"Five reasons Chicago is in worse shape than Detroit" via Bloomberg

[SpartanDawg]

"Chicago’s unfunded liability from four pension funds is $20 billion and growing, hitting every city resident with an obligation of about $7,400. Detroit’s, whose population of about 689,000 is roughly a quarter of Chicago’s, had a retirement funding gap of $3.5 billion, meaning each resident was liable for $5,100."

http://www.bloomberg.com/news/articl...ser-to-detroit

interesting article... i don't think chicago will EVER be in as bad of shape as Detroit was only a few short years ago, but they definitely need to take care of this quickly.

maybe some businesses will be scared and flee to the open arms of Detroit

[BankruptcyGuy]

That also doesn't take into account the $110B that the State of Illinois has unfunded. That works out to another $8,500 per person. Then there's the Cook County pension funds [[there are six of them). They have about another $20B in unfunded liabilities, divided across the county's 5M people. That's another $4,000 per person. The total is pretty close to $20,000 for every man, woman and child in the City of Chicago.

I've been saying for a long time: Detroit, as a whole, is better off for having filed for bankruptcy.

Chicago also has a) an Illinois Supreme Court ruling indicating that healthcare benefits are protected by their constitution; and b) an Illinois Supreme Court ruling indicating that pension benefits [[3% annual increases, for example) can't be curtailed.

[Wesley Mouch]

That also doesn't take into account the $110B that the State of Illinois has unfunded. That works out to another $8,500 per person. Then there's the Cook County pension funds [[there are six of them). They have about another $20B in unfunded liabilities, divided across the county's 5M people. That's another $4,000 per person. The total is pretty close to $20,000 for every man, woman and child in the City of Chicago.

I've been saying for a long time: Detroit, as a whole, is better off for having filed for bankruptcy.

Chicago also has a) an Illinois Supreme Court ruling indicating that healthcare benefits are protected by their constitution; and b) an Illinois Supreme Court ruling indicating that pension benefits [[3% annual increases, for example) can't be curtailed.

So the Illinois Supreme Court has ruled in favor of disproportionate benefit for public service employees. I guess the Supreme Court of Fiscal Reality will have to rule next. Let's just hope it does so before all the money is transferred to wealthy pensioners. Does anyone know how many Chicago millionaires gets $100k plus pensions?

[BankruptcyGuy]

So the Illinois Supreme Court has ruled in favor of disproportionate benefit for public service employees. I guess the Supreme Court of Fiscal Reality will have to rule next. Let's just hope it does so before all the money is transferred to wealthy pensioners. Does anyone know how many Chicago millionaires gets $100k plus pensions?

It's a really interesting question. Their constitutional provision and Michigan's are virtually identical. And, under current law, states can't declare bankruptcy.

If you recall, Judge Rhodes asked counsel for the retirees a very pointed question about agreements for retirement benefits in the future, and the lack of limits in taxation. He asked, "Since the State can't print money, how can they make that promise [to provide for benefits indefinitely." The State of Illinois is about to find out, I think.

One of the provisions in the pension reform law in Illinois was a limitation on certain salary amounts applying to pensions; it was also found unconstitutional. I've read a number as high as 9,900 people receive pensions over $100,000, but not from any sources I'd find that reliable.

[mwilbert]

The State of Illinois has a problem that is going to be hard for them to solve. There has been discussion of either allowing states to declare bankruptcy, or of putting some special-purpose pension legislation into effect. If the problem continues to get worse, something like that will probably happen.

I don't think Illinois law allows Chicago to declare bankruptcy, and if it did, you would have the same argument that we had in Detroit about whether that can be done given the constitutional prohibition on cutting pensions. So resolving Chicago's fiscal problem will be messy. I think we will look back and think that the Detroit experience was remarkably straightforward in comparison.

[ABetterDetroit]

Not looking to throw any city shade but if a few businesses are looking for a more certain tax future and stay in the midwest...

[Wesley Mouch]

The State of Illinois has a problem that is going to be hard for them to solve. There has been discussion of either allowing states to declare bankruptcy, or of putting some special-purpose pension legislation into effect. If the problem continues to get worse, something like that will probably happen.

I don't think Illinois law allows Chicago to declare bankruptcy, and if it did, you would have the same argument that we had in Detroit about whether that can be done given the constitutional prohibition on cutting pensions. So resolving Chicago's fiscal problem will be messy. I think we will look back and think that the Detroit experience was remarkably straightforward in comparison.

At some point, the law may have to be changed. Otherwise somebody will have to pay the taxes to fund the pensions, or the pensions will be reduced somehow.

The only other alternative is that they kick then can down the road, and somehow the stock/bond market solves their problem.

[TTime]

Reasons 6,7 and 8...because they have millions of tax paying residents, 32 miles of beautiful public lakefront and a large, diverse economy?

[313WX]

Reasons 6,7 and 8...because they have millions of tax paying residents, 32 miles of beautiful public lakefront and a large, diverse economy?

Finally, a voice of reason in this thread...

It's one thing to be a Detroit cheerleader, but bashing Chicago does nothing to solve the catastrophic problems facing Detroit.

[erikd]

Finally, a voice of reason in this thread...

It's one thing to be a Detroit cheerleader, but bashing Chicago does nothing to solve the catastrophic problems facing Detroit.

Who is bashing Chicago on this thread?

The Bloomberg article is about the worsening financial crisis in Chicago, and specifically the problem of underfunded city pensions, which was a major factor that led to Detroit's bankruptcy. Nobody is bashing Chicago or saying that it is a bad city, but the reality is that Chicago is facing a pension debt crisis that is similar to, and possibly even worse, than Detroit's was prior to the bankruptcy. Discussing the similarities of the situations is not "bashing" Chicago.

[313WX]

Who is bashing Chicago on this thread?

The Bloomberg article is about the worsening financial crisis in Chicago, and specifically the problem of underfunded city pensions, which was a major factor that led to Detroit's bankruptcy. Nobody is bashing Chicago or saying that it is a bad city, but the reality is that Chicago is facing a pension debt crisis that is similar to, and possibly even worse, than Detroit's was prior to the bankruptcy. Discussing the similarities of the situations is not "bashing" Chicago.

Again, focusing on and overblowing the negative aspects of other cities does nothing to benefit Detroit.

[rb336]

Again, focusing on and overblowing the negative aspects of other cities does nothing to benefit Detroit.

no, but it does add to understanding what is going on in cities across the country. as middle class and working class wages are squeezed, the cities that are still largely supported by taxes on their wages will be forced into tight situations. This process started earlier in Detroit, but it is happening everywhere, and will accelerate if the Trans Pacific Partnership is passed.

[CrashDummy]

Reasons 6,7 and 8...because they have millions of tax paying residents, 32 miles of beautiful public lakefront and a large, diverse economy?

This actually goes back to reason number 5. DENIAL.

[TTime]

This actually goes back to reason number 5. DENIAL.

I'm just curious, who is in denial?

[CrashDummy]

I'm just curious, who is in denial?

Chicagoland. I'm sure there are many powers that be that cite reasons 6, 7, and 8 as why Detroit can't possibly happen to them. They would prefer to use the method that was referred to several times during Detroit's bankruptcy of pouring more water into the bathtub without plugging the hole at the bottom. And they're banking on an unlimited water supply.

[TTime]

Chicagoland. I'm sure there are many powers that be that cite reasons 6, 7, and 8 as why Detroit can't possibly happen to them. They would prefer to use the method that was referred to several times during Detroit's bankruptcy of pouring more water into the bathtub without plugging the hole at the bottom. And they're banking on an unlimited water supply.

i appreciate the honest response but maybe I was too subtle with this question. I realize the article clearly suggests that Chicago is in denial and there is probably some merit to that suggestion. My question was intended for Detroiters who are championing a movement that says Detroit is on the verge of competing with a clearly functional, thriving Chicago while at the same time attacking Chicago by saying it is just as bad off as Detroit. To me it seems like a warped version of the old misery loves company saying and those that don't see this may also be suffering from just a touch of denial themselves.

[maverick1]

I don't buy this but if it's true it doesn't matter. Chicago is economically relevant. People care about Chicago. If it is in worse shape than Detroit there are more than enough people to care about it to keep it from going bankrupt. When it comes to finance Chicago is second to New York nationally.

[erikd]

I don't buy this but if it's true it doesn't matter. Chicago is economically relevant. People care about Chicago. If it is in worse shape than Detroit there are more than enough people to care about it to keep it from going bankrupt. When it comes to finance Chicago is second to New York nationally.

This is the denial part that the Bloomberg article was talking about.

Bankruptcy isn't about economic relevance or having enough people that "care about" the entity facing financial insolvency. Donald Trump has taken his companies through bankruptcy four times, and he is still very wealthy and economically relevant. Orange County, California went bankrupt in 1994, despite the fact that they were in a period of rapid economic and population growth, and are one of the largest counties in the country. General Motors is still one of the largest and most economically relevant companies in the world, even though they went through bankruptcy a few years ago. The list of examples goes on and on...

The social stigma of bankruptcy has lessened in recent years, especially since the Great Recession, and more Americans are coming to view bankruptcy as a logical and reasonable way to reorganize and reduce structurally unsustainable debt.

In the current political climate, it is extremely unlikely that the Democrats, Republicans, and Unions in Chicago and Illinois will voluntarily work out an agreement that restores solvency to the pension crisis in Chicago. The Democrats and Unions will not voluntarily agree to significant pension reductions, and the Republicans will not voluntarily agree to significant funding increases, so bankruptcy is the most likely scenario. They all know that the current system is insolvent and unsustainable, but none of them are willing to voluntarily accept the conditions needed to fix the problem, because of the political fallout.

I will be shocked if the city of Chicago doesn't go through bankruptcy in the near future. They should do it now, but I expect that they will do everything possible to kick the can down the road and delay the inevitable. They have been increasing their bond debt and skipping pension payments, and now their credit rating has been downgraded to junk status. This is exactly the same thing that happened in Detroit as our financial situation unraveled.

When it comes to financial insolvency, economic relevance and "people caring" doesn't matter. When there isn't any money left to pay the bills, and your credit is tapped out, the jig is up.

[Packard]

I don't buy this but if it's true it doesn't matter. Chicago is economically relevant. People care about Chicago. If it is in worse shape than Detroit there are more than enough people to care about it to keep it from going bankrupt. When it comes to finance Chicago is second to New York nationally.

But the article says that per capita Chicago is worse off than Detroit was.

[gazhekwe]

I am still irked by the assumption that municipal and other government pension benefits are "disproportionate." Wesley Mouch that was your term up there. ^^^^

These workers were assured these benefits as part of their compensation package at a time when workers were valued, and thus to attract the best workers. Had they received lower benefits, they would have gotten higher pay. It was actually smart to have the benefits since people are notoriously unlikely to fund their own retirement. The workers also kicked into the system. The government employers' part was to keep the benefits funded using the revenues kicked in and other worker compensation funds. This is where the employers all fell short. The workers did their part. They have already paid all they were asked to pay into the system and they already did all the work for their entire career. They did the job, they made the payments, so how is their compensation disproportionate?

[Wesley Mouch]

I am still irked by the assumption that municipal and other government pension benefits are "disproportionate." Wesley Mouch that was your term up there. ^^^^

These workers were assured these benefits as part of their compensation package at a time when workers were valued, and thus to attract the best workers. Had they received lower benefits, they would have gotten higher pay. It was actually smart to have the benefits since people are notoriously unlikely to fund their own retirement. The workers also kicked into the system. The government employers' part was to keep the benefits funded using the revenues kicked in and other worker compensation funds. This is where the employers all fell short. The workers did their part. They have already paid all they were asked to pay into the system and they already did all the work for their entire career. They did the job, they made the payments, so how is their compensation disproportionate?

That's correct. Disproportionate. Higher pay AND significantly greater pension contributions for more desirable working conditions.

Nobody working in the private sector is getting company defined pensions plus gold-plated healthcare while still in their 40s.

[Bham1982]

I am still irked by the assumption that municipal and other government pension benefits are "disproportionate." Wesley Mouch that was your term up there. ^^^^

The "blame the public sector workers" line is a total canard.

The fact is that Chicago [[and Illinois) gave these pensions to their workers. The workers didn't force it, it was given to them by the elected officials. If people don't like the pensions, fine, but blame the politicans, not the recipients.

And Chicago's pension system is not out-of-line with other major cities. Actually many cities [[NYC, LA, SF, Boston) have even more generous pension systems, yet they have excellent credit ratings.

The difference is that Chicago [[and Illinois) haven't funded their pension system. Basically they refused to fund it, then are facing bankruptcy, and now demonize the workers, who have guaranteed pensions. Sorry, but no. The workers aren't at fault, it's the idiot politicians who either 1. Should have refused the pensions or 2. Should have properly funded the pensions.

Yet Mayor Rahm magically finds money for a proposed Star Wars museum, massive sports stadium subsidies, tax breaks for his corporate buddies, and other nonsense. He has refused to raise taxes, and he has refused to cut spending.

[BankruptcyGuy]

I am still irked by the assumption that municipal and other government pension benefits are "disproportionate." Wesley Mouch that was your term up there. ^^^^

These workers were assured these benefits as part of their compensation package at a time when workers were valued, and thus to attract the best workers. Had they received lower benefits, they would have gotten higher pay. It was actually smart to have the benefits since people are notoriously unlikely to fund their own retirement. The workers also kicked into the system. The government employers' part was to keep the benefits funded using the revenues kicked in and other worker compensation funds. This is where the employers all fell short. The workers did their part. They have already paid all they were asked to pay into the system and they already did all the work for their entire career. They did the job, they made the payments, so how is their compensation disproportionate?

Don't confuse Chicago's system with Detroit's. Chicago and Illinois are the home to every pension-boosting trick in the book. Because of their culture of government corruption, speaking out about that or anything else wouldn't get you very far.

My favorite is this true story: there is an Illinois rule that your time as a union rep gets tolled [[added) to your pension. The idea was simple--if you work for a government agency, and take a year off to run the union, and come back, that year would be added on. Not crazy.

Two former union bosses [[that is to say, they never did anything but work for the union) were hired on as teachers, right at the end of their careers. Those two bozos now receive a lifetime pension and lifetime healthcare benefits.

Here's a couple more:

Ed Geppert, the former president of the Illinois Federation of Teachers [[IFT) is one of those union leaders, according to OpenTheBooks data. Teaching social science at Cahokia High School from 1969 to 1977, Mr. Geppert earned, on average, $12,100 a year. When he started at the union in 1980, he took in a salary of $32,650 and, although no longer teaching, he continued to remain in the TRS system.
By 2004, Mr. Geppert was making $217,000 annually as chief of staff at the union, and continued to contribute to the retirement system. When he decided to retire that same year, he got a $43,000 raise, bumping up his salary to $260,000, and his pension payout, which is based on his four highest consecutive salaries at the union, according to OpenTheBooks.com.
In 2007 Mr. Geppert came out of retirement to become the union’s president. In addition to collecting his union paycheck, he also collected his pension. Today, Mr. Geppert receives $203,076 annually from the pension, plus a 2 percent raise or a cost-of-living adjustment tied to the Consumer Price Index annually, based on whichever is higher, according to OpenTheBooks.com.

and

The sixth-highest Illinois teacher pension — $265,152 per year — goes to former National Education Association President Reginald Weaver, who spent the latter half of his career in Washington lobbying for the union and then doing education consulting. Mr. Weaver’s pension was predicated off his union earnings, not just his teacher pay.
Mr. Weaver defends the pension system and his payout as guaranteed by the 1987 law.
“I don’t see where it has been a disadvantage to anyone to have had that legislation passed. There’s not that many people who it affects,” Mr. Weaver said. “The largest teacher pensions are given to the administrators, not those who worked for the union.”

It's not a fair system when the ones asking for and the ones receiving benefits are on the same side. Chicago is loaded with stories like that.

[Wesley Mouch]

Don't confuse Chicago's system with Detroit's. Chicago and Illinois are the home to every pension-boosting trick in the book. Because of their culture of government corruption, speaking out about that or anything else wouldn't get you very far.

My favorite is this true story: there is an Illinois rule that your time as a union rep gets tolled [[added) to your pension. The idea was simple--if you work for a government agency, and take a year off to run the union, and come back, that year would be added on. Not crazy.

Two former union bosses [[that is to say, they never did anything but work for the union) were hired on as teachers, right at the end of their careers. Those two bozos now receive a lifetime pension and lifetime healthcare benefits.

Here's a couple more:

Ed Geppert, the former president of the Illinois Federation of Teachers [[IFT) is one of those union leaders, according to OpenTheBooks data. Teaching social science at Cahokia High School from 1969 to 1977, Mr. Geppert earned, on average, $12,100 a year. When he started at the union in 1980, he took in a salary of $32,650 and, although no longer teaching, he continued to remain in the TRS system.
By 2004, Mr. Geppert was making $217,000 annually as chief of staff at the union, and continued to contribute to the retirement system. When he decided to retire that same year, he got a $43,000 raise, bumping up his salary to $260,000, and his pension payout, which is based on his four highest consecutive salaries at the union, according to OpenTheBooks.com.
In 2007 Mr. Geppert came out of retirement to become the union’s president. In addition to collecting his union paycheck, he also collected his pension. Today, Mr. Geppert receives $203,076 annually from the pension, plus a 2 percent raise or a cost-of-living adjustment tied to the Consumer Price Index annually, based on whichever is higher, according to OpenTheBooks.com.

and

The sixth-highest Illinois teacher pension — $265,152 per year — goes to former National Education Association President Reginald Weaver, who spent the latter half of his career in Washington lobbying for the union and then doing education consulting. Mr. Weaver’s pension was predicated off his union earnings, not just his teacher pay.
Mr. Weaver defends the pension system and his payout as guaranteed by the 1987 law.
“I don’t see where it has been a disadvantage to anyone to have had that legislation passed. There’s not that many people who it affects,” Mr. Weaver said. “The largest teacher pensions are given to the administrators, not those who worked for the union.”

It's not a fair system when the ones asking for and the ones receiving benefits are on the same side. Chicago is loaded with stories like that.

Thanks for the stories. Seems to make a case for a cap on pension payouts. I can't think of a reason why anyone needs to get a $262,000 public pension -- especially when based on work outside of the school system. Thanks.

[Cincinnati_Kid]

Don't confuse Chicago's system with Detroit's. Chicago and Illinois are the home to every pension-boosting trick in the book. Because of their culture of government corruption, speaking out about that or anything else wouldn't get you very far.

My favorite is this true story: there is an Illinois rule that your time as a union rep gets tolled [[added) to your pension. The idea was simple--if you work for a government agency, and take a year off to run the union, and come back, that year would be added on. Not crazy.

Two former union bosses [[that is to say, they never did anything but work for the union) were hired on as teachers, right at the end of their careers. Those two bozos now receive a lifetime pension and lifetime healthcare benefits.

Here's a couple more:

Ed Geppert, the former president of the Illinois Federation of Teachers [[IFT) is one of those union leaders, according to OpenTheBooks data. Teaching social science at Cahokia High School from 1969 to 1977, Mr. Geppert earned, on average, $12,100 a year. When he started at the union in 1980, he took in a salary of $32,650 and, although no longer teaching, he continued to remain in the TRS system.
By 2004, Mr. Geppert was making $217,000 annually as chief of staff at the union, and continued to contribute to the retirement system. When he decided to retire that same year, he got a $43,000 raise, bumping up his salary to $260,000, and his pension payout, which is based on his four highest consecutive salaries at the union, according to OpenTheBooks.com.
In 2007 Mr. Geppert came out of retirement to become the union’s president. In addition to collecting his union paycheck, he also collected his pension. Today, Mr. Geppert receives $203,076 annually from the pension, plus a 2 percent raise or a cost-of-living adjustment tied to the Consumer Price Index annually, based on whichever is higher, according to OpenTheBooks.com.

and

The sixth-highest Illinois teacher pension — $265,152 per year — goes to former National Education Association President Reginald Weaver, who spent the latter half of his career in Washington lobbying for the union and then doing education consulting. Mr. Weaver’s pension was predicated off his union earnings, not just his teacher pay.
Mr. Weaver defends the pension system and his payout as guaranteed by the 1987 law.
“I don’t see where it has been a disadvantage to anyone to have had that legislation passed. There’s not that many people who it affects,” Mr. Weaver said. “The largest teacher pensions are given to the administrators, not those who worked for the union.”

It's not a fair system when the ones asking for and the ones receiving benefits are on the same side. Chicago is loaded with stories like that.

This is utterly ridiculous that they can get away with this. This example is why this country will face another economic hardship in the near future, 2008-09 was just as precursor of things to continue with this economic disparity.