Pension Funds Burn Cities as $1 Trillion Shortfall Set to Grow
by Brian Chappatta
July 17, 2015 12:01 AM EDT
The cost to American cities for their cash-strapped pension funds is starting to look a lot worse, and its not because the stock-market rally may be losing steam.
Houston was warned by Moodys Investors Service this month that it may be downgraded because of mounting retirement bills, the latest municipality put on notice as the company ignores bookkeeping gimmicks that let cities mask the size of their debt for years. The approach foreshadows accounting rules for even top-rated issuers that are poised to cause pension shortfalls to swell as new financial reports are released.
If youre AAA or AA rated and youve got significant and visible unfunded pension obligations, youve only got one direction to go in terms of rating, and thats potentially down, said Jeff Lipton, head of municipal research in New York at Oppenheimer & Co. Its the presentation on the balance sheet that is now going to drive urgency.
Cities that shortchanged pensions for years are under growing pressure to boost their contributions, even after windfalls from a stock market thats tripled since early 2009. Janney Montgomery Scott has said growing retirement costs are the largest cloud overhanging the $3.6 trillion municipal-bond market, where investors are demanding higher yields from borrowers under the greatest strain.
Chicago Pays
That was on display this week for Chicago, whose credit rating was cut to junk by Moodys in May because of a $20 billion pension shortfall. The city was forced to pay yields of almost 8 percent on taxable bonds maturing in 2042, about twice what some homeowners can get on a 30-year mortgage.
more...
http://www.bloomberg.com/news/articles/2015-07-17/pension-funds-burn-cities-as-1-trillion-shortfall-set-to-grow
think
(11,641 posts)A long but worthy read.
All across America, Wall Street is grabbing money meant for public workers
BY MATT TAIBBI - September 26, 2013
In the final months of 2011, almost two years before the city of Detroit would shock America by declaring bankruptcy in the face of what it claimed were insurmountable pension costs, the state of Rhode Island took bold action to avert what it called its own looming pension crisis. Led by its newly elected treasurer, Gina Raimondo an ostentatiously ambitious 42-year-old Rhodes scholar and former venture capitalist the state declared war on public pensions, ramming through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government.
Called the Rhode Island Retirement Security Act of 2011, her plan would later be hailed as the most comprehensive pension reform ever implemented. The rap was so convincing at first that the overwhelmed local burghers of her little petri-dish state didn't even know how to react. "She's Yale, Harvard, Oxford she worked on Wall Street," says Paul Doughty, the current president of the Providence firefighters union. "Nobody wanted to be the first to raise his hand and admit he didn't know what the fuck she was talking about."
Soon she was being talked about as a probable candidate for Rhode Island's 2014 gubernatorial race. By 2013, Raimondo had raised more than $2 million, a staggering sum for a still-undeclared candidate in a thimble-size state. Donors from Wall Street firms like Goldman Sachs, Bain Capital and JPMorgan Chase showered her with money, with more than $247,000 coming from New York contributors alone. A shadowy organization called EngageRI, a public-advocacy group of the 501(c)4 type whose donors were shielded from public scrutiny by the infamous Citizens United decision, spent $740,000 promoting Raimondo's ideas. Within Rhode Island, there began to be whispers that Raimondo had her sights on the presidency. Even former Obama right hand and Chicago mayor Rahm Emanuel pointed to Rhode Island as an example to be followed in curing pension woes.
What few people knew at the time was that Raimondo's "tool kit" wasn't just meant for local consumption. The dynamic young Rhodes scholar was allowing her state to be used as a test case for the rest of the country, at the behest of powerful out-of-state financiers with dreams of pushing pension reform down the throats of taxpayers and public workers from coast to coast. One of her key supporters was billionaire former Enron executive John Arnold a dickishly ubiquitous young right-wing kingmaker with clear designs on becoming the next generation's Koch brothers, and who for years had been funding a nationwide campaign to slash benefits for public workers....
~Snip~
Read more: http://www.rollingstone.com/politics/news/looting-the-pension-funds-20130926#ixzz3gAl4Z4UT
yeoman6987
(14,449 posts)I don't know what they were thinking. Did they think the pensions were going to vanish? These cities have been given cigarette money and other funding that should have gone into pension funds.
PoliticAverse
(26,366 posts)taxes to pay for them. They made it someone else's problem when the payments became due.
Igel
(35,337 posts)But then I Googled it and found this:
Voters passed the revenue cap in 2004, amending the city charter to limit the growth of property tax revenue to the combined rates of inflation and population growth, or 4.5 percent, whichever is lower. Voters tweaked the cap in 2006, allowing the city to raise an additional $90 million above the cap for public safety spending.
http://www.chron.com/news/politics/houston/article/Council-trims-city-tax-rate-to-comply-with-5838075.php
We moved to Houston in summer '04 and missed the background to that charter amendment.
Property taxes amount to something like 1/4 of Houston city's budget.
Harris County, which Houston's part of, has its own restrictions on how property taxes can rise in order to flatten sudden increases (even if it allows sudden decreases): http://www.hcad.org/Help/CappedValues.asp
the market value (what the property would sell for on the open market); or
the preceding year's appraised value
+ 10%
+ the value of any improvements added since the last re-appraisal.
A "homestead" is your primary residence and it qualifies for a reduction in taxes to help avoid taxing people out of their houses.
But Houston's squirming trying to deal with the pension shortfall even as they also try to raise public employee wages and benefits.
Texas has its own pension problems at the state level. Also not an uncommon occurrence: Live now, make the voters happy, hope that somebody else can clean up your crap later because you certainly won't be around to pay the price for pandering.