Kansas Job Losses (Simpson: budget, education, ratings)

[Mathguy]

Originally Posted by tom1944

Math guy how does the State of Illinois have any risk of bankruptcy

Ask the financial markets and their bond ratings. I don't set them but I know what they mean.

I don't work in that industry but when your bond rating is low and you pay a higher interest rate to borrow.

The formula is a weighting between risk free and default %.

For example, if you were comparing a US govt. bond (the risk free bell-weather) and lets say a bond with a 95% chance of default at 1000 of investment value.

US bond pays 3% so after a year you would have 1030.

The other bond would have to pay 1030/(95% x 10000) = 8.1% roughly to be risk equivalent.

Granted, you can see how even a very slight risk of default can have major ramifications.

IL has the lowest bond rating of any state.

P.S. Not sure how you can ask me that question when they tried to cut teacher pensions and the supreme court shot it down. Not talking about future pensions but current pensions being used by retirees. Granted, the default rate is very low, a few percent...but it's not zero.

[Mathguy]

Originally Posted by elkotronics

Complicated question so here goes:

IL has an unfunded liability problem meaning fantastic retirement\health benefits for public employees plus the exacerbation of the baby boom generation. They also have a lot of corruption.

They've already tried to cut those plans (yeah, cutting the benefits of active retirees ) however, that has been ruled unconstitutional. I personally agree and fyi I have at least 2 relatives near and dear to me that are collecting from it.

So, long story short, IL has the lowest bond rating of any state by a large margin. This means that they have the highest risk of bankruptcy and have to pay the highest interest rates of debt.


Mathguy - you have just earned your city-data MVP pay for the year! Great response to this question of mine. My wife hails from Chicago and her Mom and stepdad live in Harwood Heights, her two brothers and their loved ones live within the city limits of Chicago. I have visited Chicago several times - it's fun for the first few days, then I must leave. The place's size, amount of people and congestion all wear me out and I've literally got to get back in my car or on my train and leave the place!


But thank you for that detailed response. Man, never, ever got such a thorough explanation of it like that. I see now what their problem is. Her younger brother is a Chicago cop nearing retirement - he's only around 48 years old and already qualifies. He always talks about how good his benefits are, wow, now I get it much better. I've always heard that Richard Daley and his father were corrupt politicians, and we've all heard about Al Capone - who, leaves a sort of political legacy behind, even though he was a wicked criminal. They sort of...umm...intertwine together, though, don't they? Thanks again - I know where I can get some good advice on things on city-data, the Kansas forum. It's really nice to understand what anchors this awful, ongoing Illinois over-taxation problem going on.

You're welcome. I lived in the state, in Chicago and in the burbs and most of my relatives are back there so I pay attention.

Don't get me wrong, I love Illinois, I love to visit Chicago but it's not for me anymore and they have some serious fiscal challenges by any rational measure.

The biggest issue Illinois has are unfunded guaranteed liabilities for both pensions and retiree healthcare. Private companies are required to fund these as they accrue. PUBLIC entities do not (most places) and just pay the current years funds out of the expenditures. There are valid reasons why this is ok, mainly due to the taxation power of the state but when you get uneven bubbles they have to either raise taxes, cut spending (lol) or take on debt.

Lots of states have this issue, Illinois just has it worse.

[elkotronics]

I wonder if they cave to these government job unions because they're afraid they'll really strike them and paralyze the garbage pickup, mail delivery, police, etc. They just give in to their high, inflated pension, pay and benefit desires, and, in turn, overload their sustainable budget for not just the close future, but the next generation down the road in Illinois.


Sounds like this one's not going to get solved very quickly nor very easily.

[tom1944]

Originally Posted by Mathguy

Ask the financial markets and their bond ratings. I don't set them but I know what they mean.

I don't work in that industry but when your bond rating is low and you pay a higher interest rate to borrow.

The formula is a weighting between risk free and default %.

For example, if you were comparing a US govt. bond (the risk free bell-weather) and lets say a bond with a 95% chance of default at 1000 of investment value.

US bond pays 3% so after a year you would have 1030.

The other bond would have to pay 1030/(95% x 10000) = 8.1% roughly to be risk equivalent.

Granted, you can see how even a very slight risk of default can have major ramifications.

IL has the lowest bond rating of any state.

P.S. Not sure how you can ask me that question when they tried to cut teacher pensions and the supreme court shot it down. Not talking about future pensions but current pensions being used by retirees. Granted, the default rate is very low, a few percent...but it's not zero.

I was specifically asking about bankruptcy. Where in the code would a State find the ability to file?

[Mathguy]

Originally Posted by tom1944

I was specifically asking about bankruptcy. Where in the code would a State find the ability to file?

Ok, let's use the word "default" instead if you are concerned about the technical legal definition. In the common vernacular states, countries etc. are often referred to as being nearly bankrupt so it has a common meaning outside of a strict legal sense.

However, it's more complicated than that considering that the rules could change at either a state or even possibly a federal level. Just because a state can't go legally bankrupt right now doesn't mean they can't in the future but regardless they can always just stop paying instead.

Forbes Welcome

My personal opinion is that the state won't default but will instead just keep hiking taxes\cutting services because they've already tried to cut the pensions and failed.

They *may* be able to wrangle a federally backed loan too or start liquidating assets like Detroit did.

Again, the financial markets look at Illinois and would want much higher returns for lending them money than other states. What does that tell you?

[tom1944]

Words matter because there are people on these boards that believe States can just wipe out their pension obligations.


Yes default is the correct word. But please note that before a State can default on pensions they would have to also default on bond payments and cease funding every non-constitutional item in their budget. Add in sell all State owned assets which you correctly mentioned.


It should also be added that current year pension obligations are not excessive in terms of percentage of the budget. The problem is the accrued payments that were not made over the years so other goodies could be funded by politicians.

[Mathguy]

Originally Posted by tom1944

Words matter because there are people on these boards that believe States can just wipe out their pension obligations.


Yes default is the correct word. But please note that before a State can default on pensions they would have to also default on bond payments and cease funding every non-constitutional item in their budget. Add in sell all State owned assets which you correctly mentioned.


It should also be added that current year pension obligations are not excessive in terms of percentage of the budget. The problem is the accrued payments that were not made over the years so other goodies could be funded by politicians.

100% agree. I'm a big proponent of having to pre-fund these things by public officials to both recognize the cost and prevent "raiding".

[GraniteStater]

Originally Posted by Mathguy

He's a politician? Are you surprised?

If you could source some of your claims it would be greatly appreciated.

BLS.gov - with the information updated as of September 2016.
The total farm, manufacturing, and energy related jobs represent around 13.4% of all employment in the state. That means they represent a small fraction of the rest of the state economy in terms of total jobs, which is 86.6%. Kansas has the weakest state economy of any state that is not heavily dependent on an energy extraction for a larger percentage of total jobs. Yes, even states like Mississippi, Kentucky, and Illinois have seen larger annual job growth increases in percentage terms. Also, Brownback outright lies when he indicates a "rural recession," as states like Iowa would be disproportionately impacted, but they have seen positive job growth numbers at the state level.

[Mathguy]

Originally Posted by GraniteStater

BLS.gov - with the information updated as of September 2016.
The total farm, manufacturing, and energy related jobs represent around 13.4% of all employment in the state. That means they represent a small fraction of the rest of the state economy in terms of total jobs, which is 86.6%. Kansas has the weakest state economy of any state that is not heavily dependent on an energy extraction for a larger percentage of total jobs. Yes, even states like Mississippi, Kentucky, and Illinois have seen larger annual job growth increases in percentage terms. Also, Brownback outright lies when he indicates a "rural recession," as states like Iowa would be disproportionately impacted, but they have seen positive job growth numbers at the state level.

So when other states are booming with energy extraction we count them but if those industries are on the down-cycle we exclude them from the comparison?

[GraniteStater]

Originally Posted by Mathguy

So when other states are booming with energy extraction we count them but if those industries are on the down-cycle we exclude them from the comparison?

Is this projection? I am stating the economic realities, and Kansas has one of the weakest economies in the US right now. Brownback will never admit fault, regressive tax policies have consequences- one of those being strong out-migration of population from many areas of the state. States run by one political party tend to be impacted more by this phenomenon.