An espoused self educated Austrian Economist, Mike Shedlock / Mish is a registered
investment advisor representative for SitkaPacific
Capital Management. Sitka Pacific is an asset management firm whose goal
is strong performance and low volatility, regardless of market direction. Read
more at http://globaleconomicanalysis.blogspot.com
Published 04-18-15
Mish Shedlock talks about the magnitude of the mounting Pension Problem in
America and uses his home state of Illinois as a prime example. According to
a State
Budget Solutions, last year's state unfunded pensions reached an all-time
high of $4.7 trillion. This funding gap state public pension plans are underfunded
by $4.7 trillion, up from $4.1 trillion in 2013. Overall, the combined plans'
funded status has dipped three percentage points to 36%. Split among all Americans,
the unfunded liability is over $15,000 per person.
Illinois' Pending Pension Crisis
"Illinois Pension's in general are 39% funded! This is after this massive
rally we have had since 2009 in financial assets. Some of the worst ones are
only about 20% funded. I think the Teacher's Pension Plan is about that and
the General Assembly and Judicial Pension Plan are also on the bottom."
"Various cities in Illinois have problems, Chicago being one of them. The
City of Chicago has a huge pension crisis right now. We have things in Illinois
like "Home Rule Taxes" where cities can levy their own taxes in addition to
the state. That is why we have varying sales tax that range anywhere from 6%
to 10%, depending on locality."
"I believe Chicago is Bankrupt!"
"I have been working with the Illinois Policy Institute. There are a number
of cities in Illinois (I am not going to name them), but I am aware of five
cities (one of them a major city - not Chicago) that are ready to file bankruptsy
- and it is all over the pension issue! The problem is they can't file bankruptcy
because the state doesn't allow it."
"The fundamental problem is they have made more promises than they can
possibly keep!"
Gaming The Pension System
The problem is "you have police and fire workers who can retire after 20 years
... and collect up to 70% of their earnings based on the 5 highest years salaries.
We see a lot of pension spiking in the last few years where for example police
work overtime (which counts towards their best five years) so these workers
stand to collect far more in retirement (total years in retirement) than they
actually ever made while working (total years worked).
"Tax payers are actually funding the employees portion of the pensions
by excessive wages and direct contributions."
"Chicago (has) floated General Obligation Bonds to actually just fund current
expenses. That is illegal! We have bonds here in Illinois that are called
tax exempt on the basis they are supposed to be funding long term infrastructure
expenses that are funding short term needs."
Property Taxes The Jurisdiction Of Underfunded Cities & Towns
"Taxes in Illinois are are already obscene. A homeowner on a $600,000 home
can expect to pay $14-15,000 per year - every year on property taxes. Do
you really own your own home in Illinois? On top of tht you have 10% sales
tax."
"Pensions are so underfunded in Illinois that they are going to go bust
in the next slowdown. I believe one (a slowdown) is on the way."
The New, Looming Problem For States, Cities And Towns
Negative interest rates are sweeping the globe. How will states, cities and
towns fund themselves and their pension obligations in an era of potential
negative nominal bond rates?
- Returns on the heavily weighted funds' bond holdings are being potentially
destroyed, while
- State/Municipal bond offerings are likely to face mounting issues around
maintaining investor attraction with such monstrous overhang levels of unfunded
pension liabilities.
"How will states, cities and towns fund (attract) long term assets
with 15 year negative bonds?"
