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  #131  
Old 09-09-2016, 06:50 PM
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WATER TAX

http://www.bondbuyer.com/news/region...1113015-1.html

Quote:
Chicago Pension Fund Clears First Council Hurdle

CHICAGO – Chicago's plan to rescue its largest pension fund with the help of a new water and sewer tax cleared a key vote Thursday despite complaints about the tax's impact and concerns it doesn't fully solve the fund's crisis.

The 26-6 vote by the Finance Committee advances the measure to phase in over four years a 29.5% hike in water and sewer rates by taxing usage to the full council, which meets on Wednesday.

The plan Mayor Rahm Emanuel released last month establishes a funding schedule for its municipal employees' fund to put the city on track to reach an actuarially required contribution in 2022. The city will then need to come up with more than $250 million in additional revenue to maintain the ARC payment and keep the fund on a track to solvency.

Emanuel's chief financial officer, Carole Brown, and budget director Alex Holt defended the proposed tax and funding scheme as the best balance of the needs of the fund with the burden on taxpayers.

"We acknowledge there will need to be additional revenue for this fund" and the city's other pension funds down the road, Brown said.

.....
The plan calls for the city to pour $2 billion more over the next six years than the current $1 billion it owes under the existing statutorily based funding formula in which city contributions are based on a percentage of what employees contribute.

But after 2022, the city's proposed funding scheme will fall more than $250 million short of what's needed to meet payment requirements.

"As we all know, the multiplier funding set out in existing law is insufficient, and if nothing is done the municipal fund is projected to reach insolvency in the next 10 years," the letter to council members says. "The city's proposal to move the municipal fund to actuarial based funding will finally address decades of underfunding and put the fund on a path to solvency."

The vote came with some council members feeling bruised after approving other tax increases, most notably a record $543 million annual property tax hike to stabilize the city's police and firefighter funds last year. Most agree with Emanuel that the city can't again turn to the property tax levy, which must also support increases for the financially troubled Chicago Public Schools. Emanuel has typically enjoyed majority support among the 50 aldermen but has seen more pushback of late.

Under the funding plan, Chicago would budget in 2017 for a $267 million contribution to be made in 2018. It ramps up to $344 million in budget year 2018, $422 million in 2019, $499 million in 2020, and $577 million in 2021. The next year it makes the leap to what the city said will be an ARC level of $879 million.

The new, phased-in water/sewer tax accounts for $56 million in the first year and grows to peak of $241 million in 2020 and remains there. The share covered by enterprise funds – namely the water and aviation department, where employees participate in the fund – would rise from $43 million at the start of the ramp to $141 million at the ARC level. The share of the contribution coming from property tax revenue would hold steady at $124 million through the five-year ramp and first year of the ARC payment, as would the $110 million from the city's general fund

During the five-year ramp period, a portion of revenues would be set aside in an "escrow" that by 2022 would reach nearly $260 million. Those revenues will go to help cover the jump to an ARC payment of $879 million from $577 million in the final ramp year.

The following year the payment would rise only slightly to $898 million, but the city won't have the benefit of the "escrow," raising questions over how it would cover the more than $250 million gap in tax, general fund, and enterprise fund revenues.

The ARC payments continue to grow, but at a slow pace, hitting the $1 billion mark in budget year 2029. That's four years after the city would end up paying $1 billion on a pay-as-you-go basis when assets are exhausted under the existing funding scheme.

Payments reach nearly $2 billion at the end of the 2057 schedule, according to the actuarial analysis from Aon Hewitt. The plan's funded ratio would remain below 50% until 2050 when it is to begin building to reach 90% in 2057.

I want graphs!

:tantrum:
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  #132  
Old 09-09-2016, 06:51 PM
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http://www.chicagotribune.com/news/l...908-story.html

Quote:
Emanuel's new water tax easily passes key test vote

Mayor Rahm Emanuel's latest tax hike gained momentum Thursday as the City Council Finance Committee easily advanced a plan that would cost Chicagoans an extra $226 a year on their water and sewer bills by 2020.

The 26-6 vote setting up final approval next week came despite several aldermen saying they're concerned the tax won't bring in enough money to shore up the city's largest pension fund — which is the mayor's aim — and will just lead to more tax hikes down the road.

Given those questions and the difficulty of adding yet another tax hike onto the pile of city financial hits to residents in recent years, some aldermen were predicting a close vote. But after a personal lobbying blitz by Emanuel and some late-in-the-game information his administration provided to aldermen Wednesday, the groundswell of opposition failed to materialize.

That political dynamic has played out at the Chicago City Council countless times for decades. It's easier for aldermen to go along with the mayor's plan in the twin hopes that he or she will take the heat and that there's safety in numbers than it is to come up with an alternative and cobble enough votes together to buck the fifth floor at City Hall.

The water tax stands as another tough vote for aldermen, who in recent years have increased a host of other city taxes, fines and fees to buttress shaky city finances. Since taking over from Mayor Richard M. Daley in 2011, Emanuel has persuaded the council to double water and sewer fees for system upgrades, hike the emergency services tax on phone bills to increase laborers fund contributions, start charging homeowners for garbage pickup and enact a record-high property tax increase to boost police and fire pension contributions.

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  #133  
Old 09-26-2016, 05:48 PM
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Chicago teachers authorize strike

http://chicago.suntimes.com/news/chi...orizes-strike/

Quote:
The Chicago Teachers Union said Monday that 95 percent of members who participated in a poll last week have agreed to authorize a strike this fall.

Some 90.6 percent of eligible teachers, clinicians and aides signed their names on petitions circulated last week at schools and CTU headquarters, according to the CTU. The results — 86 percent of eligible members voting — are slightly lower than last December’s strike authorization vote, which the union decided to repeat to halt legal challenges by the Board of Education. Then, some 88 percent of eligible members voted yes. The CTU did not release raw voting totals.

Reminder: a big part of this is the proposal to have teachers contribute to their DB pensions, instead of Chicago doing the "pickup", as it had been.
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  #134  
Old 09-27-2016, 04:11 PM
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CHICAGO PUBLIC SCHOOLS

http://www.bloomberg.com/news/articl...-fiscal-crisis

Quote:
Chicago Schools Cut Deeper Into Junk by Moody’s on Crisis

Board of Education bonds downgraded one level to B3 from B2
Liquidity is ‘increasingly precarious,’ credit rater says

The Chicago Board of Education, already junk-rated, was cut to six levels below investment grade by Moody’s Investors Service as the nation’s third-largest school district faces “acute” borrowing needs amid a financial crisis.
The one-step downgrade to B3 from B2 comes about a month after school officials approved a $5.4 billion budget that hinges on their ability to secure funding from the state and wrest concessions from the teachers’ union. The district has $6.8 billion of general-obligation debt, including $5.8 billion that’s rated by Moody’s, which has a negative outlook on the 400,000-student system.
The cut “reflects the district’s increasingly precarious liquidity position and acute need for cash flow borrowing to support ongoing operations,” Moody’s said in a statement. “The downgrade is also based on the district’s deepening structural deficit, with budgets that are built on unrealistic expectations of assistance from the state of Illinois, which faces its own financial challenges.”
The rating cut comes as the Chicago Teachers Union moves closer to walking off the job. Teachers have voted for a strike, and its governing body may act Wednesday to authorize a work stoppage. The strong labor group and escalating pension costs, including more than $700 million due in June, factored into its decision, Moody’s said.
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  #135  
Old 09-27-2016, 04:14 PM
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http://www.businessinsider.com/chica...elf-out-2016-9

Quote:
Chicago is trying to bail itself out

More than a year after Chicago’s pension predicament sparked a wave of rating downgrades, have the city’s efforts to reduce the amount of its underfunding been enough? Despite significant progress, we don’t think so.

It’s not for lack of trying. Chicago’s decision makers—with occasional help from the state legislature—have taken the following steps over the past year to reconcile the budget gaps created by the underfunded pension:

Approved the largest property-tax increase in decades and dedicated $544 million in proceeds to fund the police and fire pension plans; the tax is phased in over four years, ending in 2018
Secured state legislative approval to reduce annual pension contributions to the above pension plans, despite the objection of the governor; this temporary reduction expires in 2020 when costs will again rise based on the actuarial health of the pension funds
Attempted to reduce liabilities for municipal and laborer pensions, which was later struck down by the Illinois Supreme Court
Responded to the Supreme Court decision with a plan to fund municipal and laborer pension payment increases with a water and sewer tax, pending state and local approval; under this proposal, the payments would increase beginning in 2022 based on the actuarial health of the pension funds

TREADING WATER?

Measures such as the property-tax increase have improved the city’s ability to pay the higher state-mandated contribution, but it’s only delaying the inevitable. The property-tax measure allows Chicago to continue making contributions well below the actuarial-recommended amounts (Display). It also delays the pensions’ solvency dates by a year or two (less if the asset values decline in the interim).

.....
ON THE BRIGHT SIDE

It’s not all bad, though. While the city has an outsized unfunded pension liability, Chicago does have some factors working in its favor. For one, its recent efforts have helped stabilize its financial operations. A 24% uptick in property values was another boon: although the increase was below the prerecession peak, it’s been the largest post-recession improvement for Chicago.

Also in the city’s favor is its “home rule” status, which grants it authority over its municipal matters—the ability to levy and adjust taxes, issue bonds and enact other measures, for instance. Home rule is important for Chicago because it can take the actions it thinks are best without relying for approval on the state of Illinois, which has its own share of problems (the state hasn’t approved a budget in nearly two years).

Importantly, Chicago’s improvement efforts haven’t gone unnoticed by investors, who have responded positively. We’ve seen its municipal bond prices rise, and spreads have narrowed. Eventually, however, lower prices are likely.

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  #136  
Old 09-29-2016, 07:03 PM
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http://ilnews.org/10143/in-wake-of-l...a-few-options/

Quote:
In wake of latest credit downgrade, Chicago school district has a few options


The Chicago school district was dealt a financial blow last week Moody’s Investors Service downgraded its credit rating for the Chicago Board of Education deeper into junk status, to B3 from B2.

Moody’s said the district’s dependence on borrowing money and its liquidity position are among the reasons why it downgraded the credit rating.


.....
“It will further impair their ability to raise money and raise the cost of (raising money),” Glennon said. “However, it is questionable whether they are able to raise money anyway. The last round that they did was a private placement, which was very unusual.”

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  #137  
Old 09-29-2016, 07:04 PM
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http://www.bloomberg.com/news/articl...ash-in-red-ink

Quote:
As Chicago Staunches Fiscal Bleed, Schools Are Awash in Red Ink

Squeezed by pensions, district faces possible labor battle
More than 10% of budget will go toward debt costs this year
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Chicago, the nation’s biggest junk-rated city, has raised taxes and moved to shore up its debt-ridden pension system, but for its schools, the triage still has a ways to go.
The Chicago Board of Education is facing a potential strike by its teachers, which could further strain its coffers. The third-largest U.S. school district’s budget counts on state aid and union concessions that may not come. And this week, Moody’s Investors Service cut its rating deeper into junk, citing its “precarious liquidity” and reliance on borrowed money, as preliminary data showed an enrollment drop of almost 14,000 students -- a loss that may cut into its funding.

The chronic financial strains may lead investors to demand higher interest rates from the debt-dependent district. With $6.8 billion of general-obligation debt, it’s already paying yields of as much as 9 percent, according to Moody’s. More than 10 percent of this year’s $5.4 billion budget is eaten up by principal and interest costs. In August, the board authorized issuing as much as $945 million of bonds and drawing on a $1.6 billion credit line to pay bills.
......
The school board’s situation has worsened as its fund balance and reserves shrink, according to Moody’s.
“Because the reserves and the liquidity have weakened steadily over the past few years, there’s less room for uncertainty in the budget,” said Rachel Cortez, vice president at Moody’s in Chicago. “They don’t have any cash left to buffer against revenue or expenditure assumptions that don’t pan out.”

The district’s deficit may worsen. The spending plan for the year that started July 1 anticipates that it will wrest concessions from the union, including phasing out the district’s practice of covering most of teachers’ pension contributions. The teachers’ union has rejected that, calling it a pay cut. The district is also counting on $215 million in aid that’s contingent on the state passing a pension overhaul -- something that the virtually gridlocked legislature has been unable to do.
.....
The financial pressure has led investors to demand yields on Chicago’s school bonds that are well above benchmark rates, though the gap has narrowed since the state passed a budget in June that provided the property-tax money and about $135 million of other aid. Bonds due in 2042 traded Wednesday for an average of 89 cents on the dollar to yield 5.8 percent, more than double the 2.2 percent on top-rated debt, according to data compiled by Bloomberg.
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  #138  
Old 09-30-2016, 10:54 AM
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"But it's only on the brink that people find the will to change. Only at the precipice do we evolve."

From the 2008 version of The Day the Earth Stood Still.

Is Chicago (or Illinois) at the brink yet?
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  #139  
Old 09-30-2016, 11:30 AM
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As long as people are still paying for their bonds, they're not at Detroit-hood yet, I suppose.
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Old 10-04-2016, 07:12 PM
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http://www.wsj.com/articles/chicagos...435846?tesla=y

Quote:
Chicago’s Struggling Schools Made Wall Street $110 Million From $763 Million in Bonds
J.P. Morgan, Nuveen invest in school board’s bonds at big profit

The Chicago school system needed money—fast. Two Wall Street players saw an opportunity to invest.

J.P. Morgan Chase & Co. and Chicago-based Nuveen Asset Management have made realized and paper profits exceeding $110 million on purchases this year of $763 million in Chicago Public Schools bonds. The school system has said it needed the money to replenish its dwindling coffers before the new school year and to build and repair facilities.

The terms of the bond sales highlight the choices the school district faces after years of pension shortfalls and relying heavily on borrowing. The 397,000-student school district struggled to sell municipal bonds in February until Nuveen bought about one-third, and the district decided in July to borrow directly from J.P. Morgan for fear that investors might balk again, a spokeswoman for the Chicago Board of Education said.

“CPS did not have the luxury of waiting longer to demonstrate to the market that the progress we were making was real,” said Ronald DeNard, the school district’s senior vice president of finance, in an emailed statement about the bonds purchased in July by J.P. Morgan.

J.P. Morgan, the country’s largest bank by assets, made a 9.5% profit on $150 million in bonds it bought in July and sold in September, or 82% annualized. Nuveen, an investment firm managing $160 billion, has bought $613 million in bonds since February for a total return, including price gains and interest payments, of about 25%. That is almost 50% on an annualized basis, an especially large gain at a time of near-zero interest rates.

The school system’s bonds are a favorite for John Miller, Nuveen’s co-head of fixed income, who said the firm bought when the market feared a default, a concern he called overblown. “At the end of day, this school system is critically important to Chicago—to the whole country really,” he said.
.....
Chicago’s school district operates on a budget of $5.5 billion with a below-investment-grade, or junk, credit rating on nearly $7 billion of bonds. Its teachers union is threatening to strike, in part, over proposed changes to its pension plan, which has a nearly $10 billion funding gap. The school system’s rainy-day fund is nearly empty and relies on short-term borrowing.

“J.P. Morgan and Nuveen are taking advantage of a distressed school district at the expense of our most vulnerable students,” said Jackson Potter, staff coordinator at Chicago Teachers Union.

Okay, they can just stop buying your bonds.



Feel any better about that?

Quote:
Still, when the school district turned to J.P. Morgan for more money in July, it decided to sell the bonds directly to the bank to avoid the risk that investors would reject it. Instead, demand for the bonds rose throughout the summer, and J.P. Morgan sold all of the debt for a $12 million profit in September, Wall Street Journal analysis of data from the Municipal Securities Rulemaking Board shows.

“You’ve gone from having maybe two to three people being interested in these deals to all of a sudden having 20 investors interested,” said Mr. Miller of Nuveen.

.....
J.P. Morgan has a longstanding relationship with Chicago Public Schools and is the top underwriter of its bonds over the past 10 years, according to data from Thomson Reuters. The bank views the school board as a high-priority client that it understands well and is willing to support its short- and long-term capital needs, the bank spokeswoman said.
I guess it will keep going, until it doesn't
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