Illinois Round-Up: Bonds Issued at High Rates, the Harvey Harbinger, and More Doom
by meep
So much doom, so little time to blog.
BONDS ISSUED WITH UNSURPRISING HIGH PRICE
The 10-year bond in deal at 4.55%, that's 205 bp over latest 10-year spread posted on MMD of 2.50%, BUT it's a 6% coupon so need to check coupon curve…….
— yvette shields (@Yvette_BB) April 25, 2018
6% coupon is fairly high for munis, iirc.
More on the bond offering (before they were sold):
As Illinois preps $500m of bonds next month, spreads on state's 10-year GOs hit 213bps last night, a 6-month high. New Jersey in contrast has 75bps spread. Illinois spreads have been widening for several weeks but "it's not even close to being cheap enough" said an investor.
— Caitlin Devitt (@Caitlindevitt) April 6, 2018
- Illinois’ upcoming $500 mln bond sale gets near-junk rating
- Near-Junk Illinois to Sell More Bonds — Will Investors Buy In?
- S&P Global Ratings: Illinois’s bond rating ‘uncommonly low’ due to ‘crisis-like budget environment’
- Rating agencies warn, Illinois flirts with junk – Wirepoints Original
- Illinois Faces Rising Yields as Politics Cloud Return to Market
- Illinois offers investors mixed messages ahead of $500 million deal
Oh, what’s this:
Ill. in the market…..looking at deals in fall BEFORE budget passed spreads at 193 bp and 200bp to benchmark ….in last deal AFTER budget passed dropped to 170bp…lately trading at spreads above 200….all bad, but "someday, someway" (saw marshall crehnshaw over the weekend)
— yvette shields (@Yvette_BB) April 25, 2018
Marshall Crenshaw, you say? Have some, won’t you?
ANOTHER INTERLUDE
You will not want to live in Illinois in 2045. Wow. https://t.co/7GaTpPuPs3
— Nathan Bomey (@NathanBomey) April 25, 2018
Those amounts will not be paid.
— Mary Pat Campbell (@meepbobeep) April 25, 2018
Those “required” amounts will become magically unrequired at some point, as Chicago will not be paying them.
Unless there’s superduperhyperinflation and those amounts are piddly. Too bad the pension benefits scale with inflation.
THE HARVEY HARBINGER: MORE PAIN TO COME
The short story of what happened in Harvey, Illinois:
- pension contributions have been wayyyyy too low for many years
- there are other sketchy public finance things going on there, too
- there is a (relatively recent) law that allows the state to cut off funds to municipalities, and send the money directly into pension funds
- that got activated for Harvey, Illinois… the first town to have this happen to it
So the reaction has been: well, other Illinois towns don’t have that dodgy stuff going on.
Are you sure?
Harvey, IL pension crisis ‘canary in the coal mine’
Harvey, Illinois is in the midst of a financial crisis that represents the tip of the iceberg for literally hundreds of small towns in Illinois.
…..
Since state law prohibits municipal bankruptcy, Harvey has been forced into a situation Illinois has never seen. In February, the state began to garnish Harvey’s revenue to fund its pension liabilities. The city was forced to lay off 40 police and firemen – 25% of police employees and 40% of firefighters. This, in a city already known for high levels of crime.The irony is that the state of Illinois’s own pension crisis is even worse. But fear is growing that unless a massive infusion of pension money is forthcoming from the state, dozens of towns will suffer a similar fate as Harvey.
Hmmm, what’s this about municipal bankruptcy being blocked?
Ives on Harvey: ‘Bankruptcy is The Only Way Out’ – NBC Chicago
A state representative said Monday the embattled city of Harvey isn’t alone in its inability to meet the state’s pension demand—and it should strongly consider bankruptcy.
Since the state withheld tax money to Harvey—a consequence for not paying into the pension system—firefighters and police officers have been laid off. Other cities—from Burbank to Niles to Maywood are in very similar financial straits. With boarded up businesses on the main street there’s no denying the financial troubles facing the town of Harvey. Might city leaders turn to bankruptcy? Republican state Rep. Jeanne Ives says it’s more than likely.
“Bankruptcy is the only way out,” she said.
People need to understand what bankruptcy means in this context: it’s a legal framework whereby the municipality can figure out what it can actually afford going forward, no matter what its promises were in the past.
I understand why many politicians want to bar this option, but it’s not like financial catastrophe is barred for not allowing the legal process.
So for some of these towns, here are the possible choices put in front of them:
- raise taxes
- cut services, including cutting off all the employees covered by these benefits
That’s it.
So what happens if no combination of those two will fill the big obligation hole?
The money runs out. And that’s it.
Governments fail all the time, but because of a momentary demographic bubble (aka the Boomers) this has been staved off for a while. People don’t realize how weird the Baby Boom was, in historical terms. That’s because we finally got childhood mortality down to very low levels. And so the demographic bubble has been able to inflate all sorts of government expectations.
Which weren’t sustainable, absent the Baby Boom weirdness.
Harvey got there first in Illinois… if you don’t count Chicago’s dysfunction, and I’m not even going to address Chicago in today’s post.
So the “happy” news for Harvey is that some judge has temporarily opened the money spigot again. But that’s not going to protect the fire/police employees & retirees of Harvey.
Or those in any other Illinois town.
Related links:
- State legislators pounce on Harvey’s pension woes to push reform; appellate court rules in city’s favor – Daily Southtown
- How the now feared ‘pension intercept’ became law. (Hold your nose.) – Quicktake | Wirepoints
- Harvey fire pensioners paid $1.1M into fund, have collected $25M | South Cook News
- Second domino falls in Illinois: North Chicago revenues garnished for pensions – Wirepoints Original | Wirepoints
- Illinois cities seeing operations hobbled by pension debts under new law | Illinois | watchdog.org
- The Harvey crisis puts the Illinois machine in a bind – Wirepoints Original | Wirepoints
- Public safety pension funds may flood Illinois with intercept requests
- Jim Dey | Police, fire pensions putting heavy pressure on towns | News-Gazette.com
- New Report Digs Into Drastically Underfunded Police, Fire Pensions | Chicago Tonight | WTTW
- Round Lake Park’s police pension crisis could result in state intervention
Of course, what burns my biscuits is that at least one actuary was involved in this crap. Harvey deliberately underfunded its pension, in terms of its official actuarial reports, but other town have found themselves in a position of worsening funding positions though they paid the “actuariallhy required contributions”.
To be sure, pension trustees were also complicit if they were being deliberately “ignorant” in the lowballing of pension liabilities.
But if an actuary recommended certain valuation assumptions that made the financial situation erode… well, I hope that actuary is 90 years old.
MORE BAD FINANCIAL IDEAS: SPEND MORE
Illinois Senate OKs bill to nearly double home care workers’ pay
SPRINGFIELD — Illinois senators narrowly approved a bill Tuesday to nearly double wages paid to home care workers in the state’s Community Care Program.
Under Senate Bill 3511, home care worker wages would jump from about $10.98 an hour to $19.89 an hour on July 1. Wages would continue to climb by $1 an hour per year until they reached $24.69 in 2021.
State Sen. Mattie Hunter, D-Chicago, said the workers supply home care to 100,000 seniors, allowing them to remain out of nursing homes and in their own homes.
The Service Employees International Union, which represents the workers, said low wages for home care workers leads to high turnover among home care workers.
Well, that’s probably true, but generally they’re not going on productivity, now are they?
Are they planning to reduce the number of home healthcare workers?
State Sen. Jim Oberweis, R-Sugar Grove, said the bill will cost the state $800 million a year that it doesn’t have.
“We’d all like to help these people,” he said. “It might be a good idea to sit down and figure out a budget before we spend another $800 million we don’t have. We have to figure out which programs we’re going to cut.”
Senate Republican Leader Bill Brady of Bloomington voted against the bill. State Sen. Andy Manar, D-Bunker Hill, voted for it. Sen. Sam McCann, R-Plainview, did not vote.
The bill now goes to the House.
Sounds like they’re not planning on reducing the number of workers. Or, I guess it just happens naturally, when Illinois is not able to pay the bills and the people don’t get paid.
I assume people will quit in that situation.
Oh, and here’s another union sweetener for Illinois:
BILL WOULD ALLOW GOVERNMENT BONUSES FOR UNION MEMBERS, BUT BAN THEM FOR OTHER STATE WORKERS
The Illinois House of Representatives is considering a bill to boost government union ranks in anticipation of the U.S. Supreme Court’s upcoming decision in Janus v. AFSCME.
On its face, House Bill 5309 prohibits bonuses to employees of state agencies. It’s a sweeping prohibition that would interfere with any government compensation program intended to encourage efficiency by rewarding workers based on merit.
But there’s much more to it than that.
The bill defines the term “employee” to explicitly exclude anyone covered by a collective bargaining agreement. That means any government worker represented by a union could receive bonus compensation, but other employees could not.
Well, given there won’t be money to pay bonuses as the years roll by, why not? Go for it.
UNPAID BILLS
This is just gonna be a link dump about Illinois’s unpaid bill situation.
Before I dump, though: THIS IS NOT NEW. I watched this crap going on when I was blogging at somebody else’s site, AT LEAST 8 YEARS AGO.
So excuse me if I’m annoyed.
- Dog chasing tail? Legislation Proposed to Authorize Illinois Treasurer to Buy Receivables Owed by the State – Wirepoints Original
- Who are Illinois’ loan sharks?
- Backlog report from state comptroller
- Illinois bill backlog up over $9 billion again – Quicktake
- Mendoza’s reduced bill backlog claim is ‘nonsense,’ expert says | Prairie State Wire
- Illinois Finance 101: Paying Interest Penalties | The Civic Federation
- Illinois’ late fees skyrocket over past 3 years
- No, Comptroller Mendoza, the Budget Impasse Did Not Cause Late Fees – Wirepoints Original
I don’t mind Comptroller Mendoza’s grandstanding, because it’s less destructive (so far) than what the New York or California folks do.
ODDS N SODS
Here are the links I have left over.
- Editorial: Illinois in free fall, one last hope
- Pension Liabilities Leave City, State With Few Options | Chicago Tonight | WTTW
- Pew: Illinois’ public pension system less funded than all but two states | State Politics | ilnews.org
- Political will is the missing ingredient in the Illinois pension recipe
- Schools face heavy burden with proposed pension obligation shift | Daily Chronicle
I still say Illinois is going under before New Jersey.
But we shall see.
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