Interesting article on Chicago filing bankruptcy (Detroit: credit, income, legally)

[wase4711]

https://www.realclearpolitics.com/ar...o__141257.html

[Grlzrl]

Interesting.

[DavePa]

Definitely interesting. But as I noted before .... that the state needs to change laws to allow a city to do bankruptcy.

I just DO NOT want cuts and services that ravaged NYC leading to papers drawn-up for bankruptcy. But President Ford the last moment came thru with Government loads. A new state Governor elected did too.

But a Chicago that can maintain services and Court outward still boom. Not like the old bankruptcy of old. Or that Chicago doing drastic cuts to services before it.

NYC has much of the same issues too. But a bit weather to last longer with it.

[ChiGuy2.5]

I believe that bankruptcy is the band-aid that we need to finally rip off. It's worth going through the next 7-10 years of hell in order to make our way out of this budget crisis. I agree with this article in saying that it's not worth trying to recover from and that the sooner the better so we can start putting the pieces back together before we lose all industry from downtown.

I would love to know more about the effects of declaring bankruptcy. If anyone comes across anything, please share! I am going to google Detroit to see what it did to them, although I know quite a bit about it already. I think Chicago will be on it's own level though.

[dtcbnd03]

Originally Posted by ChiGuy2.5

I agree with this article in saying that it's not worth trying to recover from and that the sooner the better so we can start putting the pieces back together before we lose all industry from downtown.

^^^This. We continue to throw good money after bad. Say through some miracle we do pay back pensions...the problem could simply come back again in 50 years through underfunding, stealing, diverting funds, poor investment, overpromises, etc. File bankruptcy and get rid of pensions and switch to 401ks already.

Municipal bankruptcies are interesting because in theory the creditors should own all the assets of the city/state. But that's not what happens...instead it just forces everyone to the negotiating table.

[emathias]

To my knowledge no one knows whether the State Constitution supercedes a federal bankruptcy court.

If that's true, the City going bankrupt without that question being answered could be a complete and total disaster. Detroit isn't an example because the Michigan Constitution only protects accrued benefits, while the Illinois Constitution protects accrued and future benefits. Federal Courts are not normally bound by state laws, but Constitutions may be different. If Chicago filed for bankruptcy and the Court determined that it was bound to defend the very thing mostly responsible for the bankruptcy, the City could end up legally unable to provide any services at all with no sway on what to prioritize. Chicago is known for being one of the cleaner big cities and for mostly working for most of it's citizens. That would disappear if cuts to everything but pension payments were forced upon it.

I believe that public workers should get what they've been promised, for the most part, but I also think that the Courts ought to have the I ability to decide when certain contracted benefits wildly exceed the intent of certain things. For example, many pensions guaranteed retirees 3% COLA increases over the past two decades while the average annual inflation rate nation-wide had been about 2.2%, and in Chicago it has only been 1.81%. it is obviously unsustainable (and I'd say immoral) to grant anyone long-term increases that exceed the rate of inflation. If the Courts could reset that and force the increases to be the rate of inflation, perhaps retroactively such that no more increases would be granted until inflation "catches up" to where payments are now, that alone would save billions of dollars while also being reasonable and not hurting pensioners as bad as simply cutting their benefits.

In my opinion a possibly politically palatable scenario is freezing until inflation catches up, and a less palatable but more fair to taxpayers version would be to freeze payments not only until inflation catches up, but until the "overpayments" were also recouped. In the first scenario, things might be frozen for five years, in the second, they might be frozen for a decade. An alternative to outright blocking increases might be setting then at 50% of inflation, which might extend the period of time to catch up to 10-20 years instead of the 5-10 but be more politically acceptable and slightly easier on the pensioners. But really, it's should be obvious to anyone that you can't allow increases to exceed inflation in an ongoing basis. If anyone doesn't understand why, let me know and I'll explain it in detail, but hopefully it's self-evident.

At any rate, that would do a lot to reduce budget pressures on Chicago, just by itself. Other tweaks, like allowing the courts to retroactively cap pensions from multiple sources at the highest any one would have been if they income was combined, instead of allowing them to stack the way some employees worked there system to do and ended up with pension payments exceeding their annual income. That also should obviously not be considered fair it sustainable. It can't be done in the future, but unless the Constitution is changed, part examples can't be blocked.

They other thing that must be changed if we add a "fully funded annually" provision is that the actuarial estimates must be provided by some reputable source outside of Illinois. Another big part of the problem is allowing the pension boards to set their own estimate for earnings and other actuarial days points that determine what "fully funded means. Right now the only thing preventing them from "solving"this problem by simply pretending that the pension funds will earn 25% annual returns is public perception. But they do mess with the estimates still by "estimating", say, 8% returns when, say, 5% is more realistic. The public isn't sophisticated enough to challenge 5% vs 8% so the pension boards can get away with it. That's why we need an external entity to set those numbers as accurately as possible so that we really do fully fund things instead of playing math games that screw us in the end.

I think it's possible to keep strong pension protections in the Constitution going forward, while eliminating certain abuses retroactively and adding requirements such as all new pensions having to be fully funded every year. If the Constitution had required they be fully funded as they accrued, two things would happen: first, we wouldn't be in the situation we're in now, and second, politicians would never agree to such rich pensions because their budgets would feel they pain immediately, which means politicians who agreed to cushy pensions would get voted out when citizens lost services when courts ordered the budget to find the pension that year. It would eliminate the can-kicking.