Chicago Schools Demand $500 Million Bailout From State

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Chicago’s public schools have released a budget that relies on nearly $500 million in funding the state has not yet voted to provide. The official budget essentially demands that the state hand over money or risk throwing the school district into chaos. Even Chicago’s teacher union is critical of the move.

With a total budget of $5.7 billion, the $480 million Chicago Public Schools (CPS) expects the state to provide is more than 8 percent of their budget. The money is needed to fulfill pension obligations the city has to current and retired teachers. If the money isn’t forthcoming by the end of the year, the district says it will have to lay off thousands of current teachers to meet those pension obligations. (RELATED: Chicago Fires 1400 Teachers To Fund Extravagant Pensions)

The district is already preparing itself for the blow, as Monday’s budget also came with an announcement of over 400 layoffs. Chicago’s schools have repeatedly had to shed jobs the last few years as they descend further and further into a pension-induced budget crisis.

While CPS is looking to the state government to bail it out, it may not want to hold its breath. Illinois’ Republican governor, Bruce Rauner, says that Chicago’s pension crisis is the fault of the Chicago Teachers Union (CTU) and the “dictatorial” power they wield. Rauner said CTU needs to bear the burden of a fiscal crunch they created and that it isn’t the government’s job to swoop in to the rescue.

"The power of the Chicago Teachers Union is overwhelming,” Rauner said in a press conference Monday. “Chicago has given and given and given. It’s created the financial crisis that the Chicago schools face now.”

Rauner wants to alter Illinois state law to give cities most power to determine what is collectively bargained and what isn’t, with an eye towards rolling back the generous benefits Chicago teachers have that have helped create the crisis. Rauner says that providing a financial bailout to CPS would be contingent on making such long-term reforms, but the Democrat-controlled legislature has refused to budge on the issue.

CPS leaders, meanwhile, have proposed reducing their budget gap by making teachers finance their own pension contributions. Currently, the government puts an equivalent of 7 percent of teachers’ salary into pension plans; CPS head Forrest Claypool has proposed taking some or all of this 7 percent out of teachers’ current salaries instead.

Teachers, led by CTU president Karen Lewis, have blasted this proposal as a massive pay cut and on Monday warned they would likely strike if the city tried to implement it.

“If they insist on a 7 percent all at once like a pay cut — a 7 percent pay cut — I don’t have to call for a strike,” Lewis said in a press conference Monday. “I think our members will do that themselves.”

Lewis was also critical of CPS for its budgetary jujitsu, saying it was relying on funds that “aren’t really there.”

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Via: Daily Caller

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[EDITORIAL] CHIGAO: No more waiting to pay down big pension bills

POSTER BOY FOR WHAT'S WRONG WITH CHICAGO!!

Chicago had better start budgeting like the game is up.

On Friday, a Cook County judge rejected Mayor Rahm Emanuel’s plan to restructure two of the city’s underfunded pension systems. If the Illinois Supreme Court does not reverse the lower court — and that’s looking like a pipe dream — the city will be on the hook for billions of dollars more just to adequately fund the Municipal Employees and Laborers pension funds.

On top of that, Friday’s ruling makes it extremely likely the city will remain on the hook for billions of dollars to adequately fund its police, firefighter and teacher pension systems.

New revenue must be found now, mostly through an array of loathsome tax increases, and cuts in city services are inevitable. That pension debt keeps growing. There can be no more waiting on the courts to give their seal of approval to pension reform schemes that border on wishful thinking.

But even if Chicago takes the most painful measures, a day may come when the city simply cannot pay full benefits to a retired worker. One would hope that the specter of this alone might compel the unions to agree to reasonable pension cuts — to better protect what they’ve got. But that, too, might be a pipe dream.

When Judge Rita Novak shot down the city’s pension reform plan, a union spokesman called it “a win for all city residents.”

It was, in fact, a disaster.

Via: Chicago Sun Times

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Chicago Fires 1400 Teachers To Fund Extravagant Pensions

About 1,400 Chicago public school teachers and staff are expected to lose their jobs in order to finance a pension debt of $634 million, the city announced Wednesday.

The layoffs are part of an aggressive $200 million budget cut to help finance the pension payment, which is required of Chicago Public Schools by Illinois law. The rest of the pension payment is coming from heavy borrowing, as the district already has a massive $1.1 billion budget deficit.

In announcing the layoffs, Mayor Rahm Emanuel blamed the rest of the state for not picking up the slack, saying the rest of Illinois doesn’t pay its fair share for pensions.

“You negotiate with your teachers in Aurora… Then we get to pay for it,”Emanuel said at a press conference. He said the state should change its funding formula so “You… come to the table and start paying your share for what you negotiated.”

But lawmakers in Springfield failed to act, leaving “unconscionable” cuts as the only option, he said.

Chicago’s public schools have seen repeated mass layoffs in recent years thanks to a budget situation that is in perpetual crisis. In 2014, about 1,100 employees were laid off, and over 3,000 lost their jobs in 2013. (RELATED: Chicago Public Schools Whack 1000 Employees)

Still, the Chicago Teachers Union (CTU) released a statement saying it was totally “blindsided” by the mass firing, and accusing city officials of trying to “retaliate” against them for a recent breakdown in contract negotiations.

“These layoffs prove that the Board never intended to make the pension payment in good faith and that they are using this to justify more attacks on our classrooms,” said CTU president Karen Lewis. “Putting 1,400 people out of work is no way to balance a budget and resource our schools. This is going to hurt our students and the most vulnerable children in our district.”

Via: Daily Caller

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California’s Political Earthquake On Its Way

California is facing an uncertain future – and it’s not an earthquake, despite a current blockbuster movie. There’s a water crisis, an education system declared woeful by a state judge and soaring costs on all levels – water, utilities, energy, housing and taxes. These could all be eclipsed by the huge elephant in the room – unfunded pensions and health care for state and local government employees that could be $1 trillion or more.

What are our public officials doing? As was recently reported, there are no fewer than a dozen proposals in the legislature to increase taxes AND spending, despite the massive underfunding of pensions and health care. The governor crows about a California ‘comeback’ but he almost completely ignores the trillion dollar bomb expected to hit over the next 20 years. This government employee pensions and healthcare bomb only gets worse, as life expectancies expand and investments underperform the rosy scenarios built into their projections.

Take heart, California, there is change coming and it’s not the San Andreas splitting apart. It will be a political earthquake and it’s called the Neighborhood Legislature (NL). It will replace the dysfunctional and practically corrupt (if not actually corrupt in some cases) California legislature. We just received Title and Summary and we have built a professional plus volunteer organization that will soon be circulating through the neighborhood precincts of California to collect signatures and build support for this groundbreaking proposal.

Why is this such a political earthquake? Because it holds real promise that it will return power to actual representatives of the people, citizen legislators, who will be able to explore and implement the important reforms unimpeded by the allure and/or sting from special interest money spent to protect the status quo. These citizen legislators will replace the professional fundraisers and special interest representatives we currently endure.

Via: California Political Review

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CA Dems Want State’s Overdrawn Pension Systems to Dump Fossil-Fuel Stocks

California’s two mammoth public-pension funds — the California Public Employees Retirement System and the California State Teachers’ Retirement System — are short a shocking $225 billion that they’re going to need to pay for the retirements of government workers. But what is it about the two pension funds that worries the state’s Democratic Party? Their fossil-fuel investments.

Delegates to the state’s annual Democratic Party convention voted over Memorial Day weekend in favor of a resolution urging the funds to dump oil, natural gas, and coal stocks. The vote follows the introduction earlier this year of state legislation that would require the pension funds to sell all coal-related stocks and study the implications of dropping oil and natural gas stocks. With the resolution, local Democrats jumped on the divestment bandwagon, inspired by radical environmentalist Bill McKibben, which has so far persuaded the endowment funds of about two dozen universities to sell shares in fossil-fuel companies. Yet if CalPERS and CalSTRS’s past social-investing records are any indication, the real losers from divestment won’t be the energy companies, but California taxpayers.

“I’ve been involved in five divestments for our fund,” CalSTRS chief investment officer Chris Ailman told his board earlier this year. “All five of them we’ve lost money, and all five of them have not brought about social change.”

For several decades, California’s pension funds have been subjected to a dizzying array of social-investment prerogatives. A 2011 Mercer Consulting study found that CalPERS investment officials had to follow 111 different investment priorities relating to the environment, social conditions, and corporate governance. Many of these directives have proven calamitous to the two funds’ bottom lines. Eight years after CalSTRS and CalPERS divested their portfolios of tobacco stocks in 2000, a study found that the move cost CalSTRS $1 billion and CalPERS about $750 million in foregone profits. CalPERS also ditched investments in developing countries such as Thailand and India, because board members objected to labor standards in these countries. A 2007 report found that avoiding investments in developing counties cost CalPERS about $400 million.

Via: California Political Review

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ECONOMIST: GOVERNMENT PREPARING TO SEIZE 401(K) PENSIONS

Supreme Court ruling sets the stage for "economic totalitarianism"

Economist Martin Armstrong warns that a Supreme Court ruling last week has set the stage for the federal government to begin seizing private pension funds.

According to Armstrong, the outcome of Tibble v. Edison, which found that employers have a duty to protect their workers’ 401(k) plans from mutual funds that perform poorly, will grease the skids for the feds to seize private funds and prosecute companies who manage mutual funds badly.

“Between the court ruling and the Obama administration’s push for stronger fiduciary rules,” the developments send a, “strong message that government can much easier seize the pension fund management industry of course to “protect the consumer,” writes Armstrong, warning that the ruling, “sets the stage to JUSTIFY government seizure of private pension funds to protect pensioners,” when the economy gets “messy”.

“This fits perfectly just in time for the Obama administration’s next assault as they prepare a landmark change of its own by issuing rules requiring that financial advisers put the interest of customers ahead of their own,” writes Armstrong. “This creates a very gray area wide enough to justify public seizure of pension funds under management.”

Following the 2008 financial collapse, reports emerged that the federal government was planning to seize the private 401(k) pensions of millions of Americans while enforcing an additional 5 per cent payroll tax as part of a new bailout program that would empower the Social Security Administration to redistribute pension funds “fairly” amongst citizens.

Armstrong warns that the development is part of a wider move towards “economic totalitarianism,” which is also characterized by efforts to eliminate physical cash altogether in the name of giving central banks more power.

Numerous prominent individuals have called for hard currency to be banned in recent months, including former Bank of England economist Jim Leaviss, who wrote a piece for the Telegraph which argued that, “Forcing everyone to spend only by electronic means from an account held at a government-run bank would give the authorities far better tools to deal with recessions and economic booms.”

Earlier this month, German Council Of Economic expert Peter Bofinger also said that imposing a cashless society would make it easier for central banks to enforce their economic policy.

As we have covered at length, commercial banks are beginning to impose more draconian controls on the withdrawal and depositing of cash, with the practice being treated as a suspicious activity even for relatively modest sums.

Armstrong, who correctly predicted the 1987 Black Monday crash as well as the 1998 Russian financial collapse, also warned last year that a coming financial collapse will cause widespread riots to erupt in America by 2016.

Via: Inforwars.com

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Chicago: Pension crisis, 'gorilla in the room,' gets just one line in Emanuel inaugural address

Mayor Rahm Emanuel made it a one-liner during a second inaugural address devoted almost exclusively to “preventing another lost generation” of young people.

But the “gorilla in the room” was as plain as day to the aldermen who joined the mayor onstage at the swearing-in ceremony Monday at the Chicago Theater.

In fact, the $30 billion pension crisis, that has dropped Chicago’s bond rating to junk status, has placed the city in such a precarious position that the mayor’s City Council floor leader has warned 13 rookie aldermen not to expect the political version of spring training.

“Normally the first couple months in City Council are very slow and very relaxed. He said, `Don’t expect that this time. It’s gonna be very difficult the next couple of months. We’re gonna have to pass legislation very quickly to deal with this financial situation,’” said 26-year-old Ald. Carlos Ramirez-Rosa (35th), the City Council’s youngest member.

“I’m not surprised that the mayor didn’t address it because we know the gorilla in the room and we’re gonna tackle that gorilla.”

Ald. Pat O’Connor (40th), the mayor’s floor leader, said the rapid-fire votes that will be required to pull Chicago away from the financial cliff might even cancel the Council’s traditional August recess.

“I can say with great certainty that we’re not gonna wait for the budget cycle to confront some of these problems,” O’Connor said

Via: Chicago Sun-Times

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Jerry Brown’s fake surplus

Liberal award-winning economist Paul Krugman and the front pages of the New York Times just crow about the “California miracle” and “California renaissance” that Governor Jerry Brown and the liberal Democrats in control in Sacramento have ushered into the state, by raising taxes to sky high levels, the highest state sales, income, and gas taxes at the pump, to achieve a modest “surplus” of a few billion dollars in the state budget.

Liberals in the national media love this narrative of California getting to a “surplus” because they are so desperate to find success in their job and wealth killing high tax policies.  They seem to ignore that under the same policies, the state maintains the third highest unemployment rate in the nation, and now for the second year in a row according to the Census Bureau, California is the poorest state in the nation.

But setting California’s high poverty and unemployment rates aside, the reality is there is no surplus in the California state budget.  Rather, California is playing a deceptive game with how it presents its finances to the public, because the accounting does not include disclosure of the massive debt obligations to the state’s two public employee pension funds: CalPERS, which is the retirement fund for state employees; and Cal STRS, which is the pension plan for teachers in the state.  As a result of unreasonably generous defined benefits plans, bad investments, and unsound investment revenue forecasts, these pension funds are underfunded by over $100 billion each, and California’s so-called “surplus” of less than $5 billion hardly cracks these looming, monster debt obligations of the state.

If just the CalSTRS obligations were properly included in the state’s annual financial accounting, California would not have a budget surplus, rather, the budget disclosures would reveal a state deeply in debt.  This is because California is legally obligated to fund the pension plan.  For every dollar of pay, the state must contribute 5% of teacher salary to the CalSTRS pension fund, even though the teachers do not work for the state.  Local school districts contribute 8 1/4% of pay, and the teacher employee contributes 8% of pay to the pension fund.  But even with those three sources of funds coming into the pension fund, CalSTRS staff reported last week that the agency’s “net pension liability” is now a whopping $166.9 billion.  This net pension liability greatly exceeds generally accepted levels of pension liabilities for financial health of the fund, because of the generous defined benefit payments the plan will be required to make in future.  As a result of the new calculations, school districts, and the state, will likely be asked to increase their contributions to the plan to reduce the liability to lower levels.  In doing so, local agencies will be forced to cut programs and seek more taxpayer revenue, as well as the state.  Taxpayers will be tapped yet again to pay for bad public employee pension decisions made by liberal Democrats.

It is true that some part of the $166.9 billion “net pension liability” of CalSTRS, if not all of it, should be attributed to California’s books of account.  If California has a legal obligation to fund the CalSTRS pension system, shouldn’t any debt obligations to the system show up on California’s annual financial statements?  Of course they should, and right-thinking members of the Legislature ought to push for more transparency and disclosure of such obligations.  Doing so would of course erase the so-called state “surplus” but it would also offer a more accurate picture of California’s finances, which is not happening under the current rules.

And it is equally clear that public employee defined benefits packages are no longer tolerable financially in California, as liberal Democrats have pushed the benefits so far beyond the reasonable that public institutions, including local governments, are facing drastic reductions in local services and even bankruptcy to keep pace with their expensive pension debt obligations.  Yes, our public employee system needs reform across the board.  But one important reform that needs more discussion, is California stopping the charade of having a “surplus,” and rightfully placing all its own obligations on its public books of account, including public employee pension debt.

James V. Lacy is publisher of California Political Review and author of “Taxifornia: Liberals Laboratory to Bankrupt America,” a Politico.com top seller available at Amazon.com.

Via: California Political Review

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The Pension Issue – Everywhere

Two stories yesterday thrust pension reform in the front of the political news. In Michigan, a judge declared that Detroit could consider bankruptcy to deal with its debt crisis and that public pension obligations can be treated like any other contract under bankruptcy law. In Illinois, the state legislature passed a public pension reform that supporters say will save $160 billion and fund the retirement system over 30 years by reducing benefits for workers and retirees.

Both actions await the inevitable lawsuits promised by the public employee unions that don’t want to see members’ benefits reduced. Both stories have meaning to California cities that are struggling with fiscal problems that are wrapped around pension and health care liabilities.

Let’s state here that no one wants to see pensioners lose income they expected. That goes for public workers as well as citizens on Social Security who could see benefits cut in the not-too-distant future if the current gap between available revenue and payments due is not altered.

Saying that, something has to be done to avert the city bankruptcies and everything is on the table.

The judge making the Detroit bankruptcy decision clearly stated that, “it has long been understood that bankruptcy law entails the impairment of contracts.” That argument is at issue in the San Bernardino bankruptcy debate and could arise again in Stockton. Other California cities facing difficult fiscal conditions due to heavy pension burdens will take note.

The pension decision in Detroit will now become front and center as city officials sit down with union leaders to discuss resolutions to budget problems. The decision also gives a boost to San Jose Mayor Chuck Reed’s effort to find resolution on the pension issues that are threatening the budget in his city and cities across the state.

Reed’s proposed ballot initiative would give local governments more power to negotiate reductions in pension benefits. He has reached out to unions in an effort to find a solution to the pension crisis and avoid a war over the initiative. The unions responded by rebuffing Reed’s overture unless he drops his initiative plan.

In light of the decision coming out of Detroit on bankruptcy and public pensions, perhaps public employee unions should reconsider and accept Reed’s invitation to at least attempt to find common ground.

Via: California Political Review

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Fitch downgrades Chicago bond ratings

SPRINGFIELD, Ill. (AP) -- Fitch Ratings has downgraded the credit worthiness of Chicago's bond debt because of its public pension problems.

Fitch dropped the rating from AA- to A- on $8 billion in general obligation bonds, backed by property taxes.

It also dropped the rating on $497 million in sales tax bonds — paid for by both the city's local sales tax and its share of the state sales tax. And the rating was downgraded on $200 million in commercial paper notes, financed by a general obligation pledge from any available city fund.

Friday's downgrade stems from "the lack of meaningful solutions" to the city's pension situation. City and fire pension programs have no more than 30 percent of the money needed to cover obligations.

The downgrade makes it more expensive to borrow money.

Via Yahoo FInance

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