To: locogringo who wrote (90091 ) 8/29/2018 11:26:02 AM From: FJB 2 RecommendationsRecommended By
Respond to Chicago’s Risky Bid to Dig Itself Out From Massive Pension Debts Rachel Greszler / August 28, 2018dailysignal.com Chicago has $36 billion in total unfunded pension obligations across its four pension funds, but has only enough assets on hand to pay 21 cents out of every dollar in promised pensions benefits. r Chicagoans, who already experienced a $1.1 billion property tax hike, a 29.5 percent tax on water and sewage bills, and a 100 percent telephone-tax increase, among others, to pay for the city’s generous pension promises. In theory, the plan would go like this: The city issues $10 billion in new debt at an estimated 5.25 percent interest rate and invests that $10 billion in the stock market. If it earns a 7.5 percent return in the market, the city will net $225 million per year and could potentially reduce its pension debt by $4 billion at the end of 10 years. suppose the city makes some sub-par investments—something not unheard of for Chicago’s pension funds —or the stock market tumbles. If the city’s $10 billion “investment” were to decline by 10 percent over the first two years and then earn only 4 percent per year, taxpayers would lose $5.6 billion at the end of 10 years. Hundreds of municipal governments have issued pension obligation bonds in hopes of reducing their pension debts. But far from a panacea, many pension obligation bonds have backfired, leaving governments with even larger pension debts. some lawmakers want to force federal taxpayers to provide tens or even hundreds of billions of dollars in subsidized loans to insolvent pension plans so that they can have a go at the same last-ditch speculative investment attempt that Chicago seeks. With its borderline junk-rated borrowing status, the city has to pay a premium on any debt it issues. The city’s proposal suggests a 5.25 percent rate for the bonds, but the actual rate could be higher. stating that their claim to pension revenues is “invalidated and unenforceable”—will drive up interest rates on pension obligation bonds.If Chicago had to pay more than 5 percent or 6 percent interest on its pension obligation bonds, it would be extremely difficult to out-earn its own interest costs. The city would have to invest in risky assets to increase its chances of paying down pension debts, but that could cause pension debt to snowball even further out of control. noted that the city would still have to find additional new revenue.Growing pension contributions are already causing higher taxes and crowding out existing services in Chicago. Chicago taxpayers can’t afford even higher pension debts owing to failed investment schemes. actuarial report notes, even the required contributions fall “far short of covering the future benefits that were accrued.”Based on the court’s extremely strict interpretation of the pension provision, no city or state government can ever require an employee to contribute a penny more or receive a penny less than the pension system prescribed on the day they were hired. The only options left are even more and even larger tax increases; this latest taxpayer-backed, speculative investment scheme; or a constitutional amendment changing or repealing the no pension impairment clause. Read her research.
