fashioned himself as the maestro of message control.

He uses numbered, Washington-style talking points — an apparent remnant from the training he got while earning a master’s degree in communications from Northwestern University.

The mayor also uses stalling tactics to buy time — like a wise-cracking put-down directed at a probing reporter — whenever a question throws him off-guard. That’s not often, given Emanuel’s notorious discipline and meticulous preparation.

Now there’s concrete evidence of just how much time the politically weakened mayor spends on the care and feeding of his media image and the preparation it takes to stay so maddeningly “on-message.”

Copies of the mayor’s monthly meeting schedule released in response to a Freedom of Information Act request from the Chicago Sun-Times show that Emanuel held seven “off-the-record” meetings with reporters during the month of April alone. The handpicked reporters were not identified.

All that effort, and everybody still hates his guts. Eh, that’s just political stagecraft, though.

But what about this?

City, whistleblowers settle lawsuit; Rahm won’t have to testify

The city has settled a lawsuit filed by two police officers who alleged they were retaliated against for helping to expose corruption.

That $2 million settlement, announced Tuesday as the trial in the lawsuit was about to start, means there will be no need for Mayor Rahm Emanuel to testify about statements he has made in recent months denouncing a “code of silence” inside the Chicago Police Department.

…..
Emanuel had been expected to be called to testify about the Chicago Police Department’s “code of silence,” the alleged unwritten rule among officers not to expose wrongdoing by their peers.

The department has long denied such a code exists, but the mayor acknowledged it last year in an address to the Chicago City Council. At an unrelated press conference at Amundsen High School hours after the settlement was announced in court, Emanuel defended the decision to open the city’s checkbook.

…..
Law Department spokesman Bill McCaffrey said Spalding and Echeverria had initially requested $8.2 million. Jeffrey Taren, lawyer for the officers, declined to discuss the negotiations.

“They can spin it any way they want,” Taren said. “I’m not privy to the decision-making process for the city. That’s up to Steve and the mayor. This case was going to go forward, and successfully, with or without the mayor’s statements. What [the city’s] calculus was, I don’t know.”

……

Court watchers had predicted the case would be settled before the trial started. Not only had the judge refused to change his mind about Emanuel’s testimony, but lawyers also wanted to bring up at trial the botched investigation into the 2004 death of David Koschman. Cmdr. Joseph Salemme, a defendant in the lawsuit, played a role in the Koschman case.

Koschman died after he was punched by former Mayor Richard M. Daley’s nephew, Richard J. “R.J.” Vanecko.

And where are the Daleys gone now, hmmm?

Haven’t heard of them in a while.

I hope they’ve found a hidey hole outside Illinois. I imagine a bunch of people of people are unhappy that the fun money is gone.

Anyway, enjoy your pension can-kicking “win”.

END GAME?

I was sent the following story with the message: At least it’s not as bad as Venezuela:

Venezuela is running out of just about everything. Food, medicine, electricity, toilet paper, condoms — you name it.

And over the weekend at least two large international airlines — Lufthansa and LATAM — said they will suspend service to Venezuela in the coming months due to the economic crisis.

The widespread scarcities and fleeing businesses reflect a country in crisis.

“There’s a shortage of everything at some level,” says Ricardo Cusanno, vice president of Venezuela’s Chamber of Commerce. Cusanno says 85% of companies in Venezuela have halted production to some extent.

Venezuela’s economy is spiraling into extreme recession. It is ironic given that the country sits on the world’s largest proven oil reserves of oil. However Venezuela hasn’t cut back from expensive government spending even as oil prices have lost half its value in the past two years.

An opposition-led Congress is pushing for the ouster of President Nicolas Maduro and people have joined rallies and protests calling for his removal.

The country is under the spell of a drought, it’s battling the Zika virus and people are struggling to get medicine in equipment-scarce hospitals.

I could call these shortages entirely man-made, but that’s not accurate.

The “shortages” are of things that require people to produce, deliver, service, etc. Electricity doesn’t fall from heaven… in useful form. It requires people showing up to run power plants, make sure the transformers/whatever are working properly. You need to convince these other people to provide these goods and services.

And while one can try to do this through seizure of assets and outright slavery… it tends to be a fitfully effective strategy. The strategy that generally works is to freely contract with people, see what fees they’re willing to deliver on, negotiate, etc. Just grabbing what you want from these people tends to work only once.

The Golden Goose and all that.

At least Chicago and Illinois are sitting pretty, though. Retired people can’t withdraw their services.

So guess who’s going to get screwed?

Compilation of Chicago posts.