Third Domino
Illinois does not allow cities to file for bankruptcy but that is the best word to describe many of them. East St. Louis is the latest.
What Follows is a Guest Post from Wirepoints
My comments at the end.
Wirepoint reports Third domino falls: Illinois Comptroller set to confiscate East St. Louis revenues to pay for city’s firefighter pensions.
On Tuesday, the East St. Louis’ firefighter pension fund demanded that Illinois Comptroller Susana Mendoza intercept more than $2.2 million of East St. Louis city revenues so they could be diverted to the pension fund.
The fund trustees said the city shorted firefighter pensions by $880,000 in 2017 and another $1.3 million in 2018. Under a 2011 pension law, the state comptroller gained the powers to intercept city revenues on behalf of police and fire pension funds shorted by their municipalities.
Harvey was the first municipality to run afoul of the intercept law. North Chicago, a Chicago suburb of 30,000, was the second. Now it’s East St. Louis’ turn.
Back when Harvey was first intercepted last year, Wirepoints reported that comptroller confiscations could wreak havoc on hundreds of Illinois communities, potentially creating a domino effect. Hundreds of Illinois’ 650 pension funds have not received their statutorily required contributions from their respective cities in recent years, meaning the intercept law could go into wide usage under a broader crisis scenario. In the most recent analysis of Illinois Department of Revenue data, nearly half of the 650 funds were not properly funded in 2017 (see details below).
That domino effect could be exacerbated given that municipalities have virtually no control over their own pension funds. State law sets all the rules and pensions are protected by the Illinois Constitution, meaning that in a market downturn, the pension funds may have little choice but to demand more intercepts.
The intercept law was first utilized in 2018, when Harvey, Illinois, revenues were garnished to pay the city’s police and firefighter pension funds.
That intercept of nearly $3.3 million led to the layoff of 40 public safety workers so the city could avoid insolvency. The city found it couldn’t simultaneously pay for both current workers and pensioners. The city and the pension plans eventually reached a deal that relieved some of the pressure on the city.
East St. Louis’ fire and police pensions are some of the worst funded in the state, with funded ratios of just 31% and 9%, respectively. In total, the city has a shortfall of more than $104 million in its public safety pension plans, according to Illinois’ Department of Insurance. That’s more than $9,700 per household in a community where 43 percent of people live below the poverty line.
And with just $6.1 million in assets and annual payouts to beneficiaries totaling $3.7 million, the city’s fire fund has the equivalent of only two years of payouts in its accounts today.
Illinois cities – from Kankakee to Danville to Alton – need pension fixes before costs bankrupt them. And while state politicians have effectively quashed any chance for reforms now, that shouldn’t stop city officials from demanding real changes.
Municipal leaders across Illinois need to demand the following if they want their cities to survive Illinois’ collective crisis:
- An amendment to the constitution’s pension protection clause so pensions can be reformed and workers’ retirement security saved;
- The ability to convert pensions to defined contribution plans for workers going forward;
- A freeze on retirees’ cost-of-living adjustments (while protecting small pensioners) until pension plans return to health;
- Public sector collective bargaining reforms so officials can hold the line on new labor contracts, and;
- And the possibility of a fresh start through the ability to invoke municipal bankruptcy.
The troubles brewing in Illinois are all happening during one of the longest economic expansions ever. When the economy and the stock markets inevitably correct, things will only get worse.
Without the above reforms, East St. Louis, North Chicago and Harvey might only be the first in a long list of collapsing cities.
Mish Comments
What Illinois needs most is point 5, bankruptcy reform.
Points 1-4 can only happen if 5 is addressed. There will be no bargaining until unions face the threat of court bankruptcy decisions.
Pet Peeve
Under current law, states have the right to allow bankruptcies or not, but once they do, bankruptcies proceed through Federal, not state, bankruptcy courts.
One of my major pet peeves with the Trump administration is that it failed to reform bankruptcy laws at the national level.
Trump had two years to address this issue and did nothing. Why Rand Paul failed to introduce legislation is also a mystery.
Corrupt Illinois, in deference to public unions, refuses to act.
The citizens of East St. Louis, North Chicago, Harvey, Danville, Rockford etc are at the mercy of state funding laws even to the point of the state confiscating city funds needed to provide adequate police and fire protection for cities.
Two Years and Counting
Eventually, an Illinois city will be forced to fire its entire police or firefighter force to fund pensions.
We don’t have long to wait.
East St. Louis has only two year’s cash left in which to pay firefighters.
I expect a case will then make it to the Supreme Court and hopefully we will have a national resolution.
Mike “Mish” Shedlock
. . corruption on steroids . .
how can the American people get back the trillions of stolen taxpayer dollars looted from them over the past nearly 30 years.
the govt employee labor unions all across america are racketeering in harmony at the maximum level possible , using a secret sophisticated salary and pension software program . the taxpayer funded govt employee labor unions also make the taxpayer fund the rental/leasing of the software that is in use nationwide and the unions then use the secret software to pay themselves 10 times more than their union contracts legally allow . then each govt employee labor union member is rewarded with a life long taxpayer funded pension which is 10 times greater than it was supposed to be. based on the cooked books .. plus written within the govt union retirement pension contract.. it says…. each govt union member is rewarded with a cost of living raise of 6% every 4 years , after they retire COLA . . . all of this racketeering fraud is funded by you . this scam is taking place all across america and no TV or newspaper reporter will report on the news in any state . . . trillions more taxpayer dollars will be stolen before anyone learns of this nationwide salary and pension racketeering fraud scam . . https://www.youtube.com/watch?v=DB_c5FVjdx8&t=37s
Its not a national issue because these are state funding problems, not federal.
But I am all for reform. A State wants a bailout, ok. but here is the deal —
It has to be clear that the cure is worse than the disease. Otherwise States will just run up bills, default and run to the Feds. Rinse and repeating forever.
As long as the national resolution isn’t attached to my house anymore than it already is im ok with it.
Coming to a municipality near you. The government is a living entity and will do whatever is necessary to survive. If it comes down to them vs their constituency, they’ll always fight for themselves.
At what point do the taxpayers get a say in how their money is spent?
When they arm themselves properly, and grow up sufficiently to realize even the most chaotic Anarchy, is an infinite improvement over even the best ran tyranny.
I wonder… if the cities have a budget shortfall, what if they cut the entire tax collections departments to zero? Would that not effect the same as a bankruptcy?
Defined contribution plans will not work either. If your pension fund is 9% funded, there have obviously been a lot of contributions that were never made even when the financial situation was not as dire as it is now. And the contributions are still far in arrears.
It’s not just the unions. The cities should never have made these promises if they had not intention or ability to keep them.
When people decide they still need a fire department to prevent the whole place from burning down, the reforms will likely impact the deserving harder than the undeserving — not every pensioner is playing golf and taking Florida vacations.
When companies go bankrupt and it comes out they have squandered or disregarded the pension fund, or when municipalities reneg on their pension promises, we should make very sure the actors are the first ones to end up on skid row.
Defined contribution plans do work for all obligations that arise after the switch. Obviously they cannot solve the problems that arise before the switch. All they can do is prevent new problems from arising.
No plan will solve anything if the mandated contributions are not being made … every plan needs for the parties involved to keep their obligations. It doesn’t matter what benefits are promised, if you don’t fund the thing, there is no fund.
Mind your Bastiat!
Defined contribution plans, is at first glance easily seen to work fine.
But the unseen, is that they allow people to vote themselves others’ earnings by way of support for debasement and regulation driven asset bubbles; just as easily as defined contribution plans allow them to do so by way of taxation.
Gold in a vault, or under a mattress, or perhaps Bitcoin, works. Anything else, is just an excuse for theft, obfuscated one way or the other….
That’s why almost everyone now uses 401ks or similar. The money is completely under your control.
I’ve warned a couple of my cop friends that they are living in la-la land if they think that voters aren’t going to change the rules when they have to choose between a functioning police force or paying retirees to play golf on manipulated pensions.
They tell me about “the state constitution”, but this is a head-in-the-sand argument – the state constitution will be amended tout suite when the rich towns also have to forego protection – and for many it is only a matter of time.
My town played hardball with the cops and moved to a sustainable pension plan that is now attracting good cops because it is seen as being realistic and dependable – it took a hard ass mayor, but she stood her ground with all the public unions (and she is a Democrat, just for the record).
I expect that the pensions will be “taxed” for any retiree getting more than what the rest of us get in SS – they won’t take it all away, but the people who are getting over $100K/year will see a remarkable level of taxation applied at the local level, as some of the other commentors have already suggested.
You make a great point. If I were resolving the issue of excessive pensions and insufficient funds in the pot, I would look to reduce pensions, and make the greatest reductions to the biggest payouts, and I would also make reductions to the proportion of time that the pension had been drawn. So if you have been getting a huge amount for a long time, you would expect to get the biggest cuts, where someone who is just about to draw their small pension might not see a cut at all. I think that would be the fairest way to do it.
Make pensions payable every 2 weeks, only at one rural location in Illinois. If one wants it sent to their bank account it will cost $50 a paycheck.
Used to go there for gambling entertainment when working assignments in St Louis, Mo… gambling business was supposed to take care of these problems. Well, that didn’t work, did it.
Curious to know how much IL pension money flows out of state.
Well more bad news for Trump today. If the conversations with Putin ever get fully revealed he is toast. Someone in the White House actually reported him as a traitor to the United states. This should be fun.
Maybe they will just let the place burn down.
One can dream…
Mish doesn’t mention all the states that switched to right to work states, and many of them canceled their pension setups. Sometimes, it required voter approval sometimes not. But legally speaking the states are all sovereign and can nullify pensions at a whim.
Chicago doesn’t want to fix their problem. They could vote a different speaker in Springfield. They could vote for a governors and mayors who aren’t crooks.
The people of Chicago VOTED to have a problem. After being fully informed, they voted to make the problems worse and worse.
Mish will respond that Illinois state courts have ruled that public union pensions are protected by Illinois State Constitution and, thus, can not be reduced.
However, plenty of state constitutions defined marriage between one man and one woman, and all it took was one unelected judge to void them.
Additionally, no one has even attempted to change the Illinois state constitution. The power and fear of public unions is near absolute.
However, you are correct. LOCAL and STATE citizens for voted this mess. And LOCAL and STATE politicians made this mess.
And it should be cleaned up at the LOCAL and STATE level. Not ONE dollar of any kind of federal bailout.
The people of IL voted for that Constitution. They can vote to change it… if they wanted to.
They voted to create the problem themselves. They deserve what they voted for.
I know Gerald Ford was somewhat misquoted, but I think his words to NYC are appropriate here: DROP DEAD YOU DEADBEATS
If a constitution says something dumb, it will not stand. So if the constitution says water must flow uphill, well that is the law but the law will not be obeyed.
And here the constitution says that pensions must be paid, but if there is no money to pay them, I strongly suspect that it will be the constitution that will be the one whistling.
A sensible person would say, “we must allow for the possibility of these schemes becoming unaffordable, and if that happens we have to have a process to deal with it”. Sadly it seems, the lawmakers dont wish to acknowledge something that is eminently possible, and that will cause huge misery to many. Those in pension schemes who are paying in but not yet drawing out are going to find themselves on the wrong end of a legalised Ponzi scheme.
“”we must allow for the possibility of these schemes becoming unaffordable, and if that happens we have to have a process to deal with it”.”
With the default action, if none other is explicitly agreed on, being to simply throw the rotten pile on nonsense out wholesale.
Gallantly voting yourself into others’ children’s wallets, then hiding behind arbitrarily interpreted “law” to prevent said children from, equally gallantly, voting you right back out, is so ridiculous it shouldn’t even require a rebuke.
2banana’s Rule:
Democrat rule + public unions + free sh*t army = misery, ruin and bankruptcy
Public unions are, by far, the largest all time political campaign donors. And they give nearly every penny to democrats.
No democrat candidate could win a primary or a blue city/state general election without the public union’s money and support.
Democrats pay back public unions with insane benefits and pensions in government/public union contracts.
In turn, public unions are usually “closed shop” forcing, as a condition of employment, membership. Public unions also take their union dues before a public union employee ever sees their paycheck. It is one corrupt feedback loop.
The democrats will never turn on public unions. Even when their city and state turns into a Detroit and is in ruins. They will raise taxes to infinity and sell every public asset before one $200,000 OT-spiked-taxfree-disability-free-medical-for-life and retire after 20 years at age 51 public union pension is touched.
Top All Time Political Money Donors:
https://www.opensecrets.org/orgs/?id=
“The democrats will never turn on public unions. ” Just like the Republicans will never turn on the banks and the Federal Reserve. It’s just part of the political ecology and not worth getting your knickers in a twist over.
Yeah – I can imagine that, as a condition of employment and using taxpayer funds, that democrats would have no problem with employees being forced to give to the NRA, Rush Limbaugh and Dick Cheney.
Q: What is the FIRST thing a democrat for life public union goon does when he/she retires with an insane taxpayer funded pension?
A: Moves to a red, right to work, low tax state.
Republicans aren’t perfect either, but you are seriously short-changing the corruption/inefficiency of public unions.
Here in Michigan Snyder changed many things, but was called a devil for it.
As a public union member let me let you in on the truth of the Democrat-Public Union cabal before the great Satan Snyder ruined many of these things.
-You were legally required to pay union dues if you wanted to teach at a “public” school.
-The Michigan public teachers union, MEA, would donate money (legally required dues money out of my paycheck) to pro-abortion causes including abortion PAC…what does that have to do with teaching? Even many pro-abortion types were upset by this.
-The MEA owned their own health insurance provider, MESSA, and would then using their power and political connections force what amounted to a monopoly for MESSA. MESSA would then overcharge above fair-market value for the health insurance provided to cover teachers. This means the government/tax payers pay more than they should to cover this….so that MESSA can operate as major revenue source for the MEA to dump money back into democrat affiliated campaign coffers come election season.
-Crappy teachers are protected by the union.
-Recertification voted to prove the workers want a union often don’t have to take place for literally decades…oh and those votes are public…so everyone can see how you vote so pressure can be exerted on those who try to vote incorrectly. I’ve seen grown men throw a coworkers mail on the floor in the teacher’s workroom, because he vocally opposed the union.
It is BS. Republicans have BS too….but don’t undersell this BS.
We have all heard about the military industrial complex. Republicans voted for warmonger McCain to stick it where the sun don’t shine, and elected “enough with perpetual wars” Trump. Its a work in progress and the beltway crowd is still pushing for new wars, but its a small start.
All those jar heads in the marines got tired of the VA system ignoring them while paying bonuses to bureaucrats. Tired of hearing all the vets that are homeless. I am sure they love their country and are still loyal to the Corp and their unit and all that… but enough already.
Dem politicians get lots of kickbacks and bribes– I mean campaign contributions– from union leadership. They are vote down public unions like John McCain is going to vote down starting a new war.
Dem voters could tell their public union friends to stick it where the sun don’t shine too. Well, they could if they wanted to. They don’t want to.
P.S. The public unions often get positions to help manage their own pension funds and help encourage fantasy math to make the appearance of awesome benefits sustained forever that are impossible. See Detroit’s Pension fund, which I could write pages and pages about mismanagement on the political/union side of things.
I am waiting to see if these bankrupt cities and states start taxing the pension payments, regardless of where the recipient now lives. The work was performed in Chicago (precious little work, but what little there was happened in Chicago). The pensions are in Chicago. The pension payments are made from Chicago, and post stamped from Chicago (direct deposited from Chicago).
Ergo, the public pensions should be taxed in Chicago, even if the parasites move to a better run state. If the parasites don’t like it, they can move back to the city they ran into the ground.
“Ergo, the public pensions should be taxed in Chicago, even if the parasites move to a better run state. If the parasites don’t like it, they can move back to the city they ran into the ground.”
California tried this very same thing.
They were smacked down by new legislation.
On Jan. 10, 1996, Congress enacted the Pension Source Tax Act of 1996 (P.L. 104-94). This law specifically stipulates that, “No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State.” While the Source Tax law still allows individual states to define residency on their own terms, it prohibits any state from taxing non-residents for pensions earned within the state. If you earn a pension in Vermont, for instance, then retire to New York, Vermont may not tax your pension income.
Or, if that fails, make sure the first services cut, are those involving policing of tax avoidance of any sort whatsoever. On an artificially tightened budget, can’t afford to bother with such trivialities, after all.
And whatever socialism persons talk about on here I think it missed E St. Louis!!
“Illinois Comptroller set to confiscate East St. Louis revenues to pay for city’s firefighter pensions.”
Welcome to America: Where we’re too incompetent to create any value, so we instead confiscate that which our betters create!
And the Jihadistans are somehow supposed to be worse?????? than this dump? Their youth supposed to not be perfectly OK with this blot off the map?
East St. Louis is not in trouble because of socialism.
And the Soviets wouldn’t be in any trouble either, if “we” just arbitrarily labeled their “system” something more PC…
When you have a Junta shaking down people, to hand their earnings over to regime favored groups…. call it what you want, but it’s a dump better off replaced with absolutely anything else whatsoever.
You are really dense. Socialism is bad, OK, happy?
The point is that you and other boomers (if you are not a boomer by age, you are obviously one by heart) are purposefully ignoring the monster elephant in the room.
A whole generation of snowflakes supports socialism because they don’t even know what it is.
Chicago and all the surrounding area is socialist, and has been for a long time.
Sure, but that has nothing to do with the troubles experienced by East St. Louis.
At least the state govt won’t kill you if you disagree with them, at least for now.
I am looking across the river at this moment at E St. Louis I dont know how socialist it is but it is decayed https://www.youtube.com/watch?time_continue=1&v=8FJcUT8ud7c
“Well Mish, you might consider expediting your departure from Illinois. Any idea where you might go?”
Time Set – Between May and September 2020
Location Set: St. George UT
Goodbye Illinois, Hello Utah
Excellent choice! I’m sure you’ll be much happier there.
Great plan, and some of the most spectacular country on the planet, bar none.
You might want to start spreading the word that it’s so crowded now that no one goes there anymore…:)
North Rim Grand Canyon, Bryce, Glen Canyon, Great Basin NP just 2-3 hours away
Zion about 40 minutes away
Capital Reef 3 hours away
Death Valley 4 hours
Arches and Caynonlands 5 hours
Joshua Tree 6 hours
Mono Lake 6.5 hours
Many excellent state parks nearby within an hour
Las Vegas Airport an hour or so away with cheap shuttles
Goodbye Illinois Hello St. George
Moving next year sometime between May and September
Distances from St George
North Rim Grand Canyon, Bryce, Glen Canyon, Great Basin NP just 2-3 hours away
Zion about 40 minutes away
Capital Reef 3 hours away
Death Valley 4 hours
Arches and Caynonlands 5 hours
Joshua Tree 6 hours
Mono Lake 6.5 hours
Many excellent state parks nearby within an hour
Las Vegas Airport an hour or so away with cheap shuttles
Ha! That wasn’t exactly what I had in mind via discouraging settlers!
I never expected to see California Condors in the wild, but I saw two in Utah at Zion a few months back, a nesting pair.
Started my trip of the Utah NPs in St. George and really loved the place. Enjoy Mish.
Glad to see you are not against State Parks.
Have been to Utah for skiing and what I noticed the most was how polite everyone seemed to be. Very friendly also. I am thinking its because most of the population is mormon. Seemed to have a very wholesome feel to it.
Having lived in both St. George and Chicago, St. George is definitely the better choice. But you’re 40 years late. Better late than never they say! 🙂 Hard to believe a buddy and I backpacked from one end of Zion to the other in June of 1976, no permits, an 8-day trip, found 6 arrowheads, and never saw another person until day five of the trip. Now those were the good old days. Hopefully you’ll rent for the first year while you scope out the surrounding area. The smaller towns around St. George are a much better choice than St. George itself, less traffic, nicer cops, so might be worth checking out. Pine Valley Mountain is the best kept secret in the county. The crowds go to Zion and PVM is virtually ignored. It’s wonderful. When you get tired of the crowds, get a 4WD outfit and start to discover the real beauties the area has to offer on all the dirt back roads. Can’t imagine myself ever living there again since the population is 10x what it was when I lived there, but if you’re just starting out there, you’re going to love it. Enjoy!
Southern Utah is heaven. But St. George is the most radioactive city in the US, being downwind from all those bomb tests in Nevada.
Sounds like heaven.
Heaven is in Baltimore, a city run pretty much the same way as Chicago.
Washington DC collects all the taxes, but the bureaucrats live out in the ‘burbs and get driven to work in armored cars burning taxpayer paid gasoline and driven by DSS agents.
“Folks” in Washington DC annually try to win the “Murder Capital of the USA” trophy, but so far Baltimore and Chicago are winning.
San Fran and LA turn their people into homeless and then kill them, and homeless people don’t count.
I live in the DC area and your impression of DC is from the 80’s. DC is not like Baltimore. Not even close. Many of the bad areas have been replaced with high priced condos. DC has a very high gay population. A comparable city to DC would be San Francisco. Except DC doesn’t have nearly as many homeless. And the bureaucrats don’t get driven to work. Government employees are well paid but very few make more than $200k/yr.
My gosh, I didn’t know government employees were so impoverished. Give them a raise up to $200,000 immediately. And for sure continue with those defined benefit pensions.
Well, a ticket to heaven perhaps.
Well Mish, you might consider expediting your departure from Illinois. Any idea where you might go?
Chicago — Another socialist success story
in contrast to the ponziconomies of nearly every “advanced” nation…
The stupid comments continue.
yours or mine?
They contributed $3.4M and payed out $3.7M. Seems like they could continue on this pay as you go basis for quite a while.
As a fellow white guy, you know that nobody gives a darn if poor black suburbs like Harvey, ESL and N Chicago have no police or fire services at all (a la Detroit). Now, when you hear lilly-white Naperville is having a pension prob, NOW we have a priority …
To be more accurate, should read:
As a fellow white guy, you know that nobody (including the non-whites that had government gigs) gives a darn if poor black suburbs like Harvey, ESL and N Chicago have no police or fire services at all…