Tag Archives: Illinois

When the Deal Goes Down, by James Howard Kunstler

Posted on June 30, 2017 | Leave a comment

James Howard Kunstler’s view of the future is about as optimistic as SLL’s. From Kunstler at kunstler.com:

Who needs Russia when the Tweety-Bird-in-Chief is hacking his own presidency into a global joke? Or at least it might be a joke if the USA weren’t such a menace to international order, and to itself, by the way. Interestingly, the 25th amendment allows for the removal of a president from office on account of incompetence or disability, but not for being an embarrassment to the nation.

They may come after him anyway with the 25th, especially as the financial system unravels later this year, because this time, unlike 2008-9, central bank interventions will not avail to rescue the faltering money system from nine years of previous central bank interventions. All it takes is for the “liquidity” flows to seize up and before you know it, there’s no food in the supermarkets because everything in our just-in-time economy is exquisitely calibrated to the sure expectation of getting paid, and when that goes, it all goes.

Then the question arises: well, can’t you just re-start the liquidity flows? Not when the process requires another abracadabra magic act of summoning X-trillions of dollars out of absolutely nothing when the previous X-trillions created out of absolutely nothing are rushing at warp speed into the black hole of deleveraging because it has been discovered that the “loans” they were based on can never be paid back, not in this universe or any number of universes like it. In a word, they’re worthless.

Deleveraging is the polite term economists give to your net worth rapidly evaporating. Liquidity is the polite term for cash money and things denominated in them that can readily be converted into cash money. The problem with the kind of liquidity-creation solution to deleveraging is that it rapidly leads to money itself becoming worthless.

The preview of coming attractions is currently playing out in Illinois — soon to be joined by Connecticut, California, Kentucky, and many other bankrupt states. Illinois is dead broke. It can’t pay the contractors who fix things like roads and storm drains, and supply food to its prisons. It’s over $200-billion deep in pension obligations that will never be honored. Its Medicaid system is a shambles. It doesn’t even have the cash-on-hand to pay lottery winners (what happened to all the cash paid into the lottery by the suckers who didn’t win, which is supposed to pay off the winners?). The state legislature hasn’t passed a budget in three years.

To continue reading: When the Deal Goes Down

 

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Are Illinois & Puerto Rico Our Future? by Patrick J. Buchanan

Posted on June 27, 2017 | Leave a comment

The answer is yes (see “A Jubilee is Coming“). From Patrick J. Buchanan at buchanan.org:

If Gov. Bruce Rauner and his legislature in Springfield do not put a budget together by Friday, the Land of Lincoln will be the first state in the Union to see its debt plunge into junk-bond status.

Illinois has $14.5 billion in overdue bills, $130 billion in unfunded pension obligations, and no budget. “We can’t manage our money,” says Rauner. “We’re like a banana republic.”

Speaking of banana republics, Puerto Rico, which owes $74 billion to creditors who hold its tax-exempt bonds, and $40 billion in unfunded pension liabilities, has already entered bankruptcy proceedings.

The island’s imaginative 38-year-old governor, Ricardo Rossello, however, has a solution. Call Uncle Sam. On June 11, Rossello held a plebiscite, with a 23 percent turnout, that voted 97 percent to make Puerto Rico our 51st state.

“(T)he federal government will no longer be able to ignore the voice of the majority of the American citizens in Puerto Rico,” said Rossello. Washington cannot “demand democracy in other parts of the world, and not respond to the legitimate right to self-determination that was exercised today in the American territory of Puerto Rico.”

Had the governor been talking about the island’s right to become free and independent, he would have had a point. But statehood inside the USA is something Uncle Sam decides.

Rossello calls to mind Count Mountjoy of Grand Fenwick, who, in “The Mouse that Roared,” plotted to rescue his bankrupt duchy by declaring war on the U.S., sailing to America to surrender, and then demanding the foreign aid America bestows on defeated enemies.

Yet Puerto Rico’s defaults on its debts may soon be our problem. Many bond funds in which Americans have invested their savings and retirement money are full of Puerto Rican bonds.

According to The New York Times, the U.S. Virgin Islands, the Northern Marianas and Guam are in the same boat. With 100,000 people, the Virgin Islands owe $6.5 billion to pensioners and creditors.

Then there is Connecticut, a state that has long ranked in the top tier in per capita income and wealth.

Connecticut, too, appears wobbly. Rising pension benefits, the cost of servicing the state debt and falling tax revenue due to fleeing residents and companies like Aetna and General Electric, have dropped Connecticut to near the national bottom in growth prospects.

To continue reading: Are Illinois & Puerto Rico Our Future?

 

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Welcome To The Third World, Part 23: Illinois Death Watch, by John Rubino

Posted on June 20, 2017 | Leave a comment

Illinois needs a fiscal hospice, i.e. bankruptcy. From John Rubino at dollar collapse.com:

It’s been a long time coming, but Illinois’ slow-mo financial disaster is now front page news. A few recent examples:

Roadwork Could Shut Down Across Illinois Due To Budget Impasse

(Chicagoist) – Roadwork across Illinois may grind to a halt at the end of June due to the continued state budget impasse, a representative for the Illinois Department of Transportation (IDOT) announced Wednesday. IDOT will be unable to pay contractors on July 1, unless the state passes a stopgap funding measure.IDOT has told contractors that “all construction work is to shut down on June 30,” according to a statement. “Contractors will be advised to secure work zones to ensure their safety during any potential shutdown.”

Illinois has gone almost two full years without a state budget, which has hit education funding throughout the state and generated more than $14 billion in unpaid bills.14

Summer is both a high-volume construction season and a vaguely ominous time to cease road repairs; just last week, IDOT released a statement warning that the heat could lead to pavement “buckling or blowing out.”

—————

Powerball, Mega Millions to Halt Illinois Lottery Due to State’s Inability to Pay Winners

(Mish) – Both Powerball and Mega Millions Lotteries Will Pull Out of Illinois on June 30 due to the budget impasse.Without a budget in place, the state is not authorized to make payments to the association or Mega Millions.

Lottery proceeds are about 2% of state revenue. Speaking of revenue corporate income tax collection is down 41.3%. Sales taxes are flat. How is this supposed to work?

To continue reading: Welcome To The Third World, Part 23: Illinois Death Watch

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Illinois is Collapsing: It’s Coming Everywhere, by Karl Denninger

Posted on June 10, 2017 | 2 comments

“Collapsing” is a word that gets thrown all over the blogosphere, but in the case of Illinois, it’s not an exaggeration. From Karl Denninger at theburningplatform.com:

The blame game is in full force, including in Crain’s.

Like in a good Agatha Christie mystery, there’s a whole train-full (or, in this instance, Capitol-full) of suspects in the case of Who Killed Illinois? Just like on the Orient Express, they’re all guilty to one degree or another.

….

Here’s who’s at the top of my list: Gov. Bruce Rauner and House Speaker Michael Madigan, in that order. Other folks had their hands on the knife, but these two are the ones who really drove it in.

Uh huh.

Sure.

Maybe you can blame Madigan.  He’s been there long enough.  But Rauner?  C’mon folks.

It was obvious that Illinois was going to fail as a state before I left in 2000.  That was 17 years ago by my count.

Why?

Impossible promises made to public unions, for one.  And that’s not a small one either.  Suburban school districts that were driving property taxes through the roof (they’re doubled since I left, incidentally, by my count) and then the general pension promises on top of that.

For those who continue to say “but it’s a contractual obligation” or even “it’s protected by the State Constitution” I reply thus: A contract to do an impossible thing is not a contract at all.

You cannot enforce a “contract” you make with me where I am to jump over the Empire State Building unassisted.  Why?  Because the act contemplated is impossible.

Similarly, a promise to pay an exponentially increasing amount where the exponent is larger than the tax base growth rate is also impossible.  That’s math, and it makes any such promise void.

To continue reading: Illinois is Collapsing: It’s Coming Everywhere

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Open the Books Exposes the Sham That is the Illinois State Budget, by Michael Krieger

Posted on September 2, 2016 | Leave a comment

As various governments go bankrupt, never underestimate the role of venality and good old-fashioned theft. From Michael Krieger at libertyblitzkrieg.com:

Open the Books, the world’s largest private database of government spending, recently released its latest expose examining the Illinois state budget using data garnered from its annual FOIA request.

Here’s some of what it found (read the entire article at Forbes):

It’s been two years since Illinois state government had a full-year budget. Now, more than 70,000 vendors are owed $8.2 billion. Yet, despite the legislative deadlock and seemingly fiscal insolvency, more than $50 billion in state payments flowed to providers and other entities in FY2016.

So, who actually got paid and for how much while others waited in the long line of unpaid bills?
Recently, our organization at American Transparency (website: OpenTheBooks.com) filed our annual Freedom of Information Act request with Illinois Comptroller Leslie Munger (R) for the state’s checkbook payments. Here’s what we found: 56,738 recipients received fast-tracked payments of $50,125,427,171.

Even in a fiscal crisis, the state isn’t embracing basic spending reforms.

For example, in 2016, Comptroller Leslie Munger continued to pay a lobbyist $50,000 out of her own budget. More than $370,000 in payments flowed to lobbyist Shea, Paige and Rogal since 2009 (a key executive is the chairman emeritus of the IL Republican Party) even though state agencies are barred by law from contracting with lobbyists. So, how is this legal?

Since 2005, $178.1 million in taxpayer funds flowed through J. Walter Thompson (JWT), one of the world’s largest advertising agencies. Last year, JWT got $1.049 million from the Illinois Tourism Board. Why is the state wasting any money on Public Relations?

While unpaid social service providers sue the state, what is the compelling public purpose to pay paving contractors to spread a little more asphalt on the roads that may not be in need of vital repairs? Vendors with the word “paving” or “asphalt” in their names received payments of $260 million in FY2016.

Last summer, at Forbes, I wrote about Comptroller Munger’s refusal to pay vendors serving our most vulnerable citizens – the developmentally disabled. She wrongly claimed a lack of constitutional authority until a federal judge threatened her with contempt-of-court. Now we find Munger paid $9.4 million to Planned Parenthood over two years – including payments for abortions.

Over the past two years, Munger also fast-tracked $1.7 million in payments to refugee relocation firms. While Governor Bruce Rauner stopped additional refugees from Syria, World Relief Refugee Services – one of 10 organizations contracted with the U.S. Department of State to resettle refugees into Illinois – helped relocate approximately 1,200 refugees from countries like Iraq, Sudan, Congo and Myanmar (Burma).

The Illinois Department of Transportation (IDOT) already employs 1,133 civil engineers and 1,155 engineering techs. So why did Illinois pay millions of dollars over the last two-years to civil engineering firms like ESI Consultants ($3.7 million) and other firms at huge hourly rates?

The Illinois credit ranking is the lowest of all 50 states. But, the public patronage machine rolls on.

To continue reading: Open the Books Exposes the Sham That is the Illinois State Budget

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Illinois Governor Furious After Pension Fund Cuts Returns Forecast, Sticking Taxpayers With “Crippling” Tax Hike, by Tyler Durden

Posted on August 28, 2016 | 1 comment

It creates an awkward situation when a pension fund abandons an unrealistic rate of return assumption and substitutes a slight less unrealistic one. If the pension fund is playing it straight, it means present contributions must be increased. This is problematic in Illinois, which hasn’t played it straight for decades, and its governor is not happy. From Tyler Durden at zerohedge:

Earlier this week, we reported of an daunting predicament facing the dramatically underfunded Illinois Teachers Retirement System (TRS), the state’s largest pension fund which is only 41.5% funded: cut its existing future returns assumption from 7.5% to 7.0% (which was previously lowered from 8.0% in 2014) and suffer the wrath of the state’s governor Bruce Rauner, who would be forced to implement even more unpopular tax hikes, or keep its existing projected returns, and potentially suffer an even greater shortfall – and greater taxpayer funding needs – over the long-run if it was unable to hit its bogey.

Despite tremendous political pressure, on Friday afternoon, the Board of Trustees for the Illinois Teachers’ Retirement System, which serves almost 400,000 teachers, voted to cut the assumed rate of return to 7% from 7.5%. “We have to do what we believe is the right thing,” Richard Ingram, the pension’s executive director, said during the board meeting in Springfield.

As a reminder, Illinois’ fiscal 2017 pension payment to its five retirement systems was estimated at $7.9 billion, up from $7.6 billion in fiscal 2016 and $6.9 billion in fiscal 2015, according to a March report by a bipartisan legislative commission. The country’s fifth-largest state’s unfunded pension liability stood at $111 billion at the end of fiscal 2015, with TRS accounting for more than 55 percent of that gap.

This is how the Chicago Tribune summarized the Pension Fund’s dilemma:

“if the board voted for the 7 percent figure, state government would be on the hook to make up the difference, estimated to cost an extra $400 million to $500 million a year, an expense that would come due starting in July. The governor and lawmakers would have to find that extra money, worsening a state budget that’s already in free fall amid a budget impasse that’s lasted more than a year. Alternatively, if the board voted for the 7.5 percent figure, the state would not have had to pay all of that extra money right away. But if investments failed to hit the benchmark, the shortfall would have been tacked on to the pension fund’s $65 billion debt. Taxpayers would be hit either way; the question was whether it would be in the short term or long term.”

Needless to say, fearing a popular revulsion, Gov. Bruce Rauner wanted TRS to delay the decision, which was “odd position for him to be in” considering Rauner has long criticized state and city government for kicking the can down the road on financial issues, and yet that’s precisely what he was advocating as he tried to delay the teacher pension decision.

To be sure, the chronic under-funding of the pension system is not Rauner’s doing and predates him: TRS was created in 1939, and in no year since then has the system received enough money from the state to keep it fully funded. However, when push came to shove, and when the governor’s office learned that the change was afoot, his team mounted an effort to block it, firing off memos that warned of a secretive attempt by the TRS board to saddle taxpayers with a new, unaffordable expense.

To continue reading: Illinois Governor Furious After Pension Fund Cuts Returns Forecast, Sticking Taxpayers With “Crippling” Tax Hike

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Illinois governor’s office warns of crippling pension payment hike, by Davd McKinney and Karen Pierog

Posted on August 24, 2016 | Leave a comment

If Illinois decides to use a more realistic rate of return assumption for its biggest public pension fund, it will blow a much bigger hole in it’s already problematic budget. From Dave McKinney and Karen Pierog at reuters.com:

Potential action this week by Illinois’ biggest public pension fund could put a big dent in the state’s already fragile finances, Governor Bruce Rauner’s administration warned.

A Monday memo from a top Rauner aide said the Teachers’ Retirement System (TRS) board could decide at its meeting this week to lower the assumed investment return rate, a move that would automatically boost Illinois’ annual pension payment.

“If the (TRS) board were to approve a lower assumed rate of return taxpayers will be automatically and immediately on the hook for potentially hundreds of millions of dollars in higher taxes or reduced services,” Michael Mahoney, Rauner’s senior advisor for revenue and pensions, wrote to the governor’s chief of staff, Richard Goldberg.

When TRS lowered the investment return rate to 7.5 percent from 8 percent in 2014 the state’s pension payment increased by more than $200 million, according to the memo.

Illinois’ fiscal 2017 pension payment to its five retirement systems was estimated at $7.9 billion, up from $7.617 billion in fiscal 2016 and $6.9 billion in fiscal 2015, according to a March report by a bipartisan legislative commission.

The country’s fifth-largest state’s unfunded pension liability stood at $111 billion at the end of fiscal 2015, with TRS accounting for more than 55 percent of that gap. The funded ratio was a weak 41.9 percent.

An impasse between the Republican governor and Democrats who control the legislature left Illinois as the only state without a complete 2016 budget. A six-month fiscal 2017 spending plan was passed in June.

Mahoney cautioned that “unforeseen and unknown automatic cost increases would have a devastating impact” on Illinois’ ability to fund social services and education.

One of Rauner’s top Republican legislative allies, Senate Minority Leader Christine Radogno, urged the TRS board to delay a vote Friday to give the public time to weigh in on its possible actions.

“This issue is important enough at the very least to put the TRS board on notice we don’t want them taking any action that could cost taxpayers $200 to $300 million without appropriate scrutiny,” she said.

TRS spokesman Dave Urbanek said the pension system was not aware of Mahoney’s memo until Tuesday and that Rauner’s office had requested “information about the scenarios under consideration.”

He added TRS did not offer “potential scenarios” either to the governor’s office or legislative leaders and noted the TRS board has not yet discussed the matter.

http://www.reuters.com/article/us-illinois-pensions-idUSKCN10Y28Z

 

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The Chicago Pension Scandal: $100,000+ Teacher Pensions Costing Taxpayers $1 Billion, by Tyler Durden

Posted on April 25, 2016 | Leave a comment

Chicago’s public employee pension plans are broke and getting broker as payouts, which in some cases are scandalously generous, continue to far exceed contributions and the Illinois Supreme Court has ruled that benefits cannot be cut. Eventually Chicago will declare bankruptcy. From Tyler Durden at zerohedge.com:

As we’ve known for quite some time now, Illinois is completely insolvent, and in large part due to enormous pension liabilities which as of December were underfunded to the tune of $111 billion. Not only is the state insolvent, its millionaires can’t get out fast enough to avoid the massive tax hikes that will be coming in what is sure to be a failed effort to plug budget holes, as well as the soaring criminality in cities such as Chicago which recently just passed the historic milestone of 1,000 gunshot victims in the fastest time in decades.

Citing unfunded pension plans, Moody’s downgraded Illinois to Baa1, and gave it a negative outlook back in October. The issue with the pension funds (aside for the massive shortfall in funding) is that per the Illinois Supreme Court, benefits cannot be altered. In a ruling last year, the state’s Supreme Court overturned a 2013 law that tried to ease the burden of what was then a $105 billion funding gap.

“Crisis is not an excuse to abandon the rule of law. It is a summons to defend it.” the supreme court said in its ruling.

In other words, regardless of the fact that the pension funds are insolvent, the state cannot cut benefits to any of its participants. This is in stark contrast to the multi employer private pension funds, which as we pointed out, are able to cut benefits in order to keep the funds solvent.

At this point, it’s clear that without the ability to cut pension benefits, most plans will end up insolvent, at which point nobody will be receiving benefits. Until that point comes, however, there are a few who are living quite well off of the system.

As Forbes’ Adam Andrzejewski reports, there are currently 7,499 teacher retirees that earn at least six figure pensions, and he estimates that in just six years, the number will be three times what it is today because, as we noted previously, the Illinois Supreme Court recently confirmed that pension benefits are constitutionally guaranteed and “the public employee gravy train is running faster than ever.”

Now, there would be nothing wrong with these retirees collecting the “annuity” benefits after paying to the retirement plan for years as most other honest, hard-working employee do. There is just one problem: this was a human system, and like every human system (especially in Illinois) it was impeccably gamed from the beginning. Especially when Chicago is involved as it is here.

Take the example of two union lobbyists who substitute taught for one-day in the public schools and then started collecting over $1 million of lifetime public ‘teacher’ pension payout – despite a state law expressly designed to stop them.

And now take all the other 7,499 educators. The retirees in question paid so little into their own retirement (breaking even on their cost basis within the first 20 months of retirement) that taxpayers now face a $900 million bill just to keep the pension payments flowing!

To continue reading: The Chicago Pension Scandal: $100,000+ Teacher Pensions Costing Taxpayers $1 Billion

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