December 4, 2012 § Leave a Comment
[B]ut California too is now starting to hand it to bondholders. Cities in California are now testing the limits of bankruptcy law, and not paying the debt nor the payments for retirees to the state system. Thus this article describes how the state retirement system (CALPERS) is suing to demand payment, and saying that retiree obligations come AHEAD of creditors (municipal bond holders) in the queue.
“The issue is, do Calpers obligations supersede unsecured bondholders?” Fabian said in a telephone interview. “There’s an awful lot of unsecured bondholders in California. If you put pension obligations to Calpers as secured and senior to unsecured debt, in effect those bonds have been downgraded.”
In the Stockton and San Bernardino cases, Calpers is arguing that pension contributions must be made ahead of payments to other creditors because they are so-called statutory liens, or debts that state law requires to be paid. Bondholders and other creditors that oppose Calpers argue that pension debt is a contractual obligation like any other.
You’d have to be nuts to buy California municipal debt if Calpers has precedence and employee retirement benefits can’t be cut, since this is the MAIN THING that is driving these cities into insolvency. In the future likely these municipalities would just contract out everything to third parties that wouldn’t pay their employees those giant benefits, but the cities have to jettison these liabilities to put their fiscal house in order today.
via Chicago Boyz.
In case this is a little tough to follow, in bankruptcy debts are paid according to a priority. There’s a decent primer here.
The “Illinois” based pensions are probably ok. e.g. ITRS. There is no statute permitting a state to file for bankruptcy protection.
However cities are corporations; they can (and do) file for bankruptcy protection. CPS, CPD, CFD employees and retirees should watch these cases in California closely. They may be getting a real haircut if they have to defer to the bond holders to get their money.
It’s all very very sad.
November 1, 2012 § Leave a Comment
Blatantly stolen from Second City Cop:
Is the lure of a $25 gift card enough to persuade a parent who’s not involved in their child’s education to get involved?
Seventy Chicago Public Schools that have struggled to engage parents are about to find out.
At Mayor Rahm Emanuel’s request, Walgreen Co. has agreed to provide $25 gift cards to parents who pick up their students’ report cards and participate in parent-teacher conferences during report card pickup days.
“This is a way, in my view, of incentivizing responsible parenting,” Emanuel told a news conference at Field Elementary School, 7019 N. Ashland.
Is he serious? “incentivizing responsible parenting?” In what parallel universe is this unmitigated ass living in? If you “incentivize” (which isn’t even a real word) bad behavior, what do you get? More bad behavior.
Every study in existence proves this. Example A is the entire welfare system – you pay someone not to work, you get a shitload of people not working. You give someone a check for pushing out babies, pretty soon the birthrate skyrockets and you have 15, 14 even 13-year-olds having babies. You know what reduced the teen birthrate back in the 1990′s? Stopping the checks.
Emanuel said he got the gift card idea during one of his morning workouts.
“That’s what happens when I start swimming. I start coming up with ideas,” the mayor said.
The mayor then approached Walgreen CEO Greg Wasson, who jumped at the opportunity to “give back” to the city where the company has operated for 112 years and now has 150 stores.
This explains part of where he keeps getting these fucked up ideas – chlorine poisoning.
via Second City Cop.
So that’s kinda entertaining. But I fail to see how giving away gift cards to parents who come pick-up report cards and sit for parent-teacher conferences is exactly creating an incentive for bad behavior. Seems like good behavior to me.
The bigger problem with this is like Chris Rock (and Barack Obama) have pointed out that we keep setting the bar so low.
Another comparison, though, is illustrated by an old Chris Rock joke: “People say Colin Powell speaks so well. What’d they expect him to say? ‘Ahmma drop me a bomb’?” There’s something incredibly condescending to think of saying that a man who has risen to the ranks of 4-star general or United States Senator is “articulate,” but it’s always meant as a compliment. In reality, though, it’s a backhanded one.
Obama is more than “articulate,” of course; he’s a truly gifted orator. And he was editor of the Harvard Law Review and otherwise has some mighty impressive credentials. It does seem, though, that the bar is set much lower for Obama than most men who would be president.
via Outside the Beltway.
Isn’t there a soft bigotry in saying that these parents need this incentive to do things that other parents do [without the incentive]?
I actually believe — from what I’m seen with my own eyes living on the West Side for 9 years — that the vast majority of parents want to help their kids get a good education. They want to be a positive influence in their children’s lives. They just simply do not know how because they were never taught by their parents.
What we need to do is help train parents to be better parents. Not throw $25 in gift cards at them and expect them to suddenly become Ma and Pa Cleaver.
October 25, 2012 § 1 Comment
Every person in any career should spend 90 minutes in a classroom at least one time in a school year, sharing their stories and setting an example for the students,” he said. “It’s part of giving back. These kids generally don’t see enough examples of why education is important or who they could be or what they could do.
– Brad Keywell, Groupon co-founder
This is a brilliant idea.
Kudos to Mr. Keywell for putting this together.
September 25, 2012 § Leave a Comment
… Newark, N.J. Mayor Cory Booker and former New York Gov. David Paterson — who spoke Tuesday morning about recidivism and racism at a panel hosted by Stroock law firm — say.
During the talk, Paterson observed the smartest students in the Chicago Public School system are the gang leaders because they’re giving kids what they need — structure, a way to make money, and some sense of belonging.
Until society steps up and gives those kids that same sense of security, according to Paterson, this non-stop cycle of people going to prison on nonviolent drug offenses is never going to end.
via Business Insider.
These two guys are real pieces of work. Newark is quite likely the only city in America worst off than Detroit and East St. Louis. Why doesn’t he fix his own damn problems before telling us who our smart kids are?
Doesn’t he have any
gang leaders smart kids in Newark he can talk about? Why drag us down to Newark’s standards?
What a jerk.
September 21, 2012 § 1 Comment
Ok, so I was getting asked about this the other day both in person and in the comments about why the pensions are really in such bad shape and what the latest GASB positions mean to the funds. GASB first.
I did some poking around and the recent GASB changes really mean nothing.
After six years of research and about 400 pages of text, GASB’s statements 67 and 68 do little to provide enough meaningful information about the potential retirement costs faced by the taxpayers. The statements will force the worst of the worse, such as Illinois, to recognize a much larger liability.
That’s like throwing the zombified Walking Dead under the bus to give the appearance of taking a serious step in providing transparency. Zombies are already dead. You can throw them under a bulldozer; it doesn’t make them more dead. …
The new standards still allow most pension funds to choose their discount rates when determining their pension liabilities. In other words, the sworn and civilian plans of the City of Los Angeles can wantonly throw caution to the wind and assume a 7.75% earnings assumption going forward, avoiding any consideration of risk.
via City Watch LA.
You can read the policy papers. It’s pages and pages of nonsense summarized nicely with the zombie analogy above.
But what the lastest GASB changes point out to us is the danger regarding the assumed internal rate of return.
Interest Rate Issue
For giggles I found the 2011 annual report of the Chicago Teachers’ Pension Fund. It’s 116 pages detailing a underfunded, mismanagement, no financial understanding pension time-bomb with some lipstick.
From page 13:
As of June 30, 2011, investments at fair value plus cash totaled $10,456,912,118. This reflects a 16.8% increase from the $8,949,590,783 value of June 30, 2010. The Fund’s investment performance rate of return for the year ended June 30, 2011, was 24.8%, exceeding the projected return of 8% and reflecting a 82.3% increase from the 13.6% performance rate of return as of June 30, 2010. The ten-year rate of return posted by the Fund for the period ended June 30, 2011, was 5.7%, and fell short of the actuarial assumption of 8%.
That’s a lot of information. I draw your attention to the incredible swings in the rate of return of the fund over the years. 24.8% one year, 13.6% another, however the 10-year average is a mere 5.7%. On page 25 we learn that the 5-year average is only 4.7%. Yikes!! But the fund assumes that over the long term it will average 8%.
But what does that mean? So what?
Well, the fund currently has net assets of $10.344 billion. When invested at the given rate of returns at the end of 5 years we have:
|Year||Value @ 4.7%||Value @ 5.7%||Value @ 8%|
If the next 5 years are like the past 5 years the fund will earn 4.7% on its assets. So in 5 years it will have $13.014 billion.
In the next 5 years are like the past 10 years the fund will earn 5.7% on its assets. So in 5 years it will have $13.646 billion.
However the plan assumes that over the next 5 years it will follow the 8% column and have $15.1 billion. History is against them.
If the fund earns 5.7% over the next 5 years it will be $1.55 billion short of projections. That’s 10% less money available.
If the fund earns 4.7% over the next 5 years it will be $2.18 billion short of projections. That’s 14% less money available.
If all the assumptions go on for 10 years:
|Year||Value @ 4.7%||Value @ 5.7%||Value @ 8%|
Earning 5.7% the fund is $4.33 billion short or 19.3%.
Earning 4.7% the fund is $5.95 billion short or 26.6%.
So if the next 10 years are anything like the past 10 years from an investment standpoint we can expect the all the state pension funds to have about 20% less money than they’re projecting. That could easily be another $40-50 billion that someone’s going to come looking for.
- – -
Now in all fairness, a historic average suggest that a return rate of 8% could be reasonable. i.e. These funds may be able to earn an 8% return in the next 5 years. Why?
Interest Rates & Inflation. In the last 5 – 10 years there has been very little inflation and interest rates have been low. That’s generally accepted to be a good thing. However it messes with the long-term analysis as to what something will be worth in the future.
Given the amount of debt carried by the Feds, and the quantitative easing (a/k/a money printing) that been happening, it’s safe to say that very soon interest rates are going to start going up… fast and dramatically.
When interest rates go up, the rate of return on these pension funds should go up as well. If they get close to the 8%, then we’ll only have to worry about the current short fall of billions and billions and billions.
September 20, 2012 § 7 Comments
Save as much money as you can.
Live well below your means.
The pension time-bomb is coming.
One of the most vexing problems for Chicago and its teachers went virtually unmentioned during the strike: The pension fund is about to hit a wall.
The Chicago Teachers’ Pension Fund has about $10 billion in assets, but is paying out more than $1 billion in benefits a year — much more than it has been taking in. That has forced it to sell investments, worth hundreds of millions of dollars a year, to pay retired teachers. Experts say the fund could collapse within a few years unless something is done.
“Each day we wait to enact comprehensive pension reform, the problem gets worse,” Quinn said in a statement. “The unfunded liability will grow to more than $92 billion by the end of next fiscal year. Illinois is currently on track to spend more on pensions than education by 2016 and that is unacceptable.
– Pat Quinn
If you think that taxpayers are going to fund your pensions, forget-about it.
If you think you can tax the rich to fund your pensions, forget-about it.
If you think that people are going to move into a community where their property taxes increase by 7% every year in order to fund failing schools, forget-about it.
If you think you’re going to get your COLA every year, forget-about it.
You have two options: Save every nickel and dime you can, or plan to work until you’re in your 70′s.
Illinois has an unfunded pension liability of at least $83 billion, according to state figures. It had 45 percent of what it needed to pay future retiree obligations as of 2010, the lowest among U.S. states, data compiled by Bloomberg show. …
Illinois had about $28 billion of general-obligation debt as of May 8, according to bond documents. The state of about 13 million people plans to sell $50 million of debt next month for technology projects, John Sinsheimer, the state’s director of capital markets, said in an interview.
Illinois’s backlog of unpaid bills has risen to more than $9 billion because of pension costs and falling federal aid, leaving the state “essentially treading water,” Comptroller Judy Baar Topinka said.
$83B + $28B + $9B = $120,000,000,000 in debt. The extra $50 million at 0.42% of the total is a rounding error. It should also be noted that this does not include the City of Chicago (or any other municipality or county debt) which is another $12-16 billion in debt depending on who you ask.
12,869,257 people in the state of Illinois. Every man, woman, and child owed owes $9,324.54 to the state. If you live in Chicago you owe another 5,910.34 locally for total of $15,234.89. (Are you feeling good about your new contract yet?)
I was just looking over the FY2013 Illinois State Budget as prepared by Gov. Quinn. On Pg 37 we’re told that Debt Service is 5.42% of all outlays. That’s over $3.3B per year paying principle and interest on money we borrowed. That’s $3.3B per year we could use to hire police officers, or teachers, or fully fund the pension funds but will instead go to pay for our bad fiscal decisions of the past.
More importantly, total expenditures are $61.0B. That means that if we (a/k/a the State of Illinois) completely stopped operating, fired all the employees, shuttered all the buildings, and spend 100% of the budget on paying off debt we’d be debt free in 2 years.
Oh, I know what you’re going to say… You’re going to tell me all about how the Chicago Teachers’ Pension Fund is not as underwater as the general state fund. True, but it’s still broke and broken. And there’s no money to fix it.
Then you’re going to say that this is a right guaranteed by the Illinois Constitution. Oh ya? Well where’s the money going to come from? The rich? You wish:
When New Jersey governor Chris Christie heard British Prime Minister David Cameron invite France’s wealthy to decamp to England to escape a proposed 75% tax rate, he felt something akin to déjà vu. Every day top executives of Johnson & Johnson (JNJ), Merck (MRK), and other companies commute from their homes in Pennsylvania to offices in Christie’s state, saving roughly two-thirds on their state income tax bill — and costing New Jersey’s treasury $50 million, by one estimate.
via Fortune (a/k/a CNN).
You don’t understand the Laffer Curve.
The study, by the anti-tax group Change Maryland, says that a net 31,000 residents left the state between 2007 and 2010, the tenure of a “millionaire’s tax” pushed through by Gov. Martin O’Malley. The tax, which expired in 2010, in imposed a rate of 6.25 percent on incomes of more than $1 million a year.
The Change Maryland study found that the tax cost Maryland $1.7 billion in lost tax revenues. A county-by-county analysis by Change Maryland also found that the state’s wealthiest counties also had some of the largest population outflows.
You’re confused how a state and raise taxes and lose revenue. It happens all the time. I wrote a piece about cigarette taxes in Cook County; raised taxes, lost revenue.
The more you tax something the less of it you get.
You tax income, you get less income. You tax babies, you get less babies.
Even the left-loving Bono (of U2 fame) moves his wealth around to avoid taxes.
In Illinois, if we quadrupled the state income tax on those with adjusted gross income over $500k it would take over 13 years just to get current state pension liabilities square. This would not cover the additional debt of Chicago Teachers, Chicago Police & Fire, or any of the billions and billions of general debt.
So take your 16% raise and start saving. Save like your life depends on it. Because it does.
September 19, 2012 § Leave a Comment
The union and HuffPo object:
Stand for Children is a non-profit education reform group advocating for the inclusion of standardized test scores in teacher evaluations, charter schools and decreased teacher union power. Over the past three years, the group’s political action committee has raised more than $4 million and doled out more than $1 million to politicians, political parties and other political committees in Chicago and around Illinois. That’s more than double the $460,000 the Chicago Teachers Union PAC has given to political campaigns and other committees over the same period of time. While contributions from the Illinois Federation of Teachers bring the two sides into closer competition, much of IFT’s contributions went to a Supreme Court race in 2010.
It’s bizarre to me how anyone can get behind the current union, CPS model. It’s so clearly failing. … Well maybe what we have is a tale of two school systems — one that services the middle-class on the North and Northwest Sides and South Loop, and another that dooms the poor kids on the South and West sides to lives in poverty. But that’s a topic for another post.
What we have is CTU standing in the way of progress. They don’t want teachers to be accountable for anything. When 79% of 8th graders are not proficient in reading and Karen Lewis says, “Give us more money” and “You can’t evaluate teachers” the message is clear that she, a/k/a the union, have no interest in teaching… only the money for even the worst of the worst.
September 16, 2012 § Leave a Comment
Four years of up-to-the-limit property tax increases for Chicago homeowners and businesses. Closing scores of under-enrolled and underperforming schools. Thousands of layoffs of teachers and other school staff. More cuts to the central office.
That’s what could await the Chicago Public Schools, thanks to the tentative agreement between teachers and the district that is expected to put an end to the five-day teachers strike.
Civic Federation President Laurence Msall said the 16 percent pay raise included in the tentative agreement will almost certainly trigger massive layoffs and scores of school closings.
via Chicago Sun-Times.
This comes as a surprise to no one. What did CTU think was going to happen when you have a broke and bankrupt system giving 16% raises to it’s staff? You balance the budget by having less staff.
This is just like the minimum wage discussion: If the minimum wage was $25/hour there would be fewer people working… not more. And the price of your hamburger and groceries would be 20-50% higher.
When you artificially increase wages in the private sector you get inflation. When you artificially increase wages in the public sector you get a bankrupt public sector.
September 16, 2012 § Leave a Comment
Striking Chicago teachers fear that once they approve a new contract with the school district and end their strike, Mayor Rahm Emanuel will go ahead with dozens of school closings because of falling enrollment and poor academic performance.
Really? Well what do they think the mayor should do when the city is shrinking and budgets are in the red and the students are failing?
The union’s position is ‘just keep giving us more and more money to achieve less and less.’ It’s unsustainable.