Quick Pension Analysis

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.

GASB Changes
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%
0 $10,344,100,000.00 $10,344,100,000.00 $10,344,100,000.00
1 $10,830,272,700.00 $10,933,713,700.00 $11,171,628,000.00
2 $11,339,295,516.90 $11,556,935,380.90 $12,065,358,240.00
3 $11,872,242,406.19 $12,215,680,697.61 $13,030,586,899.20
4 $12,430,237,799.29 $12,911,974,497.38 $14,073,033,851.14
5 $13,014,458,975.85 $13,647,957,043.73 $15,198,876,559.23

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%
10 $16,374,178,752.54 $18,007,050,537.73 $22,332,136,064.29

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.

Any questions?

Ald. “New Tax” Cardenas Wants $5/mo

Chicago should impose a “safety and security fee” — as high as $5 a month on homes and businesses — to generate the $70 million needed to hire 700 additional police officers, an influential alderman said Thursday.

Ald. George Cardenas (12th), chairman of the City Council’s Health Committee, said Chicago desperately needs a surge in police hiring to ease a severe manpower shortage that has hamstrung the city’s ability to stop a surge in homicides and shootings.  …

Police and Fire are the very definition of general funds.  This is nothing more than a $60/year tax on everyone.

Fraternal Order of Police President Mike Shields said he would welcome “any new source of revenue” that could be used to bolster a police force that stands at 11,799 after a three-year hiring slowdown.

Through Aug. 15, 420 police officers had retired, but only 127 new officers had been hired, he said.

But, Shields said, “Why is it that we have to go to another source of revenue to pay for these officers? Policing is a basic city service that should be in the budget without a new fee. The mayor eliminated 1,252 police vacancies. The 2012 budget should not have been balanced at the expense of public safety. Those vacancies should have been filled.”   …

Cardenas is the aldermen who championed Chicago’s nickel-a-container tax on bottled water.He also proposed an anti-obesity plan to tax Chicago consumers of soda pop, energy drinks and other sugary beverages anywhere from 15 to 30 cents-a-contain to a penny-an-ounce.

via SunTimes.

How about we eliminate the TIFs and put all that money back into the general fund?  Then we’d have money for police, fire, and all kinds of other services.  Heck, we might even be able to fund the teachers’ pensions.

Ald. Cardenas, we’re taxed to death already!  Enough.

Less Cops = Less (Reported) Crime

In the city’s most violent districts, police officers say, they may be assigned half a dozen jobs or more—covering everything from traffic accidents to assaults—at the start of a shift. Their watches are spent racing from call to call, while anything that requires investigation stacks up. Officers describe having to weigh whether to make an arrest. The process “downs” their car, taking it off patrol for a few hours or so, which leaves their beat uncovered and puts more pressure on their fellow officers.

Sometimes, they say, when it comes to minor offenses, they just look the other way.

via Chicago magazine – August 2012.

This is from a fairly long piece about Garry McCarthy but it’s this paragraph that struck me.

In Chicago No Report = No Crime.  You have beat cops who are overworked / overloaded they and cannot focus on the little things.  So what happens?  They let some of the little things go because they have more important — higher priority — calls already waiting for them.  When this happens the little things don’t get reported.  It’s like the crimes never even happened.

Of course Compstat is at the center of this.  It gives the Mayor and McCarthy the plausible ability to say things like, “Well overall crime is down.”

Police Boss: No Emergency = No Police

As Chicago police Superintendent Garry McCarthy tries to streamline the way his department fights violent crime, he is stepping up his potentially controversial plan to reduce his officers’ load of 911 calls.

Facing heat over a surge in homicides as he enters his second year in Chicago, McCarthy has expressed frustration over the pace of making the logistical and policy shift necessary to free up officers from what he considers nonessential responsibilities.

“I’ve been told we handle more types of calls for services than any other place in the country,” McCarthy said.

He wants to keep officers from wasting their time with what he labeled the “my son won’t eat his peas” type of call.

“We would set the policy. We’re not responding to calls for A, B and C,” McCarthy said, noting that he hasn’t yet defined “what standard would we apply.”

via chicagotribune.com.

Now that I’ve written about Comstat we all understand the manipulation of crime statistics.  Comstat was Plan A.  This is Plan B.

Imagine the ability to set crime statistics by simply listening to a 911 call and right there without any other information saying what qualifies a police response.  And we already know that in Chicago no report means no crime.  By simply choosing to not send police to the scene of a crime it is nearly assured that no report will be created and thus no crime will be reported.

When this is implemented McCarthy and Rahm are going to oversee the greatest crime reduction is city history.  Of course blood will still be flowing in the streets, thousands of cars will be stolen, drugs will be available everywhere, homes will be broken into hourly, and tourist beatings on Michigan Ave will continue.


I can’t believe that I have not already written a post on Compstat but I can’t find anything.  Grrrrrr!!

Ok so, for those that don’t know Compstat is a system of policing accountability which originated in New York with the NYPD.  And in case you don’t know Garry McCarthy, the current Chicago Police Superintendent, is from the NYPD and eats, sleeps, sh__s, and wipes Compstat.  If Compstat was a person (woman or man) Garry McCarthy would marry it.  When McCarthy came to Chicago he brought Compstat with him.  You can find many articles about this at the Tribune, SunTimes, etc.

So what?  Well here’s the rub:  It’s a fraud.

No Superintendent of any police department wants to oversee an increase in crime.  No politician wants to be in office when there is an increase in crime.  So what happens is that the politicians beat down on the Superintendent who beats down on the Deputy Chiefs who beat down the Commanders who beat down on the Captains who beat down on the Lieutenants who beat down on the Sargents who beat down on the beat cops.  And just like magic, the beat cops make sure that there is less crime.  How?

I’ve already written about how CPD brass is telling us crime is down crime is down but 911 calls to the OEMC is off the charts.  In Chicago no report = no crime.  So when police are busy and can’t get to you, your crime goes unreported, therefore there was no crime.  In Chicago we have a severe shortage of police officers.  Fewer officers means longer response times means fewer crimes are reported.  Consider this, the way that Chicago tracks crime if there were no police there would be no crime.

Back to Compstat.  Compstat’s fraud is in addition to the crimes that actually unreported.  Compstat coerces police of all ranks to reclassify crimes in order to create the appearance of less crime.  e.g.  Instead of arresting someone for burglary (a felony) they get written-up for trespass (a misdemeanor.)  Fewer felonies means less crime.

You don’t think it happens?  Think again.

February 2010

There’s something very big here. If you look at the repercussions, this stats program does for police what the Leave No Child Behind program for schools does to teachers– encourages them to shape the data. In this case, it may be putting us all at risk by fudging crime stats.

A new survey of over 100 retired NYPD captains and senior officers found that they believed that statistics were manipulated to portray lower crime rates for the compsat program that calculates crime rates..

The survey suggests that police have distorted crime reporting, dropping value of stolen goods so the theft is categorized as misdemeanor instead of felony. They drop categorization of crimes from felony to misdemeanor if suspects can’t be found.

via HuffPo.

This story forced the NYPD to clamp-down on officers who were talking about the fraud.  It took some time but two years later the NYPD forced a lawsuit by an officer who was pressured to downgrade crimes.  It was written about here, and here, and here.  A quick search will reveal other stories as well.

So… what’s important to understand here is that you cannot trust the crime numbers put out by the police department.  It’s 100% pure manipulated hogwash.  You know that CPD is losing control of the city.  You know that your friends don’t feel as safe after Cubs games as they used to.  You see there are more street fights outside of bars.  You read in the paper that more people are getting shot than ever before.

The difference between the truth and what the CPD reports is Compstat.


UPDATE 06/30/2012:  Silly me had “comstat” instead of “compstat”.  I need an editor.

Fighting Crime The Chicago Way!

CeaseFire Illinois, a group that works against violence, is being recruited by the city of Chicago as part of a pilot program to help reduce crime in two police districts, one on the West Side and the other on the South Side.  …

The city will give the group a one-year grant for $1 million to hire 40 “interrupters” who will mediate conflicts in the Ogden and Grand Crossing districts, where gun violence has spiked.  …

This is the first time CeaseFire has received funding from the City of Chicago. Previously, it was largely funded through state and county sources.

via Chicago Tribune.

So says the Tribune.  The SunTimes story is similar.  Both FAIL to mention what CeaseFire really is… the public relations arm of coordinated Chicago street gangs.

In this city known for rampant corruption and cronyism the politicians know what to do with the money they extort from taxpayers! Whenever possible taxes here are only used to support thieves, thugs and liars.  …

Chicago’s politicians have agreed to hand over $1,000,000.00 to a group calling themselves, “Cease Fire”. They were founded simply to take city tax money and pretend they’re working on violence reduction. Of course Cease Fire will be working in “secret negations” to make Chicago safer. I’m sure the time and money will be easy to audit that way.

Cease Fire is a group of, not so retired ghetto gangsters with significant rap sheets that are supposed to convince their pals not to kill each other, or innocent civilians.


This is insanity.  The gang bangers are going to completely fabricate the number of “interruptions” in violence.  McCarthy will permit it because it creates the appearance that the money was well spent.

Shouldn’t the city counsel have to weigh-in on this sort of spending?  Where’s the Alderman (and Aldermen) stand on this?

Illinois’ Pensions are the Worst

A new report being issued today — see the bottom of this post — from the Pew Center on the States says that Illinois once again ranks 50th of the 50 states in assets relative to liabilities.

But while Illinois’ absolute position did not sink — a mathematical impossibility — its relative position did erode, as the shortfall in terms of dollars here worsened faster than it did on average in other, better-positioned states.  …

Illinois “is on an unsustainable course,” said David Draine, the chief author of the report by the Washington, D.C.-based public policy and research group.  …

According to the report, Illinois as of the end of fiscal 2010, the latest year for which national figures are available, ranked dead last of the 50 states, having on hand only 45 percent of the assets needed to pay $139 billion in accrued pension liabilities.

The report concerns the state’s five retirement funds, covering state workers, teachers who work outside of Chicago, professors in the University of Illinois system, judges and members of the General Assembly.

The total unfunded liability as of the end of fiscal 2010 — that was June 30, 2010 — was $75.73 billion, somewhat less than the current $83 billion figure cited earlier this year by the Legislature’s economic watchdog unit.

via Crain’s Chicago Business.

Public sector unions need to understand the reality.  Retirees are in serious danger of not getting paid what they are owed.  Default is becoming a more and more real possibility.

Heck!  These numbers don’t even include the Chicago Teacher’s Union.  So the situation is even worse.

Gun Turn-In Weekend in Chicago

Using the lure of $100 gift cards, the Chicago Police Department is encouraging people to get guns out of their homes and turn them in this Saturday, during the annual gun turn-in program.  …

First Deputy Supt. Alfonza Wysinger says anyone who turns in a real gun will get a $100 gift card. Replicas and BB guns are worth $10.

“No questions asked,” Wysinger said. “Just show up at the church, and hand over the weapons to the CPD officer that will be there, and get your $100 gift card. So we strongly suggest that people come out that have weapons lying around the house, or weapons, maybe, that they don’t necessarily want in their house. This is a chance to get some money for their weapon, and get another dangerous weapon on the street.”

via CBS Chicago.

I wish I heard about this a few weeks ago.  I could have pick-up a few cheap old worthless guns at an auction in Indiana or Wisconsin and made a few bucks.  Maybe I’ll get myself ready for next year.

Kudos to the CPD for completely wasting taxpayer money on a program that does absolutely nothing to reduce crime.  Functioning illegal guns are worth more on the  street than $100.  Simple economics dictate that this program is nothing more than a PR event.



Protesters throw fence on police 5:43 p.m.

Police Superintendent Garry McCarthy, dressed in his white uniform and wearing sunglasses, has appeared behind the thick line of police in riot gear.

The police are facing off with protesters at the corner of Michigan Avenue and Cermak. A large crowd of protesters is gathered in the street on Cermak.

Police and protesters are nose to nose, pushing at each other. Some protesters fall when police shove them with batons held horizontally in both hands. Periodically, police pull a protester out and take them away.

At one point, protesters facing the police threw a section of metal street barricade on top of the line of police, who caught it with their hands and passed it back through the line of cops.

via Chicago Tribune.

And either a differing account or a wholly new event:

Pizza proprietors fail to ride NATO summit wave 7:21 p.m.

The four operators of Papa John’s Pizza, 80 E. Cermak Road, watched from their closed storefront window as the bloody skirmishes took place outside.

“I had as good a front row view as anybody,” said Steve Feldberg, one of the operating partners.

The pizza proprietors originally decided to stay open during the NATO summit weekend in hopes of picking up extra delivery business from customers who didn’t want to leave their homes.

That turned out not to be the case, and sales lagged below expectations, he said. Just before noon Sunday morning, they made the decision to send staff home and close for the rest of the day, citing safety concerns.

“We could just tell what was coming,” Feldberg said.

He and his colleagues decided to stick around out of curiosity. At one point, the group watched as protestors wielded a barrier fence above their heads and started trying to throw it toward his store.

“We were all watching it as it happened,” Feldberg said. “There was nothing we could do.”

Police were able to take control of the fence and pass it safely to the rear of their flank.

via Chicago Tribune.

Whether this is one incident or two there can be no doubt as to a few facts:  The protesters tried to hurl a section of a metal fence at someone, & this is not the kind of non-violent action the protesters claim to be all about.

Rooting Out Bad Cop

Cops are people.  Some are going to be trouble no matter how hard you try to keep them out.  However this is just nutty:

Of 441 police misconduct lawsuits that led to city payments between January 2009 and November 2011, nearly a third—or 145—involved the “repeaters,” shows a Reporter analysis of federal and state court records. This small group—140 in all—proved costly. Despite making up 1 percent of the police force, they accounted for more than a quarter—or $11.7 million—of all damage payments incurred from police misconduct lawsuits. The city defended a good number of those officers in additional cases as well; nearly a third of the 140 officers were named in at least five misconduct lawsuits since 2000.

via The Chicago Reporter.

Looks like our politicians need to stand-up to the police union on this one.  Bad cops are also bad for the good cops.  Give the whole department a reputation.  The goods ones don’t want the bad ones around.

Seems like a no brainer.