7 ms·

Also not on the ballot was any discussion of how Chicago spends it's billions of dollars that led to this budget crisis, though I'm sure there are numerous prog

Also not on the ballot was any discussion of how Chicago spends it's billions of dollars that led to this budget crisis, though I'm sure there are numerous programs both less profitable and less popular than this one.

lotsofpulp 6y ago
There is only one notable cause of Chicago’s budget crisis, and that is deferring the expense of labor performed decades ago to today’s taxpayer via defined benefit pensions and retiree healthcare. Same with Illinois, and pretty much all the other governments out there. It’s the easiest way to promise low taxes today and shift expenses onto future generations who have no say. It almost works as long as people keep having 3+ kids and the tax base keeps growing. Not so much once population growth stalls and the tax base suffers income stagnation.
- Shivetya 6y ago
  Illinois [0] is not alone but its far simpler to find good figures on how bad the state and various counties and cities are failing their employees and residents. There was hope of a Federal bailout of all pension funds, numerous covid19 bills tried to bury them into the dollars, but fortunately that may be off the table as the Congressional elections did not pan out as needed. Yyes, the expectation was the Feds would not use the Pension Benefit Guarantee System to salvage something but actually fund them with tax dollars. The PBGS should be the default solution but is not a friendly solution as benefits are generally brought back from silly levels. The issue with many public pension systems is that too many payouts are excessive. No pension system, notably no public, show being paying out six figure retirements in addition to health benefits. California had to use a law to cap theirs around 125k but that has faced numerous challenges and may see more in the future. They do deserve their retirement pay but it needs to be reasonable and equal across the board to best serve the public and employee interest. The lower paid employees are not well served and the managerial and certain others are over compensated in retirement. [0]https://www.illinoispolicy.org/reports/pension-apocalypse-covid-19-exposes-long-running-fragility-of-illinois-public-pensions/ https://www.illinoispolicy.org/reports/pension-apocalypse-co...
  - eldavido 6y ago
    The pensions payouts are simply outrageous. Do the math, you'll see a 60-70% final value pension on 100k salary (60-70k/year) with a 3% cost of living increase (standard in Illinois) is worth 1.8-2.0 million dollars (25 years @ 3.5% discount rate). This is equivalent to having nearly 2 million dollars saved in a retirement account and when you retire, buying an annuity with credit quality equivalent to a promise from a major government (not a junk bond which may become insolvent). Anyone who thinks that's "fair" really needs a reality check. 600k pensioners in Illinois [1], many of them living out of state, and the ones that live in-state aren't even taxed on their pension income. They also don't have to pay for health insurance. This is simply insane. There's really no other word for it. This needs to be indexed to private benefits or otherwise tethered to reality. Sidenote. We need a rethink of public service in this country (US). The old bargain of "you get paid less working for the government but the benefits and job security are better" needs to go. Everyone receiving this $2 million entitlement is going to say, well, I work for the government so I deserve my "better benefits". It shouldn't matter if you work private or public sector. There needs to be some equivalence otherwise you get Illinois, where politician after politician promises great treatment to AFSCME and SEIU and to nobody's surprise, no real attempt is ever made to fix this broken system. [1] https://ballotpedia.org/Public_pensions_in_Illinois https://ballotpedia.org/Public_pensions_in_Illinois
    - notJim 6y ago
      I'm not sure I see what the problem is with these pensions. Standard retirement advice is that one should save enough money to live in retirement at a similar lifestyle that they lived while working. If the idea of these pensions is that your salary is lower, but you need to set aside less for retirement, what is the issue? As far as the $2 million figure, if you go to any retirement calculator and try to figure out how much you need to save to have a similar lifestyle in retirement as to working, you will indeed find they advise you to save $2-4m. In the private sector, you're expected to do this on your own, but you get a higher salary to compensate. Looking at my own career, a comparable government job seems to pay about $40k less than a private sector job. If your argument comes down to the public pensions being too generous relative to private ones, shouldn't we instead make private pensions more generous? Why do we want old people who work their whole lives to have a massive step down in lifestyle when they retire? Is that what you want for yourself or your parents?
- vkou 6y ago
  > It’s the easiest way to promise low taxes today and shift expenses onto future generations who have no say. I can say the same about cities borrowing money to finance infrastructure projects, but I've yet to see a political comment grousing about how a city's budget woes come solely from billions of dollars of 10-year old debt that has to be serviced. King county just voted to take on 1.7 billion dollars in debt to renovate a county-owned hospital. Ten years from now, nobody will be talking about defaulting on it, but I fully expect them to be talking about defaulting on pensions.
  - lotsofpulp 6y ago
    With infrastructure, the fact that contractors and suppliers need to be paid today at least puts the debt on the books. The cost of deferred compensation can be wildly understated for decades (and continues to be) by using erroneous investment return and mortality rate assumptions. Also, the risk of corruption remains for decades as you have a huge pot of money which many are fighting to get a piece of with little transparency. No one actually considers the figures put out by IL/NJ/CT/Chicago and other distressed governments as accurate, and if they had to abide by the rules that non taxpayer funded entities have to, their debt would easily be 30%+ higher than stated (based on an assumption of a 1% change in discount rate moving liabilities ~15%). I agree that politicians can also hide debt by not properly accounting for infrastructure and long term maintenance costs, and that is also a big problem.
    - eldavido 6y ago
      I've given this a lot of thought and pretty much concluded government needs to get out of the retirement game. Not saying this as a libertarian or any kind of principled statement, simply looking at what happens time and again. We need to switch to 401(k)-style DC plans or something similar where the funds have to be contributed today and are beyond the reach of politics. The incentives to game the system are just too strong. Whether incorrect discount rates, systematic underfunding, whatever, people always treat the pension assets as a "big pot of money" for today's emergency, and use it for the pet project du jour. I even see this at my condo association. We have a replacement fund to stay on top of long-term replacement liability. We can't even balance that. What chance does a large government, with many stakeholders, have of getting this right?
danso 6y ago
Illinois state did have a ballot measure to amend the state constitution to replace the flat tax. Voters rejected it: https://news.wttw.com/2020/11/04/illinois-voters-reject-fair-tax-amendment https://news.wttw.com/2020/11/04/illinois-voters-reject-fair...

lotsofpulp 6y ago

There is only one notable cause of Chicago’s budget crisis, and that is deferring the expense of labor performed decades ago to today’s taxpayer via defined benefit pensions and retiree healthcare. Same with Illinois, and pretty much all the other governments out there. It’s the easiest way to promise low taxes today and shift expenses onto future generations who have no say. It almost works as long as people keep having 3+ kids and the tax base keeps growing. Not so much once population growth stalls and the tax base suffers income stagnation.

Shivetya 6y ago
Illinois [0] is not alone but its far simpler to find good figures on how bad the state and various counties and cities are failing their employees and residents. There was hope of a Federal bailout of all pension funds, numerous covid19 bills tried to bury them into the dollars, but fortunately that may be off the table as the Congressional elections did not pan out as needed. Yyes, the expectation was the Feds would not use the Pension Benefit Guarantee System to salvage something but actually fund them with tax dollars. The PBGS should be the default solution but is not a friendly solution as benefits are generally brought back from silly levels. The issue with many public pension systems is that too many payouts are excessive. No pension system, notably no public, show being paying out six figure retirements in addition to health benefits. California had to use a law to cap theirs around 125k but that has faced numerous challenges and may see more in the future. They do deserve their retirement pay but it needs to be reasonable and equal across the board to best serve the public and employee interest. The lower paid employees are not well served and the managerial and certain others are over compensated in retirement. [0]https://www.illinoispolicy.org/reports/pension-apocalypse-covid-19-exposes-long-running-fragility-of-illinois-public-pensions/ https://www.illinoispolicy.org/reports/pension-apocalypse-co...
- eldavido 6y ago
  The pensions payouts are simply outrageous. Do the math, you'll see a 60-70% final value pension on 100k salary (60-70k/year) with a 3% cost of living increase (standard in Illinois) is worth 1.8-2.0 million dollars (25 years @ 3.5% discount rate). This is equivalent to having nearly 2 million dollars saved in a retirement account and when you retire, buying an annuity with credit quality equivalent to a promise from a major government (not a junk bond which may become insolvent). Anyone who thinks that's "fair" really needs a reality check. 600k pensioners in Illinois [1], many of them living out of state, and the ones that live in-state aren't even taxed on their pension income. They also don't have to pay for health insurance. This is simply insane. There's really no other word for it. This needs to be indexed to private benefits or otherwise tethered to reality. Sidenote. We need a rethink of public service in this country (US). The old bargain of "you get paid less working for the government but the benefits and job security are better" needs to go. Everyone receiving this $2 million entitlement is going to say, well, I work for the government so I deserve my "better benefits". It shouldn't matter if you work private or public sector. There needs to be some equivalence otherwise you get Illinois, where politician after politician promises great treatment to AFSCME and SEIU and to nobody's surprise, no real attempt is ever made to fix this broken system. [1] https://ballotpedia.org/Public_pensions_in_Illinois https://ballotpedia.org/Public_pensions_in_Illinois
  - notJim 6y ago
    I'm not sure I see what the problem is with these pensions. Standard retirement advice is that one should save enough money to live in retirement at a similar lifestyle that they lived while working. If the idea of these pensions is that your salary is lower, but you need to set aside less for retirement, what is the issue? As far as the $2 million figure, if you go to any retirement calculator and try to figure out how much you need to save to have a similar lifestyle in retirement as to working, you will indeed find they advise you to save $2-4m. In the private sector, you're expected to do this on your own, but you get a higher salary to compensate. Looking at my own career, a comparable government job seems to pay about $40k less than a private sector job. If your argument comes down to the public pensions being too generous relative to private ones, shouldn't we instead make private pensions more generous? Why do we want old people who work their whole lives to have a massive step down in lifestyle when they retire? Is that what you want for yourself or your parents?
vkou 6y ago
> It’s the easiest way to promise low taxes today and shift expenses onto future generations who have no say. I can say the same about cities borrowing money to finance infrastructure projects, but I've yet to see a political comment grousing about how a city's budget woes come solely from billions of dollars of 10-year old debt that has to be serviced. King county just voted to take on 1.7 billion dollars in debt to renovate a county-owned hospital. Ten years from now, nobody will be talking about defaulting on it, but I fully expect them to be talking about defaulting on pensions.
- lotsofpulp 6y ago
  With infrastructure, the fact that contractors and suppliers need to be paid today at least puts the debt on the books. The cost of deferred compensation can be wildly understated for decades (and continues to be) by using erroneous investment return and mortality rate assumptions. Also, the risk of corruption remains for decades as you have a huge pot of money which many are fighting to get a piece of with little transparency. No one actually considers the figures put out by IL/NJ/CT/Chicago and other distressed governments as accurate, and if they had to abide by the rules that non taxpayer funded entities have to, their debt would easily be 30%+ higher than stated (based on an assumption of a 1% change in discount rate moving liabilities ~15%). I agree that politicians can also hide debt by not properly accounting for infrastructure and long term maintenance costs, and that is also a big problem.
  - eldavido 6y ago
    I've given this a lot of thought and pretty much concluded government needs to get out of the retirement game. Not saying this as a libertarian or any kind of principled statement, simply looking at what happens time and again. We need to switch to 401(k)-style DC plans or something similar where the funds have to be contributed today and are beyond the reach of politics. The incentives to game the system are just too strong. Whether incorrect discount rates, systematic underfunding, whatever, people always treat the pension assets as a "big pot of money" for today's emergency, and use it for the pet project du jour. I even see this at my condo association. We have a replacement fund to stay on top of long-term replacement liability. We can't even balance that. What chance does a large government, with many stakeholders, have of getting this right?

danso 6y ago

Illinois state did have a ballot measure to amend the state constitution to replace the flat tax. Voters rejected it: https://news.wttw.com/2020/11/04/illinois-voters-reject-fair-tax-amendment https://news.wttw.com/2020/11/04/illinois-voters-reject-fair...