Bankrupt Stockton Chicago

Yesterday’s news:

Officials in Stockton said Tuesday that mediation with creditors has failed, meaning the Central California city is set to become the largest American city ever to declare bankruptcy.  …

The river port city of 290,000 in Central California has seen its property taxes and other revenues decline, while expensive investments and generous retiree benefits drained city coffers.

via NY Daily News.

Tell me something I don’t know, right?

Stockton, with 300,000 residents and $700 million in debt, would be one of the largest cities ever to file for Chapter 9 protection, according to municipal finance experts and bankruptcy officials.

via WSJ.com.

Humm…. ok.  Let’s compare that to Chicago.

Calling local government debt “staggering,” Cook County Treasurer Maria Pappas announced Tuesday that the $108 billion debt tab across various governing bodies in the county translates to $63,525 per Chicago household and nearly $33,000 per suburban household.

via Chicago Sun-Times. (Sept 29, 2011 — we now know the number to be higher.)

Math (not new math, the old fashioned kinda math.)

Stockton:
$700M / 290,000 residents = $2,413.80 of debt for every man woman and child in Stockton.

Chicago:
$63,525 * 1,033,022 households = $65,622,722,550 in total debt;
$65,622,722,550 / 2,695,598 people in the city = $24,344.40 of debt for every man woman and child in Chicago.

In order for the situation to be comparable, the dazzling urbanites of Chicago would have to earn 10 x as much as the poor downtrodden folks of Stockton.

Back to the Census:

Chicago Per Capita Money Income in Past 12 Months — $27,148

Stockton Per Capita Money Income in Past 12 Months — $20,176

So the average joker in Stockton has to work for about a month and a half (2413 / 20176 *365 = 44 days) to pay off their portion of the debt.

The average joker in Chicago has to work for nearly a year (24344 / 27148 * 365 = 327 days) to pay off their portion of the debt.

And so I ask you which one of these municipalities should really be filing for bankruptcy?  Which is in worse financial shape?  Who’s employee’s should be more worried about their pensions?  Who’s politicians are doing the right thing by dealing with the issue square-on and not trying to pawn it off on future generations?

I’m just asking.

Hat Tip to Anthony Curran for the concept of this post.

More Bad News on the Pension Crisis

If I was Rahm I would so totally throw Daley under the bus on this issue.

The debt from 10 Chicago-area pension plans swelled more than 600 percent to $27.4 billion between 2001 and 2010, according to a study released Monday by the nonpartisan Civic Federation. That’s $8,993 for each man, woman and child in Chicago, according to the report.

The shortfall comes on top of more than $83 billion in unfunded pension liabilities at the state level, driving the cost up to nearly $15,000 per Chicagoan, the report shows.

via chicagotribune.com.

Shear insanity.

 

JP Morgan: Public Employee Pension’s Set to Explode

But they wanted to keep the story to themselves:

JPMorgan recently circulated a “strictly confidential” report among leaders at the bank and with trusted hedge fund allies outside of the bank which details an impending public pension crisis. And we mean big time nastiness.

Massive cuts in services will have to happen, or massive tax increases will have to happen, or both, to keep many pensions and municipalities from going over a cliff. The politicians know that disaster is coming. JPMorgan and their hedge fund buddies know that it’s coming. The public, though it has a sense of impending doom, still doesn’t grasp the avalanche that is headed toward states and cities in the very near future.

Charlie Gasparino details in the attached article that JPMorgan did not want the information in the report to become public because it feared angering the politicians in the municipalities and states where default due to public pensions is a very real possibility. Many local politicians are lying when they tell their fire fighters and teachers that pensions are in good shape. According to what the report supposedly says these workers should probably start making alternative plans for retirement. But to say that is very messy politically.

JPMorgan didn’t want to lose its very profitable muni bond underwriting business in these same localities, which is determined to a large degree by these same lying local politicians, so this information was kept quiet.

via AgainstCronyCapitalism.org.

To the actual article:

OK, it’s no secret that nation’s public pension funds are in big trouble, holding large “unfunded” liabilities owed to public workers once they retire. But most politicians (New Jersey Gov. Chris Christie is an exception) will tell you the problem is fairly containable, that there are simple fixes — such as raising taxes on the rich or pruning benefits. …

Not so, warns a “strictly confidential” report JP Morgan issued last year. It describes in straightforward, frightening detail how underfunded pensions are huge ticking timebombs for many of the nation’s big cities and states.  …

Nationwide, the actual size of unfunded public pension liabilities is four times larger than the $900-plus billion that officials are ’fessing up to. That’s right, the bank sees a $3.9 trillion hole; to plug that, states and cities will need large tax hikes, massive budget cuts or both. Plus, public-sector unions will have to accept smaller retirement packages, and later retirement ages, to keep the pension systems going.  …

In New York, for example, JP Morgan said state officials would have to immediately cut spending by 12.3 percent or raise taxes on everyone by 7.4 percent. And they’d need to make these tax hikes and budget cuts permanent for the next two decades to fully fund public-employee pensions.

New Jersey faces an even bigger hole. Even after Christie’s reforms, it would still have to cut spending 30.8 percent or raise taxes another 17.2 percent, keeping them in place for two decades, to solve the problem.
via NY Post.

No word on how Illinois fares.  But as we are the #1 unfunded pension state in the union it’s no doubt a bad, bad, bad situation.