Are all the cities going bankrupt blue?

[HRiscool]

By Tim Reid


LOS ANGELES (Reuters) - San Bernardino's council approved a bankruptcy exit plan on Monday night that seeks to virtually eliminate the southern California city's pension bond debt while paying Calpers, the state pension system, in full.

The city council voted 6-1 for the plan after a debate which included input from residents.

The bankruptcy blueprint, called a plan of adjustment, must now be presented to the federal judge overseeing the city's bankruptcy by May 30, under a court-imposed deadline.

Under the plan, city officials want to slash their $50 million pension debt to just a penny on the dollar. The city previously agreed to pay Calpers, its biggest creditor, in full now and at all times in the future, an agreement incorporated into the plan.

The Luxembourg-based bank EEPK, holder of the $50 million pension obligation bonds, Ambac Assurance Corp, which insures a portion of the bonds, and Wells Fargo, the bond trustee, have declined to comment since the plan was released last Thursday.

San Bernardino also intends to virtually eliminate retiree health care costs under the plan, and to outsource its fire, emergency response and trash services.

San Bernardino, a city of 205,000 65 miles east of Los Angeles, declared bankruptcy in August 2012 with a $45 million deficit.

Along with Detroit, Michigan, and Stockton, California, it has been one of a handful of municipal bankruptcies that have been closely watched by the $3.6 trillion U.S. municipal bond market.

 

[mstp1992]

By Tim Reid


LOS ANGELES (Reuters) - San Bernardino's council approved a bankruptcy exit plan on Monday night that seeks to virtually eliminate the southern California city's pension bond debt while paying Calpers, the state pension system, in full.

The city council voted 6-1 for the plan after a debate which included input from residents.

The bankruptcy blueprint, called a plan of adjustment, must now be presented to the federal judge overseeing the city's bankruptcy by May 30, under a court-imposed deadline.

Under the plan, city officials want to slash their $50 million pension debt to just a penny on the dollar. The city previously agreed to pay Calpers, its biggest creditor, in full now and at all times in the future, an agreement incorporated into the plan.

The Luxembourg-based bank EEPK, holder of the $50 million pension obligation bonds, Ambac Assurance Corp, which insures a portion of the bonds, and Wells Fargo, the bond trustee, have declined to comment since the plan was released last Thursday.

San Bernardino also intends to virtually eliminate retiree health care costs under the plan, and to outsource its fire, emergency response and trash services.

San Bernardino, a city of 205,000 65 miles east of Los Angeles, declared bankruptcy in August 2012 with a $45 million deficit.

Along with Detroit, Michigan, and Stockton, California, it has been one of a handful of municipal bankruptcies that have been closely watched by the $3.6 trillion U.S. municipal bond market.

Because they're depressed?

 

[hawkeye54545]

Better tax the rich some more that will fix it. (sarcasm)

 

[mstp1992]

Better tax the rich some more that will fix it. (sarcasm)

There are no rich people in those cities. They all live in the suburbs.

 

[Pepperman]

There are no rich people in those cities. They all live in the suburbs.

Have you stopped to ask yourself why they moved out there? I'm sure it isn't because they wanted a longer commute. Typically, it is because they want lower taxes, safer environments, and schools where their kids can actually learn something. Sometimes people want new homes and bigger yards, which of course are valid reasons too...

 

[ottumwan in tx]

since money is green, the blue and red colors seem to matter very little, but it would be interesting to see somebody go in there and clean house and rebuild some of these cities, there is no denying that dems have run most big cities that are a fail, for decades

 

[IMCC965]

There are no rich people in those cities. They all live in the suburbs.

And why is that? Honest question.

 

[theVoicefromtheTomb]

Not a city but anybody got an idea on how Kansas is doing?

 

[ottumwan in tx]

Not a city but anybody got an idea on how Kansas is doing?

where has wildcat been?

 

[IMCC965]

Not a city but anybody got an idea on how Kansas is doing?

Better than Detroit and Los Angeles.

 

[22*43*51]

Every government with a traditional public pension structure is going bankrupt.

 

[mstp1992]

And why is that? Honest question.

More green space.

 

[Pepperman]

Every government with a traditional public pension structure is going bankrupt.

A sort of ironic thing about this is the Fed's QE policies are only making it worse. And more dangerous for DB plans. But they are doomed on their own anyway, and this is precisely why mature adults that understand finance should be winning elections.

 

[INXS83]

Every government with a traditional public pension structure is going bankrupt.

Pensions in general are in great peril in the U.S.

I'm glad I took mine out as a lump sum last year and re-invested in a manner of my own choosing.

 

[22*43*51]

Pensions in general are in great peril in the U.S.

I'm glad I took mine out as a lump sum last year and re-invested in a manner of my own choosing.

Smart move.

 

[ottumwan in tx]

pensions are just one piece of the puzzle, look at gm, which is basically run like a small country. the healthcare costs, and the overpayment of folks, the pensions... welfare state. it's non-sustainable

 

[naturalmwa]

What should be done to resolve the pension problems? Most of the proposals I hear involve breaking the agreement with current pension holders and essentially stealing money owed them. Is there an alternative?

 

[HRiscool]

Every government with a traditional public pension structure is going bankrupt.

I haven't done the research but I would bet that this problem does cut across the red and blue. But I think you'll see the blue gov'ts go down first because of how underfunded those pensions are. Hopefully these bankruptcies will be a wake up call for red cities and they will get their house in order.

******************
​

The Illinois Supreme Court on Friday unanimously ruled unconstitutional a landmark state pension law that aimed to scale back government worker benefits to erase a massive $105 billion retirement system debt, sending lawmakers and the new governor back to the negotiating table to try to solve the pressing financial issue.

The ruling also reverberated at City Hall, imperiling a similar law Mayor Rahm Emanuel pushed through to shore up two of the four city worker retirement funds and making it more difficult for him to find fixes for police, fire and teacher pension funds that are short billions of dollars.

At issue was a December 2013 state law signed by then-Democratic Gov. Pat Quinn that stopped automatic, compounded yearly cost-of-living increases for retirees, extended retirement ages for current state workers and limited the amount of salary used to calculate pension benefits.

Caption Unfunded pension liablities combined systems
Caption State universities system
Employee unions sued, arguing that the state constitution holds that pension benefits amount to a contractual agreement and once they're bestowed, they cannot be "diminished or impaired." A circuit court judge in Springfield agreed with that assessment in November. State government appealed that decision to the Illinois Supreme Court, arguing that economic necessity forced curbing retirement benefits.

On Friday the justices rejected that argument, saying the law clearly violated what's known as the pension protection clause in the 1970 Illinois Constitution.

"Our economy is and has always been subject to fluctuations, sometimes very extreme fluctuations," Republican Justice Lloyd Karmeier wrote on behalf of all seven justices. "The law was clear that the promised benefits would therefore have to be paid and that the responsibility for providing the state's share of the necessary funding fell squarely on the legislature's shoulders.

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"The General Assembly may find itself in crisis, but it is a crisis which other public pension systems managed to avoid and ... it is a crisis for which the General Assembly itself is largely responsible," Karmeier wrote.

 

[Pepperman]

What should be done to resolve the pension problems? Most of the proposals I hear involve breaking the agreement with current pension holders and essentially stealing money owed them. Is there an alternative?

Stop any and all new entrants into this system is the first fix.

If necessary, defaulting on current pensioners is the next step. But I don't think that would need to happen, necessarily... however, for those who took advantage of taxpayers by working as much overtime as they possibly could in their final year, perhaps.

 

[strummingram]

Well, our entire monetary system is flawed, from the very core. Fractional reserve banking, a monetized debt-based currency, etc..

 

[Kenneth Griffin]

Stop any and all new entrants into this system is the first fix.

If necessary, defaulting on current pensioners is the next step. But I don't think that would need to happen, necessarily... however, for those who took advantage of taxpayers by working as much overtime as they possibly could in their final year, perhaps.

Agreed on point 1.

The next part is tricky because pension obligations are usually considered secured debt.

 

[HRiscool]

Stop any and all new entrants into this system is the first fix.

If necessary, defaulting on current pensioners is the next step. But I don't think that would need to happen, necessarily... however, for those who took advantage of taxpayers by working as much overtime as they possibly could in their final year, perhaps.

It's called "pension spiking" and it was a real problem in California (it still is in some areas I believe). An employee would cash out all their sick leave and vacation leave they had stored up in their final year of employment. This would spike their salary and their retirement would be quite often tied to their final year of employment. What was worse was the double-dipping. Some employees would retire before 50 (policemen in LA/Orange county were allowed to retire after 20 yrs with full benefits which included lifetime Cadillac health insurance plans) and then get another gov't job and be fully vested in 10 years. It was legal (don't know if it still is) to collect your pension while holding another gov't job. In retirement they would be collecting 2 massive pensions - in essence enjoying a retirement salary significantly greater than what they made when they were working. Most of them moved out of state to enjoy lower living expenses in no-income-tax states. That of course exacerbated the problem.

 

[txhawk I]

Not a city but anybody got an idea on how Kansas is doing?

I saw them last 4th of July for a free concert in Flower Mound, TX. They sounded awful.

 

[JRHawk2003]

Every government with a traditional public pension structure is going bankrupt.

IPERS isn't going bankrupt. Iowa has actually managed the system and funded it, unlike Illinois. There is nothing wrong with a defined benefit system as long as its managed properly.

 

[HRiscool]

IPERS isn't going bankrupt. Iowa has actually managed the system and funded it, unlike Illinois. There is nothing wrong with a defined benefit system as long as its managed properly.

You bring up a good point. When people act like rational adults, the systems can work. In too many states the employee unions have funded the campaigns of elected leaders. So if you were in charge of hiring and firing your boss, how do you think he would respond when you told him you wanted to retire in splendor?

 

[naturalmwa]

Stop any and all new entrants into this system is the first fix.

If necessary, defaulting on current pensioners is the next step. But I don't think that would need to happen, necessarily... however, for those who took advantage of taxpayers by working as much overtime as they possibly could in their final year, perhaps.

The first option seems like a sensible no brainier. Your second option comes way to quick and easy IMO.

 

[naturalmwa]

IPERS isn't going bankrupt. Iowa has actually managed the system and funded it, unlike Illinois. There is nothing wrong with a defined benefit system as long as its managed properly.

I tell you, Iowa should just be running this country. Change DC to DM.

 

[JRHawk2003]

You bring up a good point. When people act like rational adults, the systems can work. In too many states the employee unions have funded the campaigns of elected leaders. So if you were in charge of hiring and firing your boss, how do you think he would respond when you told him you wanted to retire in splendor?

Its just not that simple to throw this all on the Unions. The state governments didn't fund the systems properly. Is the Illinois pension system a lot richer than IPERS? I don't know. The Iowa Police/Firefighters system, the MFPRSI, is a pretty generous system and allows people to retire at 55.

 

[L. Wade Childress]

I can't figure out why it's OK to screw bond holders but not on to screw pension beneficiaries.

pensions are not evil. you just can't ignore math on the process of running them.

 

[stevenpatrick]

There are no rich people in those cities. They all live in the suburbs.

I live in the city, as do all my friends who I would say can be classified as "rich" as well.

 

[HRiscool]

Its just not that simple to throw this all on the Unions. The state governments didn't fund the systems properly. Is the Illinois pension system a lot richer than IPERS? I don't know. The Iowa Police/Firefighters system, the MFPRSI, is a pretty generous system and allows people to retire at 55.

You're right. There are responsible unions. That's why I used the phrase rational adults. But when you say "state gov'ts didn't fund the system properly" aren't you referring to elected officials in blue states/cities?

I can't figure out why it's OK to screw bond holders but not on to screw pension beneficiaries.

pensions are not evil. you just can't ignore math on the process of running them.

This will strike some as counter-intuitive but I'm glad the bond-holders are getting screwed. Here's the reason why.

In California bond measures have allowed taxpayers to embrace stupid policies and extravagant wasteful spending because they shifted the burden of finance to future generations that would have to payback the bond holders. They pass endless numbers of bond measures because they view it as FREE MONEY.

Those groups buying the bonds should've known they were buying into a house of cards. But just like the taxpayers and unions, they were greedy. So I say screw the bond holders in the hopes that the bond market will dry up and taxpayers will actually accept a pay-as-you-go system.

 

[Pepperman]

The first option seems like a sensible no brainier. Your second option comes way to quick and easy IMO.

I don't think it is too quick and easy to look at the trend of a pensioner's salary, hours worked, sick/vacation time used, etc. If we compared the last year or two to the previous 5-10 years and it is obvious what somebody did, why can't we adjust that back down to what it is intended to be?

 

[L. Wade Childress]

You're right. There are responsible unions. That's why I used the phrase rational adults. But when you say "state gov'ts didn't fund the system properly" aren't you referring to elected officials in blue states/cities?



This will strike some as counter-intuitive but I'm glad the bond-holders are getting screwed. Here's the reason why.

In California bond measures have allowed taxpayers to embrace stupid policies and extravagant wasteful spending because they shifted the burden of finance to future generations that would have to payback the bond holders. They pass endless numbers of bond measures because they view it as FREE MONEY.

Those groups buying the bonds should've known they were buying into a house of cards. But just like the taxpayers and unions, they were greedy. So I say screw the bond holders in the hopes that the bond market will dry up and taxpayers will actually accept a pay-as-you-go system.

I see what you are saying, but the pension beneficiaries are also the people passing bond measures. shouldn't the fault be shared? why dump all the blame on the capital markets?

 

[naturalmwa]

I don't think it is too quick and easy to look at the trend of a pensioner's salary, hours worked, sick/vacation time used, etc. If we compared the last year or two to the previous 5-10 years and it is obvious what somebody did, why can't we adjust that back down to what it is intended to be?

Not your overtime point, your not paying them what they earned point. Taxes should be raised and assets sold before the employer in s allowed to just cancel a debt.

 

[HRiscool]

I see what you are saying, but the pension beneficiaries are also the people passing bond measures. shouldn't the fault be shared? why dump all the blame on the capital markets?

It's true the bondholders didn't do anything wrong, and it was the taxpayers and unions who acted like children.

The problem imo works like this. You put some delicious cookies on the table and tell the kids they can only have one. Then you come home and all the cookies are gone. In a rational world you would spank the kids and refill the cookie jar. Or you could just take the cookie jar and lock it away from the kids.

Obviously cookie jar = municipal bond markets IMO.

If I spank the taxpayers and tell them not to be unwise in the future they might obey me, at least for a generation. But if I take away their ability to harm themselves by scaring off bond purchasers, then I know they can't use bonds to purchase an arena they don't need nor can they afford.

I admit, the responsible suffer in this scenario. But they also suffer in the other scenario. It's a question of the lesser of two evils imo. Sadly no happy solutions here that I can see.

 

[HRiscool]

Not your overtime point, your not paying them what they earned point. Taxes should be raised and assets sold before the employer in s allowed to just cancel a debt.

Someone fact check me but I thought I read that 25% of all illinois spending will soon be going to pensions? Natural, do you see the solution to that as raising taxes? Wonder if you have a diminishing return where the more you raise taxes the less money you take in?

 

[JRHawk2003]

The GO Bond market and pension systems are not the same things. No one in this state issues debt for pensions. Employers and Employees pay into IPERS and its gets adjusted by actuarial methods. When a GO Bond is issued its for streets or some other capital project. Now, some states have unfunded pension obligations, but thats not the same as GO debt.

Its a little tiring seeing public employees take a beating and seeing the notion that working in the private sector is somehow more noble. The attitude in this country seems to be that instead of wanting better pensions, etc. for everyone that we just want to see someone else get a worse one because ours sucks. Its a race to the bottom. Congrats America.

 

[naturalmwa]

Someone fact check me but I thought I read that 25% of all illinois spending will soon be going to pensions? Natural, do you see the solution to that as raising taxes? Wonder if you have a diminishing return where the more you raise taxes the less money you take in?

I don't know. Maybe they should declare bankruptcy. Do you normally support the right to not pay people who worked for you? Do you dine and dash? How is cutting their pension any different from theft?

 

[HRiscool]

Well, our entire monetary system is flawed, from the very core. Fractional reserve banking, a monetized debt-based currency, etc..

I think we get that in your mind everything is broken. Would you care to offer specific cures to our problems?

 

[naturalmwa]

I think we get that in your mind everything is broken. Would you care to offer specific cures to our problems?