http://globaleconomicanalysis.blogspot.com/2013/09/scranton-pennsylvania-careens-towards.html
Consider a comment to the article by KMCG who says ... "At least now we are getting a real whiff of union priorities. Years of controlling City Hall through weak mayors, outrageous health care benefits, salaries that are double and triple the average Scrantonian's salaries, overtime scams, longevity pay, fat pensions....the list is endless. And when there's nothing left after they've picked the bones of the city's coffers for decades, they look to seize assets? I can hear them licking their greedy, greasy fingers now."
Indeed. But it is not just greedy unions. It takes two to tango. Greedy politicians willfully entered into devilish bargains with unions to get reelected.
That is neither here nor there right now. And to throw still more cliches into the mix, it's all water over the dam.
Best Way Forward
Scranton must decide - and soon - the best way forward. And so must the unions.
In that regard, I suggest to the city of Scranton: file bankruptcy immediately, before the union seizes assets.
Reflections on Municipal Bonds
As I have said repeatedly, if you are a municipal bond investor, please be careful. Cities can and will file for bankruptcy.
For further reading, please consider Fiscal Crisis in Chicago: Pensions 31% Funded, Moody's Downgrades Debt 3 Notches, Pension Liability is $61,000 Per Household; Mish's Proposed Solutions
Mike "Mish" Shedlock
http://thenotebook.org/october-2013/136420/saying-goodbye-24-philadelphia-schools
Via email, Ted Dabrowski at the Illinois Policy Center writes ...
You can view the entire report at The hidden bill: Chicago taxpayers and the looming crisis.
A closer look at the "Hidden Bill" shows the problem is even worse than stated by Dabrowski above.
Chicago Obligations
Chicago Pension Funding
Four Long Term Solutions
The above long-term solutions will stop the problem from growing as well as ensure labor costs are market-priced, not union-priced.
I wish that was enough but it isn't. Those things will slow the rate of growth of the problem, but cannot address 77% pension underfunding.
Two Short Term Solution
Pension and benefit cuts are necessary, but how best to do it?
I propose the burden of pension cuts spread out in an equitable manner with those receiving the highest benefits taking the biggest percentage cuts.
All pension income above a certain cap could be taxed at a very high rate. This would protect the smaller pensioners from massive haircuts.
The alternative, as we saw in Central Falls, Rhode Island Bankruptcy, was an across the board 50% pension haircut.
Someone with a $200,000 pension had it cut to $100,000. Someone with a $25,000 pension had it cut to $12,500.
My proposal would cap the top-end rather than applying uniform haircuts. If one picks the cap carefully, a majority of union members would fare better under my plan than bankruptcy.
The Union Choice
Public unions can scream all they want, but the entire defined benefit pension system is insolvent.
There is no choice other than pension haircuts. There is a choice as to how:
Bankruptcy Here We Come
Unfortunately, unions are highly unlikely to accept my common sense proposal.
Ultimately, Chicago will play around with superficial remedies just like Central Falls, Detroit, and several cities in California (all of which succumbed to the inevitable).
In the meantime, Chicago will probably follow some other major cities into bankruptcy, such as Oakland and Los Angeles.
Investors better pick their municipal bonds carefully, because some major hits are on the way.
Mike "Mish" Shedlock
Submitted by Tyler Durden on 09/20/2013 20:05 -0400
Friday, September 20, 2013 10:16 AM
Scranton, Pennsylvania Careens Towards Bankruptcy; Real Whiff of Union Priorities; Reflections on Municipal Bonds
With public unions threatening to seize Scranton assets including fire trucks, how long will it take for Scranton to do the smart thing and declare bankruptcy?
The Times-Tribune reports Scranton police/fire unions get $21M judgment against city; may seize assets to collect.
The Times-Tribune reports Scranton police/fire unions get $21M judgment against city; may seize assets to collect.
Scranton's police and fire unions have received a judgment against the city for the overdue $21 million that the city owes the unions from a landmark arbitration ruling.Real Whiff of Union Priorities
The money was due July 2, but the city has not yet paid and is still seeking borrowing or selling an asset to honor the bill, Mayor Chris Doherty said.
But the judgment means the unions now can seize city assets and sell them to collect what is owed, said city solicitor Paul Kelly and the unions' attorney, Thomas Jennings.
"Whenever a judgment is granted, you can go to the sheriff and levy against assets," Mr. Kelly said. "They (the unions) can sell city assets. They can sell firetrucks, garbage trucks - they can sell City Hall."
Mr. Jennings said, "Do I want to take firetrucks and City Hall? Of course not. But would I do it if I have to? In a New York minute."
Consider a comment to the article by KMCG who says ... "At least now we are getting a real whiff of union priorities. Years of controlling City Hall through weak mayors, outrageous health care benefits, salaries that are double and triple the average Scrantonian's salaries, overtime scams, longevity pay, fat pensions....the list is endless. And when there's nothing left after they've picked the bones of the city's coffers for decades, they look to seize assets? I can hear them licking their greedy, greasy fingers now."
Indeed. But it is not just greedy unions. It takes two to tango. Greedy politicians willfully entered into devilish bargains with unions to get reelected.
That is neither here nor there right now. And to throw still more cliches into the mix, it's all water over the dam.
Best Way Forward
Scranton must decide - and soon - the best way forward. And so must the unions.
In that regard, I suggest to the city of Scranton: file bankruptcy immediately, before the union seizes assets.
Reflections on Municipal Bonds
As I have said repeatedly, if you are a municipal bond investor, please be careful. Cities can and will file for bankruptcy.
For further reading, please consider Fiscal Crisis in Chicago: Pensions 31% Funded, Moody's Downgrades Debt 3 Notches, Pension Liability is $61,000 Per Household; Mish's Proposed Solutions
Mike "Mish" Shedlock
http://thenotebook.org/october-2013/136420/saying-goodbye-24-philadelphia-schools
Saying goodbye to 24 Philadelphia schools
Last December, Superintendent William Hite announced plans to close or relocate 44 Philadelphia schools at the end of the school year. At most of the schools, parents, teachers, students, and other community members were outraged by the plan. Rallies to save the schools ensued, and the District dropped a dozen schools from the list; four others were spared by the School Reform Commission. But a majority of the efforts to save schools from being shuttered were unsuccessful. Ultimately, 24 schools were closed, with 5 more relocating or merging.
| Closed schools | ||
|---|---|---|
| Bok Technical High School | L.P. Hill Elementary | Sheridan West Middle School |
| Carroll High School | Kinsey Elementary | M.H. Stanton Elementary |
| Communications Technology High School | L.P. Hill Elementary | Smith Elementary |
| Douglas High school | Leidy Elementary | University City High School |
| Fairhill Elementary | Lamberton High School | Vaux High School |
| Ferguson Elementary | Pepper Middle School | George Washington Elementary (Now houses Abigail Vare) |
| Fulton Elementary | Pratt Elementary | Whittier Elementary |
| Germantown High School | Reynolds Elementary | Alexander Wilson Elementary |
Neighborhoods, many anchored by the schools that were closed in June, were altered forever, leaving many families uncertain about what the future of public education in the city would look like.
To capture how the District’s school closings looked and felt, Philadelphia photographer Zoe Strauss put out a call to her colleagues – amateur and professional – to document the last days of these schools, many of which had become important institutions to students and families, staff, and alumni. The photographers gained access to most of the schools, capturing images of empty classrooms and hallways, final graduating classes, hugs from principals and teachers, well-worn exteriors, and other memorable moments.
Above are just a few of the images. Hundreds of additional photographs are displayed on the Philadelphia School Closings Photo Collective website. The Notebook has also produced a video about the closings.
http://www.detroitnews.com/article/20130921/METRO01/309210029/1486/metro08/State-hires-supplemental-attorneys-advise-Detroit-bankruptcy-case
and....
http://www.freep.com/article/20130920/NEWS01/309200092/Bankruptcy-panel-Detroit
A panel of bankruptcy experts had strong words today about the state’s contribution to Detroit’s bankruptcy and offered advice to dozens of Michigan municipal leaders on steering clear of future financial issues.
The discussion, called, “Is Detroit contagious?” was part of the closing breakfast of the Michigan Municipal League’s annual three-day conference at the Detroit Marriott in the Renaissance Center.
“Don’t wait till the crisis happens to get advice,” Douglas Bernstein, managing partner of Plunkett Cooney’s Banking, Bankruptcy and Creditors’ Rights Practice Group, told about 250 politicians and community leaders from across the state. “If you wait too long, it’s disaster recovery. The sooner you realize you might have a problem, the sooner you address it, the better.”
■ How Detroit went broke: The answers may surprise you
Along with Bernstein, others on the panel were Eric Scorsone, an adviser to Detroit emergency manager Kevyn Orr and a Michigan State University municipal finance and regional economics expert; Gary Brown, a former Detroit councilman and now Orr’s chief operations officer; Detroit City Council President Saunteel Jenkins; Frank Shafroth, director of the Center for State and Local Leadership at George Mason University, and Jane Hudson Ridley of Standard & Poor’s rating services.
In a conversation moderated by Flint Mayor Dayne Walling, Jenkins said previous administrations made decisions based on positive financial outlooks that never materialized.
“This has come as a result of decades and decades of — some would call mismanagement — I would call it misunderstanding,” she said. “Government officials made decisions banking on an economy that did not turn around as they expected.”
Brown said four of Detroit’s previous budget managers said the same thing: The city overestimated revenue for years.
“If you don’t hear anything else I say today, you have to be realistic about the revenue that’s coming in and not overpromise on benefits you cannot sustain in the future,” Brown said. “That’s the thing that pushed us over the top.”
And while Hudson Ridley said Standard & Poor’s won’t allow Detroit’s bankruptcy to affect ratings for other Michigan cities, she warned that the bankruptcy could impact the city’s access to cash through bonds and other financial instruments for years.
“Those credit implications can linger,” she said.
The panel’s consensus was the state isn’t going to bail out Detroit, drawing comparisons of the federal bailout of theauto
industry. But most on the panel felt Michigan needs to be more involved with struggling municipalities —some crippled by cuts to state revenue streams.
industry. But most on the panel felt Michigan needs to be more involved with struggling municipalities —some crippled by cuts to state revenue streams.
“The state has played a huge role in where we are,” Jenkins said, adding that Detroit has seen a 50% cut in state revenue. “Certainly, there has been some local mismanagement. ... But we are all creatures of the financial system that was created by the state, so the governor and the state have to be more partners in this and helping cities find creative ways to finance themselves.”
Scorsone suggested revenue sharing as a future option, as opposed to local tax-and-spend systems.
Shafroth pointed out a number of states are intrinsically involved in financial issues in large municipalities, like Maryland picking up 100% of the costs of social services in Baltimore. He said Michigan has been described as a post-distress state, waiting to help municipalities until “you go over the edge.”
picking up 100% of the costs of social services in Baltimore. He said Michigan has been described as a post-distress state, waiting to help municipalities until “you go over the edge.”
“Very different state roles, but you can see the state role can be incredibly constructive and positive … or the state can be the ... force that causes bankruptcy,” Shafroth said.
http://globaleconomicanalysis.blogspot.com/2013/09/fiscal-crisis-in-chicago-pensions-31.html
Tuesday, September 17, 2013 3:27 PM
Fiscal Crisis in Chicago: Pensions 31% Funded, Moody's Downgrades Debt 3 Notches, Pension Liability is $61,000 Per Household; Mish's Proposed Solutions
Move over Detroit. The fiscal crisis in Chicago is far bigger.
- Pensions 31% funded
- Moody's downgraded Chicago Debt 3 Notches (just 4 steps above junk)
- City debt on negative watch
- Pension Liability is $61,000 Per Household ($23,000 Per Capita)
Via email, Ted Dabrowski at the Illinois Policy Center writes ...
While all eyes are focused on a solution for Illinois’ state-run pension systems, Chicago’s own debt crisis is looming.The Hidden Bill
Chicago taxpayers are on the hook for more than $63 billion in pension, health insurance and other debt. That’s the total debt of the city and its sister governments, as well as Chicagoans' share of Cook County debt.
In total, each Chicago household is on the hook for more than $61,000.
Chicago’s pension crisis isn’t new, but Detroit’s bankruptcy has brought national attention to Chicago’s growing crisis. Just a day after Detroit filed for bankruptcy, Moody’s Investors Service downgraded Chicago’s debt by a rare three notches. Chicago is now just four notches away from junk-bond status — and any further downgrades mean the city could face problems borrowing money.
Without pension reform, Chicago Mayor Rahm Emanuel will be forced to raise taxes or dramatically cut government services.
Emanuel knows he can’t raise taxes. Chicago has lost more than 200,000 residents in the last decade and the city’s population is lower now than it was in the 1920s.
To make matters worse, Chicago’s services are already faltering. Chicago Public Schools closed nearly 50 schools this year, forcing children and families to travel across gang lines. Nearly 3,000 school employees have been laid off. And the city’s crime rate is among the worst in the nation.
Higher taxes, taxpayer flight and an inability to provide core services contributed to Detroit's demise — and it’s a trend that Chicago must reverse.
Fixing Chicago's pension crisis will require help from Springfield. Lawmakers need to follow the lead of the private sector and move all workers to 401(k)-style plans for all work going forward — an idea that Emanuel supports as an option for the city's new hires.
Ted Dabrowski
Vice President of Policy
You can view the entire report at The hidden bill: Chicago taxpayers and the looming crisis.
A closer look at the "Hidden Bill" shows the problem is even worse than stated by Dabrowski above.
Pension funds have long assumed unrealistically high investment returns, which make the funds look healthier than they actually are. Moody’s Investors Service now calculates unfunded pension liabilities using more appropriate discount rates.If you adjust pension obligations for a more realistic rate of return, the problem looks like this.
Under new Moody’s methodology, Chicago’s unfunded pension liabilities are at least $23 billion higher than what’s officially reported. Today, the systems have only 31 cents for every dollar
they should have to make necessary pension payouts in the future.
When summing up Chicago’s total debt, it’s necessary to use the Moody’s calculation of unfunded pension liabilities instead of those officially reported by the city. That’s because the municipal bond market depends heavily on Moody’s ratings when investing in Chicago bonds.
Moody’s based its recent triple-notch downgrade of the city’s debt on the agency’s new methodology for valuing pension shortfalls. The downgrade has led to a collapse in Chicago’s bond prices and a significant increase in its borrowing rates.
Chicago’s credit rating is now only four notches away from junk-bond status. Many institutional investors are not allowed to invest in junk bonds, meaning the city will face significant
pressure in accessing the bond market going forward if this downward trend continues.
Ignoring the Moody’s pension calculation not only understates the severity of Chicago’s debt crisis, but also the true burden that Chicago taxpayers may be forced to shoulder.
Chicago Obligations
Chicago Pension Funding
Four Long Term Solutions
- Kill defined benefit pension plans
- End collective bargaining for public unions
- Institute national right-to-work laws
- Scrap Davis-Bacon and all prevailing wage laws
The above long-term solutions will stop the problem from growing as well as ensure labor costs are market-priced, not union-priced.
I wish that was enough but it isn't. Those things will slow the rate of growth of the problem, but cannot address 77% pension underfunding.
Two Short Term Solution
- Pension cutbacks
- Healthcare benefit cutbacks
Pension and benefit cuts are necessary, but how best to do it?
I propose the burden of pension cuts spread out in an equitable manner with those receiving the highest benefits taking the biggest percentage cuts.
All pension income above a certain cap could be taxed at a very high rate. This would protect the smaller pensioners from massive haircuts.
The alternative, as we saw in Central Falls, Rhode Island Bankruptcy, was an across the board 50% pension haircut.
Someone with a $200,000 pension had it cut to $100,000. Someone with a $25,000 pension had it cut to $12,500.
My proposal would cap the top-end rather than applying uniform haircuts. If one picks the cap carefully, a majority of union members would fare better under my plan than bankruptcy.
The Union Choice
Public unions can scream all they want, but the entire defined benefit pension system is insolvent.
There is no choice other than pension haircuts. There is a choice as to how:
- Voluntary (via union agreement)
- Involuntary (via bankruptcy)
Bankruptcy Here We Come
Unfortunately, unions are highly unlikely to accept my common sense proposal.
Ultimately, Chicago will play around with superficial remedies just like Central Falls, Detroit, and several cities in California (all of which succumbed to the inevitable).
In the meantime, Chicago will probably follow some other major cities into bankruptcy, such as Oakland and Los Angeles.
Investors better pick their municipal bonds carefully, because some major hits are on the way.
Mike "Mish" Shedlock
Barack Obama: "We're Not Some Banana Republic, This Is Not A Deadbeat Nation"
Presented without comment:
"This is the United States of America, we’re not some banana republic. This is not a deadbeat nation. We don’t run out on our tab. We're the world's bedrock investment, the entire world looks to us to make sure the world economy is stable. We can’t just not pay our bills."
- Barack H. Obama
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