Illinois Effort to Fix Ailing Local Pensions Faces Legal Hurdle

Link:https://www.bloombergquint.com/onweb/illinois-effort-to-fix-ailing-local-pensions-faces-legal-hurdle

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A court ruling as soon as this month will help determine the fate of one of Illinois Governor J.B. Pritzker’s key plans to ease the massive shortfall in local pension funds across the state. A 2019 law championed by Pritzker would merge about 650 local police and firefighter pensions with assets topping $16 billion into two funds to cut costs and improve returns.

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The law set a June 30 deadline for the consolidation of the funds, but many of the local pensions are hesitating or even refusing to merge until they learn the outcome of litigation to block the combining. Three dozen current employees and retirees, along with 18 local retirement plans, filed a lawsuit in February in Illinois circuit court saying the consolidation violates the state constitution.

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So far, however, the new Illinois Police Officers’ Pension Investment Fund hasn’t received any assets and expects to begin getting funds around March, said executive director Richard White. About 44% of the 357 downstate and suburban police funds that were supposed to be merged into the bigger pension plan haven’t even responded to requests for information, White said. 

Author(s): Shruti Singh

Publication Date: 2 Dec 2021

Publication Site: Bloomberg Quint

Illinois pension shortfall surpasses $500 billion, average debt burden now $110,000 per household – Wirepoints Special Report

Link:https://wirepoints.org/illinois-pension-shortfall-surpasses-500-billion-average-debt-burden-now-110000-per-household-wirepoints-special-report/

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The $110,000 per household is an average across the entire state, but the precise burden for Illinoisans differs depending on where they live. The debt burden on Chicago’s one million households is larger because of the city’s deeper debt crisis. There, each household is on the hook for $180,000 for their share of state and local retirement debts.

Illinoisans living outside of Chicago, meanwhile, face an overall average burden of $90,000 per household. For comparison purposes, the burdens for Chicago and non-Chicago households, based on official state and local retirement debts, are $95,000 and $53,000, respectively.

Author(s): Ted Dabrowski and John Klingner

Publication Date: 17 Nov 2021

Publication Site: Wirepoints

Look out for Zombie States – not only on Halloween

Link:https://www.truthinaccounting.org/news/detail/look-out-for-zombie-states-not-only-on-halloween

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We call it the “Zombie Index” based on the work of Edward Kane, a prolific and respected finance professor at Boston College. Back in 1985 and 1989, Ed wrote two books warning about taxpayer exposure to losses from bank deposit insurance schemes, before we knew what hit us in the savings and loan crisis. Ed coined the term “zombie bank” to identify effectively-insolvent banks that were allowed to remain open by regulators and others. Deceptive accounting principles greased the wheels for regulatory forbearance, making “zombies” appear to be solvent. 

Zombies had incentives, in Ed’s terms, to “gamble for resurrection.” Insiders could capture the upside of riskier investments, while prospective losses could be socialized through the government’s sponsorship (and ultimately, bailout) of deposit insurance systems. These incentives ended up magnifying taxpayer losses during the 1980s deposit insurance crisis. Those losses ran in the hundreds of billions of dollars and helped set the stage for the massive financial crisis of 2008-2009.

Author(s): Bill Bergman

Publication Date: 25 Oct 2021

Publication Site: Truth in Accounting

Chicago Police: Vaccine Mandates and Pension Threats

Link: https://marypatcampbell.substack.com/p/chicago-police-vaccine-mandates-and

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Both Chicago Police and Chicago Fire plans have active-to-beneficiary ratios of about 90%, and have been at that level for some years. Chicago Police, specifically, had such a ratio starting in 2012.

So, there are more people taking police pensions than are active employees already. If I take the numbers given, and shift 38% from active to beneficiaries, that gives one an active-to-beneficiary ratio of 52% (assuming you don’t get new actives, which you would, but still… this is a point-in-time estimate).

Author(s): Mary Pat Campbell

Publication Date: 21 Oct 2021

Publication Site: STUMP at substack

Chicago police vaccine mandate: New CPD memo threatens discipline, firing for non-compliance

Link:https://abc7chicago.com/chicago-police-vaccine-mandate-department-fraternal-order-of-fop/11138418/

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 A second memo, obtained by the I-Team, was distributed throughout CPD Sunday. The latest memo threatens the firing of officers who do not follow the city’s vaccine policy and orders it be communicated to officers at all police roll calls.

“TO BE READ AT ALL ROLL CALLS FOR SEVEN (7) CONSECUTIVE DAYS. This AMC message informs Department members of consequences of disobeying a direct order to comply with the City of Chicago’s Vaccination POlice issued 8 October 2021 and being the subject of the resulting disciplinary investigation. A Department member, civilian or sworn, who disobeys a direct order by a supervisor to comply with the City of Chicago’s Vaccination Police issued 8 October 2021 will become the subject of a disciplinary investigation that could result in a penalty up to and including separation from the Chicago Police Department. Furthermore, sworn members who retire while under disciplinary investigations may be denied retirement credentials. Any questions concerning this AMC message may be directed to the Legal Affairs Division via e-mail,” the memo said.

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“Roughly 38% of the sworn officers on this job, almost 40% can lock in a pension and walk away today,” Fraternal Order of Police President John Catanzara, Jr. said.

Author(s): Michelle Gallardo, Chuck Goudie

Publication Date: 18 Oct 2021

Publication Site: ABC7 Chicago

No, Lightfoot’s Chicago Budget Does Not Make An ‘Actuarial’ Pension Contribution

Link:https://www.forbes.com/sites/ebauer/2021/10/10/no-lightfoots-chicago-budget-does-not-make-an-actuarial-pension-contribution/

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Now, what she identifies as an “accomplishment,” having finished the climb up the pension ramp, is actually a state law that left her no choice in the matter. But that’s not the only incorrect part of her statement. Even having finally left the ramp behind, the plans are not funded on an “actuarially determined basis.” They are funded based on the Illinois legislature’s decision of a funding schedule which, for the police and fire plans, is sufficient to attain 90% funding in the year 2055, and for the Municipal and Laborers’ plan, not until 2058. Yes, if you do the math, that’s 34 and 37 years from now.

In fact, the plans’ actuarial valuations calculate a figure that’s labelled the Actuarially Determined Contribution. For the Fire plan (19% funded), the city’s contribution was only 79% of the ADC; for the Police plan (23% funded), the city’s contribution was only 75% of the ADC. And these are the two plans which reached the top of the ramp last year!

Author(s): Elizabeth Bauer

Publication Date: 10 Oct 2021

Publication Site: Forbes

Illinois and Iowa – the Mutt and Jeff of ‘balanced budgets’

Link: https://www.truthinaccounting.org/news/detail/illinois-and-iowa-the-mutt-and-jeff-of-balanced-budgets

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Iowa (the blue line) maintained positive net revenue in 15 of the 16 years. Illinois, on the other hand, did so in only three of those 16 years.

The frequency of truly-balanced-budgets, as indicated by “Net Revenue,” provides significant explanatory power (in econometrics-speak) for two important measures of state government performance – Truth in Accounting’s “Taxpayer Burden” measure of overall financial condition and rankings of the states on the latest Gallup results for a survey of trust in state government. 

In our latest (2021) Financial State of the States report on state government finances, Iowa ranked 9th, while Illinois ranked 48th. And in the latest Gallup poll on trust in state government, Iowa ranked 8th, while Illinois ranked 50th (dead last).

Author(s): Bill Bergman

Publication Date: 28 Sept 2021

Publication Site: Truth in Accounting

5 THINGS WRONG WITH ILLINOIS HOLDING 30% OF U.S. PENSION BOND DEBT

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It is bad Illinois has the nation’s worst pension crisis, but state politicians have made it worse by using risky debt to delay the day of reckoning, and done so to the point that Illinois now owes 30% of the nation’s pension obligation bonds.

Pension obligation bonds are a form of debt used by state or local governments to fund their pension deficits. Illinois holds $21.6 billion of the nation’s $72 billion pension obligation bond debt.

The theory behind the bonds is that if a pension system can borrow money at a lower rate by selling bonds and earn a higher percentage from investing those funds, then it has realized a net gain using them. The issue is the gamble rarely works out that way, as the Government Finance Officers’ Association points out. Pension obligation bonds place taxpayer money at risk and often leave governments saddled with more debt rather than less. They often do not achieve a high enough return to justify their use.

Illinois’ five statewide retirement systems hold $144 billion in debt, according to official state reporting based on optimistic investment estimates. But Moody’s Investors Service says the true debt is $317 billion, which it calculates using more accurate methods common in the private sector.

Author(s): Adam Schuster, Aneesh Bafna

Publication Date: 10 Sept 2021

Publication Site: Illinois Policy Institute

ILLINOIS MISSES DEADLINE TO REPAY $4.2 BILLION FEDERAL UNEMPLOYMENT INSURANCE LOAN

Link: https://www.illinoispolicy.org/illinois-misses-deadline-to-repay-4-2-billion-federal-unemployment-insurance-loan/

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Illinois missed the September deadline to repay a $4.2 billion federal unemployment loan. Employers warn inaction by state lawmakers could ‘cripple’ businesses and the COVID-19 economic recovery.

Illinois state leaders missed the Sept. 6 deadline to repay a $4.2 billion federal loan to the state’s unemployment insurance fund, which leaves Illinois taxpayers on the hook to pay $60 million in annual interest on that loan.

The unemployment fund has been depleted during the COVID-19 economic downturn. Between the loan and failure of state leaders to replenish the fund, potentially by using federal COVID-19 bailout funds, the deficit stands at $5.8 billion.

Business leaders warn a failure to repay the debt would result in automatic tax hikes on Illinois’ employers starting at $500 million, further waylaying the state’s stagnant job recovery. There would also be automatic benefit cuts of the same amount. Employers could be subjected to further, discretionary tax hikes by the state legislature if those automatic solvency measures fail to fill the hole.

Author(s): Adam Schuster, Patrick Andriesen, Perry Zhao

Publication Date: 17 Sept 2021

Publication Site: Illinois Policy Institute

Report finds Illinois holds 30% of pension obligation bond debt in nation

Link: https://www.thecentersquare.com/illinois/report-finds-illinois-holds-30-of-pension-obligation-bond-debt-in-nation/article_0ab6d148-1716-11ec-b36b-1b03ea725eeb.html#new_tab

Excerpt:

A new report shows Illinois holds 30% of the nation’s pension obligation bond debt.

A pension obligation bond is a form of debt that some states use to make payments to state-run pension funds. A pension obligation bond gets paid out by a third party and the state then pays back that loan with interest. Financial experts often advise against the use of pension obligation bonds, said Adam Schuster of the Illinois Policy Institute.

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The interest on the pension obligation bonds continues to climb and is leaving Illinois in a worse spot than it was previously in. The state has borrowed a total of $17.2 billion since 2003, but repayment cost is now $31 billion. Pension obligation bonds can save taxpayers money if the interest rates on the bonds is lower than the rate of return on the pension investments. If the rate of return drops below the interest rate on the bonds, then taxpayers are on the hook for the difference. This is a strategy that Schuster said is the same as gambling with the state’s money.

Author(s): Andrew Hensel

Publication Date: 16 Sept 2021

Publication Site: The Center Square

OVER 100% OF DANVILLE MUNICIPAL PROPERTY TAXES CONSUMED BY PENSIONS

Link: https://www.illinoispolicy.org/over-100-of-danville-municipal-property-taxes-consumed-by-pensions/

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The average Danville household owns nearly $40,000 in state and local pension debt.

Illinois’ worst-in-the-nation pension debt has become a well-known problem. Over $144 billion in pension debt for the five statewide retirement systems breaks down to nearly $30,000 in debt for each household, which must be paid with further tax hikes or further cuts to core government services.

Less well known is the nearly $75 billion of pension debt held by local governments in Illinois, which is the primary reason for Illinois’ second-highest in the nation property taxes. Combined with the state’s pension debt, politicians who mismanaged the pension system dug a $219 billion hole.

In Danville, the average household owns nearly $40,000 in state and local pension debt, with over $10,000 of that debt stemming from local systems for police, firefighters and municipal workers. To pay off that pension debt, a Danville household would have to give up 110% of an entire year’s  $36,172 median annual income.

Author(s): Adam Schuster, Perry Zhao

Publication Date: 20 Sept 2021

Publication Site: Illinois Policy Institute