I wouldn’t necessarily blame the DNC for the shooting/kills stats. Except for the 8/3-8/4 shootings (related to a music festival, which gives all sorts of opportunities if one does not screen for weapons), one often finds shootings in Chicago are related to the weather and weekends, especially in the summer.
But that’s not my main focus here at STUMP, so let’s see what I’ve already covered for 2024, and what is yet to come.
Under Illinois law, former Ald. Edward M. Burke is likely to be stripped of the $8,027-a-month city pension he started collecting last May on the day after ending his record 54-year reign in the Chicago City Council.
Two weeks after a jury convicted him of racketeering, bribery and attempted extortion, officials with the Municipal Employees’ Annuity and Benefit Fund of Chicago won’t say when — or even whether — they will revoke his benefits.
No matter. He will get at least the $540,000-plus that he paid into the fund, which covers most city workers other than firefighters, police officers and laborers, pension records show.
The disgraced former council dean is in line for a more substantial payout from his campaign fund, which he can use to pay himself or his family members almost $2.5 million, no questions asked, thanks to a loophole in state campaign-finance law.
Burke, now 80, is scheduled for sentencing in June.
Burke attempted to extort money from the Field Museum for the benefit of a close family friend. In another scheme, Burke attempted to extort the owners of a Burger King in his 14th Ward to steer tax appeal business to his private law firm.
But the heart of the government's case centered around the Old Post Office. He was found guilty of using his public position to shake down the Old Post developers to use his law firm. Former alderman-turned-government mole Danny Solis secretly recorded Burke several times discussing the scheme.
As is usual with these Chicago/Illinois political corruption cases, it was a federal criminal prosecution.
Across the country, 30 states have some sort of public pension garnishment or forfeiture laws. Of those 30, only 15 states will revoke or garnish an employee’s pension benefit if he or she is convicted of a felony related to their misconduct on the job (Figure 1).
The other 15 states with public pension garnishment or forfeiture laws will only revoke a public employee’s pension benefits, including police officers, for what are considered “financial crimes” such as fraud, embezzlement, theft, and bribery.
The piece from Reason has detailed explanations of the policies, for states that had any. That was as of July 2020. I do notice that some of the most corrupt states (-cough- New Jersey and Illinois) have such policies.
The saga of Burke getting busted showed up in the 2019 Chicago round-up. Burke was not the only corrupt Chicago politician caught, but he was the most egregious.
That said, Burke’s pension was not the thing breaking the bank. It did not take corruption, not that type at any rate, to make the pensions fail.
Today, some groups came together for a press conference after putting out an open letter yesterday, calling on Mayor Brandon Johnson to please get some principles in dealing with the sorry state of Chicago pensions.
We urge you to ensure your Working Group considers the below elements while crafting final recommendations. The elements are informed by the 2014 Blue Ribbon Panel Report written for the Society of Actuaries (SOA).
A requirement to have any proposal scored by independent, professional actuaries.
A requirement to reach and maintain 100% funding for all plans within 20 years.
A requirement to reduce the burden on the next generation of taxpayers by adopting a level-dollar amortization schedule.
A moratorium on any benefit increases until plans are 100% funded.
A requirement to enroll participants in Social Security if Tier II plan provisions are found to be in violation of ERISA.
A ballot initiative for a constitutional amendment that replaces the current pension clause, giving the General Assembly the power to improve the retirement security of public sector workers while reducing the pension burden on taxpayers.
I agree with all of their proposals, and I have a few short comments right now that I may expand on in future posts.
For now, I will link to old posts, as I have written about these issues for years.
But here is the nutshell version.
The core of Chicago’s pension problem:
Overpromising benefits
Underpaying for those promises
That is fairly simple how they got to where they are today, but dealing with it given where they are now is a real bear because there are loads of stakeholders, legal obligations, and more.
BAD choices have consequences.
Other public pensions have some strain, but I would rather they not be pulled down with the exceptionally bad example of Chicago.
But the point is that anything less than a 100% fundedness target is an indication that one does not intend to fully pay benefits.
Ohhhh, but we must! cry the disingenuous politicians — we are required to! It was promised to pay the pension benefits!
“So where is the money coming from?” I ask.
“That’s the problem of the people of tomorrow…” and the politicians disappear in a puff of smoke.
But even if the politicians did not explicitly set targets of less than 100%, the actual contributions being made were such that it was obvious they did not have 100% targets.
We will see in the Chicago Teacher Union, there has been an assumption that money will magically appear as needed.
Where will it come from?
Running out of sponsors
As I asked in one of my top posts of 2023, Who Will Bail Out Chicago?, and I went down the possible list:
Illinois — deep in debt itself and in no condition to bail out Chicago
Federal government — interest rates are increasing on its own debt and it’s got some other priorities than bailing out the deadbeats
So I proposed aliens. No, not the human kind pouring over the southern (or even northern) border. The extraterrestrial kind. If they existed. To pull in the tourists.
But none of these are going to save Chicago. So how dire is the situation?
Basically, it takes huge increases in contributions (or cuts in benefits) to prevent the assets from running out.
But you can see that because of so many years of undercontributions in the past, Chicago has to put in much higher contributions now to escape the asset death spiral:
cash flows from contributions and investment income too small to cover promised benefit payments… so:
have to liquidate pension assets to pay benefits
as a result, there are a smaller amount of pension benefits to generate invesment income….
…so one needs to contribute more to cover the next period’s benefits
…but you can’t contribute that much, so you contribute what you can (go to top step and continue until assets run out, and then you have not enough resources to cover benefits)
Asset death spirals do not occur by accident.
Chicago’s has been decades in the making.
I did a more recent update for Chicago, and things have gotten worse in many ways since my original posts on the old STUMP in 2014. The contributions are much higher and the funded ratios are lower. This is not a good trend.
The press has not been covering this much, as there are much more tempting dumpster fires to cover.
Lack of interest in the press until it’s a complete disaster
Pensions? One reporter I talked to recently told me, “When pensions start coming in on buses every hour, then we’ll cover them.”
This is referring to Texas (and sometimes Florida) sending illegal migrants coming over southern points of entry up to Chicago, New York City, and other areas that had proudly claimed themselves sanctuary cities for illegal aliens when it cost them nothing. It makes for great political theater.
But the issue with pensions and public finance in general is that it is a very slow-moving monster.
Until, all of a sudden, it’s no longer slow-moving. At that point, it tends to be a disaster. Kind of like tectonic plates and earthquakes.
I’m not a journalist, “just” a hobbyist, and I’m very patient.
(Yes, other things are going on, but this post is long enough already.)
I’ve been watching specific pension systems, waiting to see what happens to them. Chicago’s pensions are in pride of place.
I have seen what happened to other pensions. When the assets run out. One can wait for the bodies to pile up, to be sure. There will be lawsuits. But will there be money?
The ultimate problem Chicago has is that they overpromised past employees (and current employees), and those promises have never been changed.
While not changing those promises, Chicago (and Illinois as a whole in a bit), have thrown in grossly inadequate amounts to support the promises they made.
That’s the past.
How Chicago is going to deal with the future…
…well, I’m only 2 years older than Brandon Johnson.
I think we’re going to get to see together how that works itself out.
Obviously, real (personal) life has been intruding, but I’m 50 years old and still alive.
I will likely live long enough to see a variety of public finance disasters, Chicago and Illinois will still have pride of place.
This next post came a few weeks later, and Mayor Johnson noted an extra contribution to the Chicago pensions. It was an 11% increase for one year, over what they were statutorily required to contribute.
Note: what is required by statute and what actuaries would recommend are very different amounts.
From the post, for one of the pensions:
The “actuarially determined contribution” is an amount that is to cover pension benefits earned that year as well as the amount of unfunded pension liability to be amortized that year.
The way to measure both bits has squishy bits in terms of assumptions and parameters - but for ADC, you can’t pick something other than full-fundedness. Like, you can’t pick a 90% fundedness target 40 years from now.
The actuaries calculated an ADC of $1.273 BILLION for MEABF, but that the statutorily required contribution is only $976 million.
So there was a difference of $297 million.
Let’s look above:
Municipal Employees' Annuity and Benefit Fund of Chicago: $178.1 million
So we’ve got a $297 million shortfall, let’s subtract off the $178 million they’re putting in…
Now they’re only short by $119 million!
That’s one year.
ONE YEAR.
Let’s say — that’s inadequate.
I simplify the issues by putting it in more everyday contexts:
Yes, I understand that the politicians have got to make this look as good as possible, but let’s consider the following scenario:
I have a bunch of employees I pay by PUTTING IT ON MY CREDIT CARD.
And now I need to pay that credit card balance down.
If I were to fully pay off my balance in 30 years, I’d need to pay $1,273 just this year, but I was planning only to pay $976.
But hey, I scrounge in the couch and am going to throw in $178 additionally (and maybe a dime I found).
Think of all the savings in interest charges I won’t have to pay over the next three years because of that extra! To be sure, I didn’t pay enough to pay down the balance in 30 years, but it’s better than my original plan.
This first one combines proposed solutions to problems for three different pensions systems, one being Chicago. The Chicago solutions are somewhat interesting — I had come in expecting some lack of realism, but these were the finalists in a competition, so these were ones who had realistic proposals (to a certain extent). They mainly focused on increasing revenue.
I will be getting to the CTU stuff more in a moment. This was the CTU trying to get the state to pay for their dreams of money as Chicago’s student base shrinks.
Coming Attractions: CTU Will Try to Strike Again When Chicago Has No Money?
As noted in the above podcast, the Chicago Teachers Union took a little field trip to the capital of Illinois in the spring to try to lobby for more money for themselves.
The Chicago Teachers’ Pension Fund’s $1.5 billion in payments to participants living in Illinois in 2023 had a $2.1 billion impact on the state’s economy and supported more than 11,500 jobs, according to its 2024 Economic Impact Statement.
The report found that each dollar it paid out in pension benefits generated $1.40 in economic activity for the state.
….
The report, released annually by the $12.1 billion pension fund, calculates the CTPF’s impact on the state of Illinois and its largest city, Chicago, and includes data on economic impact by legislative district and city ward in Chicago. To assess the economic impact, the report uses standard economic multipliers supplied by the U.S. Department of Commerce’s Bureau of Economic Analysis to measure the direct and indirect effect of payments made to the pension fund’s annuitants.
According to the report, 82% of the fund’s annuitants who collect a pension remain in the state, with nearly half of them residing in Chicago. Those Chicago-based annuitants received $742 million in pension benefits in 2023, which resulted in approximately $1 billion in total economic impact and supported nearly 5,800 jobs in the city, the report stated.
So, I am going to push back here. They claim they can achieve the benefits at about half the cost associated with a 401(k) plan.
This is the cost — the total height of the bars. (Using their optimistic assumption set)
And they’ve never paid the total cost.
Also, I’ve never been at an employer who contributed even 40% of my salary to a 401(k). I believe that would exceed IRS limits for 401(k)s. I could be wrong about that.
But wait, there’s more!
Mmmmm, maybe 50% wasn’t the percentage you wanted to mention.
I would be willing to just take their assumption that each pension benefit dollar generated however much they used in their multipliers.
But then, each Illinois resident should be able to generate a similar multiplier from their own money that they get to keep and spend, instead of being taxed to make up that deep whole of underfunded pensions… don’t you think?
Because that’s the part of the economic equation being ignored here.
The benefit generates economic activity, but this plan will be in an asset death spiral if the contributions don’t keep up at a fairly high level. This is why the pension plan has to sell itself to the community now.
“It’s gonna get a little hot in this city in the next few months” over contract negotiations with teachers. That’s from Chicago Teachers Union President Stacy Davis Gates’ address to the City Club of Chicago yesterday.
That sure sounds right based on the rest of her speech. Gates told us what the CTU is. “We are a whole bunch of people who have been told no. Don’t, Forget about it. Don’t even think about it. No. Poo.” And this time, they won’t accept those answers, which was the primary point of the speech. It’s all part of the CTU’s broader “movement,” a term she used throughout the speech.
On that nasty subject of (dare I say this?) money, Gates was stridently indifferent.“They’re gonna say, ‘these are great proposals and can’t nobody pay for it and CTU with all of this, that and the other and who’s gonna pay for it, Stacy?’ ”
“Stop asking that question,” she said. “Ask another question.”
Fine, I’ve got plenty of other questions:
What do your union members produce for the city of Chicago?
Why should the taxpayers of Chicago care about what you want when it’s not tied to fiscal reality?
Why should anybody take your toddler tactics seriously?
and finally…
What are CTU members getting for their dues?
I could add to the list, but I will wait.
Because maybe nothing will come from all the posturing. We’ll see. Maybe the CTU folks know that Chicago is limited on the amount of money they can play with, and Illinois is limited as well. Pritzker has been saying no to Mayor Johnson, who would love to give the CTU everything it wants — after all, he was a CTU organizer himself.
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I’m f I didn’t say it already, I was born and raised in Chicago, but in 1973 my folks moved to a nearby suburb. I was away at college and came home for Christmas break with an address of my new home- a two bedroom apartment that I would share with my high school sister and my folks. This was after growing up in a 3 bedroom bungalow on the west side of Chicago. The folks left due to the rising crime in the neighborhood even back then. The neighborhood was very rough, but I believe the ‘streetwise’ education serves me to this day. My Dad was a Teamster and other various union’s ’organizer’ with a number of political connections so my folks where staunch Democrats. While in college for my first election I requested an absentee ballot to be able to say ‘I voted for Richard J Daley’ (the old man). So I watched the continued decline of the City from just outside its borders for decades. I will always be proud to say that I was raised in Chicago but equally comfortable saying I would no longer live there now. Thanks MEEP!
I’m f I didn’t say it already, I was born and raised in Chicago, but in 1973 my folks moved to a nearby suburb. I was away at college and came home for Christmas break with an address of my new home- a two bedroom apartment that I would share with my high school sister and my folks. This was after growing up in a 3 bedroom bungalow on the west side of Chicago. The folks left due to the rising crime in the neighborhood even back then. The neighborhood was very rough, but I believe the ‘streetwise’ education serves me to this day. My Dad was a Teamster and other various union’s ’organizer’ with a number of political connections so my folks where staunch Democrats. While in college for my first election I requested an absentee ballot to be able to say ‘I voted for Richard J Daley’ (the old man). So I watched the continued decline of the City from just outside its borders for decades. I will always be proud to say that I was raised in Chicago but equally comfortable saying I would no longer live there now. Thanks MEEP!