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Thread: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

  1. #21
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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by Blue_State View Post
    I love the idea of a neutral third party. How would you put it together?
    For what it's worth, it works in Canada. Here in Ontario, we have two of the most profitable and strongest public sector pension plans in the world. The government has zero access to the funds or management/control over the funds/reserves. They are operated by independent boards and investment committees, and all plans are jointly, equally, funded by the employees and the government.

    Two problems that US public pension plans seem to have is that 1) employees aren't paying enough into the plans to fund their future retirement expectations and 2) governments have too much access to plan reserves and/or deferral of payments into the plans and divert funds to other government programs and/or obligations.
    A Canadian conservative is one who believes in limited government and that the government should stay out of our wallets and out of our bedrooms.

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by CanadaJohn View Post
    Surely, siting the Obama Presidential Library in Chicago will make all this talk go away

    Heya CJ. Nah, not even BO can make this all go away.....but I am sure he wont mind them raising taxes. Which some park (Jefferson or Washington) will still be taken care of.



    Several years ago, DHS began offering welfare recipients the opportunity to intern at department offices around the state. It seemed like a win-win: extra hands at the office while helping people in need. But in the same complaint about being understaffed, the union complained that these welfare recipients were taking away work opportunities from dues-paying AFSCME members.

    In 2011, the state attempted to calculate how much it costs to keep so many accounting systems. But even computing the cost of operating all these accounting systems was too difficult, so the best estimate the auditor general could come up with is $24 million to operate about half of the systems.

    •In recent years, the state has attempted to save money by limiting the number of individual water bottles and water coolers bought for state offices. Many of these buildings have drinking fountains in the hall, so water coolers or individual bottles are unnecessary. But these savings never happened. Why? After AFSCME complained, an arbitrator sided with the union. The reason was appalling: It wasn't because of health or safety concerns, or because there was anything wrong with the water from the fountains, or even a lack of water fountains. The arbitrator said that because the bottled water had been provided in the past, it could not be taken away. (Apparently bottled water, like pensions, cannot be diminished or impaired.).....snip~

    First, lay off all the state workers - Chicago Tribune

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by MMC View Post
    Heya CJ. Nah, not even BO can make this all go away.....but I am sure he wont mind them raising taxes. Which some park (Jefferson or Washington) will still be taken care of.



    Several years ago, DHS began offering welfare recipients the opportunity to intern at department offices around the state. It seemed like a win-win: extra hands at the office while helping people in need. But in the same complaint about being understaffed, the union complained that these welfare recipients were taking away work opportunities from dues-paying AFSCME members.

    In 2011, the state attempted to calculate how much it costs to keep so many accounting systems. But even computing the cost of operating all these accounting systems was too difficult, so the best estimate the auditor general could come up with is $24 million to operate about half of the systems.

    •In recent years, the state has attempted to save money by limiting the number of individual water bottles and water coolers bought for state offices. Many of these buildings have drinking fountains in the hall, so water coolers or individual bottles are unnecessary. But these savings never happened. Why? After AFSCME complained, an arbitrator sided with the union. The reason was appalling: It wasn't because of health or safety concerns, or because there was anything wrong with the water from the fountains, or even a lack of water fountains. The arbitrator said that because the bottled water had been provided in the past, it could not be taken away. (Apparently bottled water, like pensions, cannot be diminished or impaired.).....snip~

    First, lay off all the state workers - Chicago Tribune
    Say MMC, you live there, are things that bad?? You may move south, the waters warmer, longer growing seasons and everybody has an oil well in his back yard.
    Killing one person is murder, killing 100,000 is foreign policy

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by Montecresto View Post
    Say MMC, you live there, are things that bad?? You may move south, the waters warmer, longer growing seasons and everybody has an oil well in his back yard.


    I do hate the cold and winterweather Monte. Oh and the other 6 months of missing sunshine. But somebody other than Joe Walsh has to keep them on their toes around here.

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by CanadaJohn View Post
    For what it's worth, it works in Canada. Here in Ontario, we have two of the most profitable and strongest public sector pension plans in the world. The government has zero access to the funds or management/control over the funds/reserves. They are operated by independent boards and investment committees, and all plans are jointly, equally, funded by the employees and the government.

    Two problems that US public pension plans seem to have is that 1) employees aren't paying enough into the plans to fund their future retirement expectations and 2) governments have too much access to plan reserves and/or deferral of payments into the plans and divert funds to other government programs and/or obligations.
    Another big problem, is unrealistic assumptions about returns on pension plan assets. This bias toward unrealistic assumptions occurs both in the private and public sectors. For purposes of illustration, below is the data for IBM, which has an underfunded corporate pension plan:



    The plan assumes an 8% annual return. To put this assumption into a larger context, the 30-year Treasury yield is currently around 3.1%. An assumption somewhat above the Treasury yield might not be too bad, but one that is more than 2.5 times that yield is inflated. It is also inconsistent with the conservatism principle that is at the heart of accounting, but the application of that principle falls short of the ideal.

    The end result is that firms can readily maintain unrealistic pension plan assumptions in their financial statements (with the overly optimistic assumptions being confined to the notes to the financial statements--that's why due diligence is so important). In practical terms, the rosy assumptions rationalize a pension funding level that is consistently below what is actually required. Over time, a large unfunded pension liability accumulates.

    IMO, the underfunded nature of public and private pensions argues strongly for pension reforms that would require full funding (capping the underfunded liability at a modest percentage of the overall pension obligation to allow for fluctuations in returns and costs) and place a ceiling on estimated returns (perhaps no more than 100 basis points above the average 30-year Treasury yield over a set period of time). More robust funding requirements and more realistic assumptions about returns would greatly reduce the risk of chronic underfunding and the accumulation of substantial unfunded liabilities. Moreover, if returns proved higher than expected, the difference between pension assets and pension obligations would allow for reduced funding for a period of time, hence funding levels would, over the longer-term, be appropriate with respect to the actual pension obligations.

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by MrVicchio View Post
    Moody's holds the City accountable, points to the irresponsible SSC decision and Rahm whines about it. Amusing as hell.
    Rahm....now that guy is a clown.

    I lived in Chicago as a young married woman and loved it. Sadly, I think it's just too far gone. It may resemble Detroit soon.
    Horse sense is the thing a horse has which keeps it from betting on people. ~W.C. Fields

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by tres borrachos View Post
    Rahm....now that guy is a clown.

    I lived in Chicago as a young married woman and loved it. Sadly, I think it's just too far gone. It may resemble Detroit soon.

    As well as a Clintonista.


    Oh.....that was you walking in the stiletoes downtown, eh?

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by MMC View Post
    As well as a Clintonista.


    Oh.....that was you walking in the stiletoes downtown, eh?
    Horse sense is the thing a horse has which keeps it from betting on people. ~W.C. Fields

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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by MMC View Post
    I do hate the cold and winterweather Monte. Oh and the other 6 months of missing sunshine. But somebody other than Joe Walsh has to keep them on their toes around here.
    Joe Walsh!! Life's been good.
    Killing one person is murder, killing 100,000 is foreign policy

  10. #30
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    Re: Moody’s Downgrades Chicago Credit Rating To ‘Junk’ Bond Status

    Quote Originally Posted by donsutherland1 View Post
    Another big problem, is unrealistic assumptions about returns on pension plan assets. This bias toward unrealistic assumptions occurs both in the private and public sectors. For purposes of illustration, below is the data for IBM, which has an underfunded corporate pension plan:



    The plan assumes an 8% annual return. To put this assumption into a larger context, the 30-year Treasury yield is currently around 3.1%. An assumption somewhat above the Treasury yield might not be too bad, but one that is more than 2.5 times that yield is inflated. It is also inconsistent with the conservatism principle that is at the heart of accounting, but the application of that principle falls short of the ideal.

    The end result is that firms can readily maintain unrealistic pension plan assumptions in their financial statements (with the overly optimistic assumptions being confined to the notes to the financial statements--that's why due diligence is so important). In practical terms, the rosy assumptions rationalize a pension funding level that is consistently below what is actually required. Over time, a large unfunded pension liability accumulates.

    IMO, the underfunded nature of public and private pensions argues strongly for pension reforms that would require full funding (capping the underfunded liability at a modest percentage of the overall pension obligation to allow for fluctuations in returns and costs) and place a ceiling on estimated returns (perhaps no more than 100 basis points above the average 30-year Treasury yield over a set period of time). More robust funding requirements and more realistic assumptions about returns would greatly reduce the risk of chronic underfunding and the accumulation of substantial unfunded liabilities. Moreover, if returns proved higher than expected, the difference between pension assets and pension obligations would allow for reduced funding for a period of time, hence funding levels would, over the longer-term, be appropriate with respect to the actual pension obligations.
    You make an excellent point, and you're quite right. Here in Canada, the rates of return on pension investments have been quite good, with the exception of the financial crisis worst years and have often seen double digit returns. Perhaps in Canada the variety of investments allowed within a pension plan are broader.

    I'd also note that in pension plans here, the pension board/administration sets the deposit rates for both the employees and employers, based on actuarial models, investment return history, age of current retirees, number of current employees, etc. It is not a fixed or bargained amount or percentage of salary. Neither the employees nor the government has any control over the rate.

    I feel bad for people in the US who've worked their whole lives and retired on a promise of pension income that they had every right and expectation to receive. Planning for your needs in retirement isn't something you can do on the fly or in your late 60s, 70s or 80s. Governments, in my view, have an obligation to keep promises made to those retired but should also have the ability to bring the plans more into financially viable status going forward. But there's no question in my mind that governments in the US have badly mishandled many public sector pension plans.
    A Canadian conservative is one who believes in limited government and that the government should stay out of our wallets and out of our bedrooms.

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