15+ years ago when Republicans were trying to get a federal constitutional amendment to ban gay marriage, they should have used their resources to deal with the developing pension crisis in the states. In September 1999, the Democratic controlled legislature in California passed a bill to improve the pension formula for state workers. The bill was signed by a grateful Governor Davis to reward the public employee unions who helped him get elected in 1998. Instead of trying to get a statewide ballot initiative qualified to cancel the increase, Republican legislators spent their time and money to get an anti-gay marriage bill on the 2000 election ballot. It passed but did nothing for the average state resident.
The improved retirement formula applied to any state employee who retired after the 1999 pension bill was signed into law. Local governments were also allowed to improve their employee pension formula as well and one by one these government employers fell into line. Some such as the City of Vallejo could not really afford to boost retirement benefits but did so for competitive reasons. During the Great Recession, Vallejo filed for bankruptcy reorganization. Pension benefits were not reduced but some employees were laid off. Eventually, local voters agreed to a sales tax increase to restore their city services.
Carl_R
2 years ago
There is no need for bankruptcy reform, or pension reform. Illinois can simply institute a 100% property tax, and confiscate all the property in the state, then sell it off, and put all the money into the pensions. If that isn’t enough, they can starting raising the taxes on the property they just sold.
Or tax pensions at 100%. Or whatever it takes to make the numbers work. That’s the easiest of all, if the dunces keep insisting, as they’ve been told by their indoctrinators, that “saving” the undifferentiated rank idiocy referred to as “the system” is somehow something to aspire to.
Which it of course is not. So, just default on everything. Quit taxing. Quit paying. And if that’s not enough, quit existing at all. if anyone wants to inhabit that particular land plot in the future, they can homestead and bring their own rifles and sandbags. Even that, while perhaps not ideal, still beats perpetuation of even a single facet of the current “system.”
RonJ
2 years ago
“Pension Debts Hit $530 Billion”
Klaus Schwab: you will own nothing and be happy.
TheCaptain
2 years ago
Mish I know you moved from Illin’ Noise but don’t you feel guilty for not having paid “your fair share” before you left? LOL.
cienfuegos
2 years ago
Trump was hamstrung by the phoney Russia-Gate narrative throughout his term…it was Democrats and the MSM lapdogs that wasted time. There, fixed it for you.
Doug78
2 years ago
Eddie said,
“Maybe they’ll go after Illinois ex-pats who moved to better places to live. Those people got away clean. LOL.”
Illinois can come up with an exit tax like the one proposed in California Wealth Tax AB 310 where former residents would be taxed for 10 years after leaving the state. California’s proposition would be for the high-net-worth individuals but Illinois since it needs the revenue could just tax those retirees and former residents or require that you live in the state to receive your pension. These measures would fill the coffers to overflowing and keep government workers from leaving the state for greener pastures. There are many ways to pluck a chicken.
Illinois’ problems come from Illinois election practices. The University of Illinois in a study rated Illinois as the most politically corrupt state in the nation. One day the Party machine there will fall as party machines eventually do. As a Midwesterner by birth and upbringing I feel bad for the great state falling on hard times but it will come back given half a chance.
I have always lived in Illinois and still do. I wish I shared your optimism.
FrankieCarbone
2 years ago
What’s $530B among thieves Mitch? Why dial the Bat Phone to the FED and just print er’ up!. Then play the shell games and transfer it into the TGA which then “gifts” it to the state. Viola, problem solved. /sarc.
No inflationistas, this is NOT going to cause hyperinflation. You really should read up on the Eurodollar before making such statements of ignorance. The FED only has “control” (I use the term loosely) over a small fraction of global dollars circulating. The rest are in the Eurodollar System which is not under US controls and regulations.
FWIW: I used to adamantly oppose Mich Schedlock’s and Harry Dent’s DEFLATION argument with a passion. But, having the open-mind that I fancy myself to have, I dug quite deep into their arguments and lo’ and behold!, I believe that they are CORRECT that a market crash will be so severely destructive of the money supply (remember, currency is issued as CREDIT, which is someone else’s DEBT, and defaults are the norm during a panic-delevering event where position holders are selling their MLB card collection to meet margin calls) that the FED would need a Google-Sized Quantum Computer farm just to keep close pace to the destruction of the currency supply.
So question to you personally Mitch. Do you still think that we could experience a massive deflationary event? I’ve hedged against that possibility with LEAPS on the RUT and the SPX, tapered down to 50% off of today’s value, the reason being for the tapered structure (50% at 25% drop, 15/15/15% at 30, 35, and 40%, and a 5% black swan bet @ 50%) that around 50%ish or so I fear counter-party risk in the form of illiquid brokers not being able to honor those puts.
Also folks, interest rates were LOW during the 30’s (deflation) and HIGH during the Nixon Shock of the 70’s (Galloping Inflation). Kinda counterintuitive, eh’? Mich, any idea why this is so?
Thanks. BTW, I got “Mish” right the second time if you look closer. 😉 The first one was a typo. I too agree with you that gold will not “crash” per se, the way that Harry claims it will, particularly when priced relative to other assets. I think it could dip, but it may be one of the dogs with the least fleas and anything that maintains its dollar value during a crash is worth having. I am holding cash and gold, the former because I fear bank counter-party risk.
“The rest are in the Eurodollar System which is not under US controls and regulations.”
…
Yes. EM has $trillions of their debt (sovereign + corporate) priced in $US. When the global slowdown (recession) hits their will be a mad scramble for $US to service debt —-> driving $US sky high —> deflationary headwind for US.
Bingo, most folks are not even aware of this, let alone that banks issue debt so when you add this potential bonfire to the deflationary blaze you have a setup for one hell of a 1929 event IMO.
Maximus_Minimus
2 years ago
Maybe Illinois bets on being bailed out. Isn’t it what everybody is doing now? The FED can print that debt in a matter of few months.
Federal Reserve can only buy state / municipal debt with 6 month maturity. Of course, if push comes to shove, they’ll find a work around, BUT it would require approval of Congress (either explicit or implicit).
Read a recent Wolf Street post, the FED set up a SPV to buy corporate junk bonds because some legal quirk prevented it to do so directly. What’s a more noble cause, junk bonds or state bonds? There is nothing it cannot do, because it received a carte blanche to save the system from itself.
thimk
2 years ago
Fed intercom : paging Brainard , pick up on line 5 .
Tony Bennett
2 years ago
“Shortfall Contribution”
…
Seriously, you can’t discuss this mess without drawing attention to the payout insanity:
“The average career (30 years of service) teacher who retired recently (within the last three years) receives a $71,000 pension and will collect over $2 million over the course of her retirement.”
“In all, 53 percent of the over 213,000 state retirees in Illinois can expect to receive lifetime pension benefits of more than $1 million. Almost 40,000 (18 percent of all retirees) will receive $2 million or more in benefits.”
Finally:
“Most retirees contribute only about 4 to 8 percent (8 to 16 percent when interest earned on investments is included) of what they receive in
In Canada, roughly 33% of workers belong to a pension plan. Basically you can state that of those with a pension plan, government workers have a DB plan while private workers belong to a DC plan. I would hazard a guess it is somewhat similar in the States. From the link you provided:
“Today, link to illinoispolicy.org ( nearly 85% )of private-sector employees are enrolled in some form of DC plan. The public sector, by contrast, continues to rely largely on DB plans.
That said, more and more states, link to illinoispolicy.org, have moved their workers onto some form of a DC plan in an attempt to get their budgets under control and give workers more ownership over their retirements. Kentucky’s governor has also set his sights on link to illinoispolicy.org“
It looks like a few states are transitioning away from DB into DC plans. I live in Saskatchewan where I believe we are the only province/state in North America where taxpayers are no longer on the hook for government worker pensions. The following is an article from 2011 describing how Saskatchewan switched its government workers to a DB plan in 1977 from DC.
The article also mentions the GM legacy effect. I still remember the saying, GM wasnt a car company it was a pension plan. Maybe the saying can be restated, illinois isnt a state, its a pension plan.
“Canadians routinely hear about alleged growing divides in Canadian society. But here is one rift that often goes unmentioned: the divide between the pension benefits of public sector employees and everyone else.”
“The private sector has moved away from guaranteed levels of retirement benefits for a simple reason: it is impossible to guarantee exact benefits 30 or 50 years out. (Companies that try risk endangering their future: See the GM legacy effect.)
That only continues in the public sector because the public treasury can be raided to make up http://shortfalls.es and everyone else.”
“Is there a way to bridge this pension divide between the private and public sectors? The 1970s-era Saskatchewan NDP government under Premier Allan Blakeney did just that. In 1977, the NDP government thought it was a good idea to limit the risk delivered to future taxpayers courtesy of future pension liabilities.”
“As of 1977, the New Democrats grandfathered existing employees they could keep their defined benefit plan or move into the new defined contribution plan. And new public sector employees were automatically enrolled in defined contribution plans that, by design, do not create unfunded liabilities, but which anyway deliver retirement income.
Such a reform was more than fair. It makes sense to ask the government sector to be content with the combination of pension contributions plus investment returns. That is how most of us will fund our retirement.
Decades later, here’s the result of Saskatchewan’s reforms: That province’s auditor general link to auditor.sk.ca that future cash flows needed to fund defined benefit pension plans will continue to increase until 2021. Then, such needed cash flows will decline and be on a path to permanently extinguish Saskatchewan’s obligations to long-ago closed public sector pension plans.”
” I live in Saskatchewan where I believe we are the only province/state in North America where taxpayers are no longer on the hook for government worker pensions.”
I wasnt totally accurate with that statement. Saskatchewan taxpayers are still on the hook for government pensions that peaked in 2021 but is now on the decline.
From the 2011 report, page 223; shows a graph showing declining taxpayer funding: ( I will have to look for an updated 2020 report.)
“The 2009 cash flow projection for the PSSP and TSP were the most last
available at the time of this study. The 2009 cash flow projections show
that the Government expected future cash flows for these plans to
increase each year over the next ten years and to peak around 2021 for
total combined cash outflow of $425 million (see Graph 2).”
“But here is one rift that often goes unmentioned: the divide between the pension benefits of public sector employees and everyone else.”
…
Hammer Meet Nail. It will be extremely hard for politicians to provide a substantial bailout to pensioners when the average pensionless person in the street — “wtf? what about ME??”
Tony Bennett
2 years ago
“I have the solution.”
…
So do I. Somehow someway get Bezos + Musk to name Illinois in their wills.
Next!
PreCambrian
2 years ago
Pensions are a mess. There needs to be some sliding scale of pensions similar to Social Security where the lowest incomes get pensions at the highest rate of last salary and the highest incomes get lower rates of last salary. The bankruptcy option sounds the least complicated altlhough what would happen if the state declared bankruptcy? But most likely the public employee unions would come to the bargaining table before that happened.
It’s been a while since I read up on this, but I don’t think there is an option for state bankruptcy – although I also believe a state has a sovereign right to disavow or adjust their debts and was done in the past. This must be done with these pension debts.
“a state has a sovereign right to disavow or adjust their debts”
Unless Illinois changes their state constitution this is not going to happen.
billybobjr
2 years ago
If you add in their part of the federal debt headed toward 30 trillion very soon they are completely broke . It is all comedy at this point, reality is nowhere to be found . The new infrastructure does not allocate one penny towards the existing debt. Nothing to see here move along .
Eddie_T
2 years ago
OT….Powell stays and Brainard is nominated for Vice-Chariman.
Maybe they’ll go after Illinois ex-pats who moved to better places to live. Those people got away clean. LOL.
My guess……they put what money they have left into Bitcoin and TSLA calls.
KidHorn
2 years ago
Mish,
I bet you’re glad you moved to Utah. I’m looking for a place to retire and Utah looks good. My only concern is water. I assume Utah is dependent on other states for water.
Too bad Illinois isn’t a battleground state. If it were, they would have a shot at a federal bailout. But, since they’ll blindly vote for the democrat, why waste money on them. They’ll vote blue no matter what.
If it’s 100 degrees here it might be 70 at Cedar Breaks
5 national parks within about 4-5 hours
dbannist
2 years ago
In the meantime, Unions and pensioners will complain about how they earned their pension. They’ll ask for tax increases to cover what they were promised, oblivious to the damage such a plan would do to the taxpayer base moving away.
Union thugs will never give an inch. They never have and never will until forced to by mathematical reality.
The sad thing is, they have been rewarded by government largesse allowing the problem to get to where it is today. Only when every pension is near bankruptcy and every pensioner will be affected greatly will they act.
Until there are no more taxes that can possibly be levied and all the sheep are completely fleeced then, and only then will reform occur, but it will be too late.
That said, more and more states, link to illinoispolicy.org, have moved their workers onto some form of a DC plan in an attempt to get their budgets under control and give workers more ownership over their retirements. Kentucky’s governor has also set his sights on link to illinoispolicy.org“
That only continues in the public sector because the public treasury can be raided to make up http://shortfalls.es and everyone else.”
“Is there a way to bridge this pension divide between the private and public sectors? The 1970s-era Saskatchewan NDP government under Premier Allan Blakeney did just that. In 1977, the NDP government thought it was a good idea to limit the risk delivered to future taxpayers courtesy of future pension liabilities.”
“As of 1977, the New Democrats grandfathered existing employees they could keep their defined benefit plan or move into the new defined contribution plan. And new public sector employees were automatically enrolled in defined contribution plans that, by design, do not create unfunded liabilities, but which anyway deliver retirement income.
Such a reform was more than fair. It makes sense to ask the government sector to be content with the combination of pension contributions plus investment returns. That is how most of us will fund our retirement.
Decades later, here’s the result of Saskatchewan’s reforms: That province’s auditor general link to auditor.sk.ca that future cash flows needed to fund defined benefit pension plans will continue to increase until 2021. Then, such needed cash flows will decline and be on a path to permanently extinguish Saskatchewan’s obligations to long-ago closed public sector pension plans.”
available at the time of this study. The 2009 cash flow projections show
that the Government expected future cash flows for these plans to
increase each year over the next ten years and to peak around 2021 for
total combined cash outflow of $425 million (see Graph 2).”
This must be done with these pension debts.