State of the City: Blithe Comments from Rahm
Let's see what Rahm Emmanuel has to say about his nascent mayorlty:
If Rahm Emanuel had known being mayor of Chicago was this much fun, he likes to joke that he would have “primaried” his political mentor four years ago.
“As I told Rich Daley, ‘You didn’t tell me the truth. You said it was gonna be a good job. It’s not a good job. It’s a great job.’ I tease him about that all the time,” Emanuel told the Chicago Sun-Times in an interview on his first 100 days in office.
“I’m having a blast. . . . [Wife] Amy and the kids [say], ‘Dad seems happy.’ If you want to see change and see what you’re doing impact people, this is one of the most dynamic and exciting opportunities of a lifetime. . . . It sure beats walking around with the world on your shoulders” as White House chief of staff.
Awwwww, how endearing.
Let's look at what he's been up to!
First, he's hired some consultants to cut city contracts to the bone:
Mayor Rahm Emanuel on Thursday hired a private consulting firm to consolidate and overhaul city contracts and wring at least $25 million in savings out of $500 million in purchases.
The savings generated by Accenture are expected to come from renegotiating some contracts, rebidding others and combining purchases by individual city departments to get a cheaper bulk price.
The contract calls for the company to review $500 million in contracts and get 10 percent of the first $70 million in savings, with a smaller percentage after that. But Accenture will not get paid at all until Chicago taxpayers get their check.
Actually, that sounds good to me.
But there are harder cuts as well:
Of all the sad statistics related to the financial crisis at Chicago Public Schools, one of the most alarming is simply this: The school district is spending millions more every year to educate fewer children.
Into this mess steps Jean-Claude Brizard and a new leadership team pledging to rebuild the financial footing and repair the miserable academic performance of a school district that, by most measures, is struggling.
Brizard said Thursday that the previous leadership had only recently awakened to the bloated bureaucracy at CPS — trimming central office staff by 327 since 2009 — but that cuts should have been deeper.
"If we don't make these courageous decisions, we're going to be right back where we were — where past CEOs, past administrations, have faced problems and didn't do enough to actually correct it," Brizard said in a meeting with the Tribune's editorial board. "The very financial health of the system hinges on that."
Some of the decisions envisioned include:
•Closing schools, including charters, that aren't working or are underenrolled.
•Restructuring contracts with teachers, janitors, bus drivers and other pacts that have become burdensome.
•Consolidating jobs and departments within the central office.
•Laying off staff.
•Raising taxes when necessary.
•Creating a school system where the best-performing, not the longest-serving, principals and teachers earn the most money.
Previous administrations have made similar promises, only to see the problems get worse. But Brizard says this mandate for change comes from Mayor Rahm Emanuel.
Still, cutting fat is good.
But hey - what's this extra thing he wants to pay for?
Is Rahm nuts?
•
Mayor Rahm Emanuel today said the city has an obligation to pay for former Mayor Richard Daley’s legal defense if he is sued for alleged police brutality conspiracies that happened under former Chicago police Cmdr. Jon Burge.
The city will not, however, run up unnecessary legal bills to defend Daley or Burge, Emanuel said.
“We’re not going to be reckless and let the meter run legally,” Emanuel said.
Really? Why don't we stop this one before it even starts then.
Who was Daley working for when all of this allegedly occurred? Does Rahm even remember Daley's title at the time?
•Cook County State's Attorney
Chicago wasn't employing him at the time, nor signing his checks. So what the hell is Rahm doing promising to pay for Daley's alleged actions?
To be sure, if it was when Daley was Cook County's State Attorney he has absolute immunity, and my understanding is that the civil complaint is based on when Daley was mayor.
But frankly, I don't see that with all this scrounging for spare change in Chicago's couches, that Rahm can make a great case that the less-than-pristine Daley should be defended with the tax dollars of Chicago.
But I guess he's hoping for the same courtesy when he's ex-mayor.
Thanks to reader TRB in pointing me to the Second City Cop blog -- other posts of interest:
Play the Chicago Game and Avoid Taxes
What's so special about Lollapalooza (that thing is still going on? Jeez, it started when I was in high school...but it looks it has much fewer venues now) that it gets a $1-million-holiday from taxes?
Oh, I'm sure it's just coincidence they had hired one of Daley's nephews:
And if Lollapalooza wasn’t already enough of a financial bonanza for its promoters, who grossed more than $21 million last year, City Hall and Cook County government officials are doing their part to boost the festival’s bottom line, even as they struggle with their own budget crises, which threaten to result in layoffs of city and county workers.
For a seventh straight year, the city and county are exempting Lollapalooza from paying the amusement taxes normally imposed on arts and athletic performances and even movies.
That will save the promoters — Austin, Texas-based C3 Presents LLC — more than $1 million in taxes on the 270,000 tickets sold for this years’s festival, which opens Friday.
Lollapalooza got its latest waiver from the city’s 5 percent amusement tax in the waning days of the administration of Mayor Richard M. Daley, whose nephew Mark Vanecko has been a lobbyist and lawyer for the festival promoters, helping to negotiate their current 10-year contract with the Chicago Park District.
Just business as usual, guys. Nothing to see here.
I liked this detail:
Also, the contract says C3 has to comply with the park district’s affirmative-action goals — which call for subcontracting 25 percent of work to minority-owned businesses and 5 percent to women-owned companies. The park district says 14 of the 57 Lollapalooza vendors are owned by minorities or women. It won’t identify them. Nor will the district or the foundation provide any records to show how much work Lollapalooza gives to minority- or women-owned companies.
I love it when old school white nepotism runs into "diversity" goals. Their problem is that they didn't marry enough different ethnicities. Only if Daley had a black or hispanic nephew...
By the way, this Vanecko nephew isn't the same one involved in a homicide case where police files were "lost".
I can imagine the Daley family reunions are so much fun. In mine, we're just comparing kid videos...the Daleys must compare who got away with the most.
Chicago News Update 6Mar2011
No, it's not all about pensions with me, all the time. Other stuff happens.
So, there have been elections in Chicago and Cook County recently. Some pols lost their positions. What do they do now that they're off the gravy train?
What do you mean off the gravy train?
Like thousands of Illinoisans who have lost their jobs, former Cook County Board President Todd Stroger has applied for unemployment benefits.
But newly minted Board President Toni Preckwinkle’s administration officially “protested” the claim with the state’s unemployment agency.
“. . . Former Board President Todd Stroger did submit an application for unemployment,” said a source in the Preckwinkle administration who is familiar with the application. “That application was protested because, as a former elected official, he is ineligible.”
....
It would be different if he were a regular county employee or worked in the private sector. If he could prove his case — that, say, the voters didn’t fire him for cause but that he lost his job through no fault of his own — he might qualify for unemployment, according to state law.
Homicide case involving Daley nephew closed without charges. Those Daleys have to be good Catholics - there's so many of them. And hey, closing a case just in time for the Lenten season. Maybe someone can atone for something. Just a thought.
Black woman took black votes for granted, white man didn't. White man won. I'm not sure if she had spent more time campaigning amongst black Chicagoans that she would have done better, though.
Flash mobs mean something different on the Magnificent Mile. Come on, at least they could've thrown in a musical number while creating a distraction.
One pension-related story: a particularly ignorant chief financial officer takes his seat. And yes, a Daley nephew is involved. Not many good choices for this guy -- either admit to total cluelessness or corruption. That's generally the choice in Illinois.
We Get Information (Sometimes)
Remember my post welcoming Hizzoner Emanuel to his new job?
Well, it seems I misunderstood something, and the Office of the Senate President put me some facts. I'll just post the full official statement from the office:
Statement and information from Senate President John Cullerton:
“When school districts in the suburbs and downstate negotiate contracts and salaries, they don’t have to worry about the pensions because they, as the employers, contribute almost nothing to the pension funds. I think we need to look at changing that and am studying how to best advance the issue.”
The TRS system is funded by a mix of contributions: Employees (teachers), employers (school districts), the state and investment income.
Teachers contribute 9.4 percent of their pay. In the FY 2010 budget, teacher contributions to the pension fund totaled $899 million.
School districts contribute very little: 0.58 percent. In that same budget, school district contributions totaled $171 million.
The state contribution in that budget was $2.081 billion.
Under Cullerton’s concept, the state would continue to pay down the unfunded liability in the system. School districts would be asked to help cover the costs of existing teachers’ future pensions.
“The suburban and downstate teachers already contribute substantially to their retirements, as do the taxpayers of Illinois. If the school boards that oversee school districts are going to effectively decide pensions by deciding salaries, then they too need to contribute substantially.”
Cullerton pointed out that this is already how the Chicago Public School system works. While that pension fund does receive a relatively small state subsidy, the local taxpayers and Chicago teachers cover the overwhelming majority of the pension costs. And Chicago taxpayers also support the downstate and suburban teacher pensions by paying state income and sales taxes.
So Chicago was already covering its teachers' pensions. This wouldn't be a new burden on Chicago taxpayers -- they already had this burden.
Honey <a href="http://powip.com/2011/02/twitter-wars/"badgers admit when they get something wrong.
And then they eat a cobra head.
Congrats on the new job, Mr. Mayor!
Hey Rahm, I hear tell you've got a new position and all sorts of bright, shiny things in store for you. What, one of your first appointees has had to resign because of ethics questions? Not even one week into your administration? Oh, buck up. Let's look at what else you're dealing with:
The former White House chief of staff, who won his mayoral bid handily Tuesday, takes charge of a city facing an immediate budget shortfall projected at from $500 million to $1 billion and with its long-term pension promises to city workers underfunded by as much as $15 billion — fiscal shortfalls Mr. Emanuel vowed during the campaign to address.
And while nobody expects a showdown with the unions as bitter as the one gripping neighboring Wisconsin, observers see coming painful negotiations with municipal unions similar to those other Democratic-leaning big cities and states have had to engage in recently.
How are you going to pay for this? Property tax hike? No? I don't think forensic audits are really going to do anything, either.
Surely, the state will be able to help. They've just issued a shitload of pension obligation bonds, sold with a spread of about 200 bps over Treasury bonds [i.e., the market thinks they need to be paid extra for this risk - comparable to some junk bonds]...oh wait:
Local school districts could get hit with a multimillion dollar bill under a pension cost-shifting plan being floated by a top state Democrat.
Senate President John Cullerton is proposing that school districts cover the costs of teacher pensions. Those costs -- estimated at about $700 million -- are now covered by the state.
That doesn't sound promising for Mayor Rahm.
Part of the issue is because Gov. Quinn went seeking federal guarantees to back those pension obligation bonds. Nothing doing. Seriously, fehgeddaboutit. But hey, if you like to live life on the edge... go for it! I think the ride down the Illinois debt death spiral should be fun. [vendors: have your bills been paid yet?]
And back to Rahm, I'm guessing that you're going to be doing more stuff like this. Because something's gotta give, and I think we've seen what direction the winds are blowing right now.
MORE: Unions guarded about Rahm win
AND: Maybe Rahm could spare a bit of his pocket change
REMINDER: A hole of 11K per Chicago resident. The numbers ain't pretty.
UPDATE: We've been contacted by the office of the Senate President about his proposal for teachers pensions. I quote from the statement:
Cullerton pointed out that this is already how the Chicago Public School system works. While that pension fund does receive a relatively small state subsidy, the local taxpayers and Chicago teachers cover the overwhelming majority of the pension costs. And Chicago taxpayers also support the downstate and suburban teacher pensions by paying state income and sales taxes.
Basically, Chicago has been on its own re: teachers pensions, more or less, already. So that's part of the debt problem that already exists, and this proposal wouldn't add to it.
Public finance and pensions roundup 30 Jan 2011
INSTALANCHE! Howdy new readers - if you really want to get depressed, I've got a whole series on this subject.
BANKRUPT STATES
I'll lead off with John Bury's post adding to his argument that NJ is the most bankrupt. His prior post on NJ being number one. I think Illinois is in a worse situation, but I do agree with Bury that any business that jumps from Illinois to NJ is jumping from the frying pan straight into the fire. I don't care how much one likes Chris Christie.
In other news, the credit rating agency Moody's is warning the states that it will [FINALLY DAMMIT] be factoring in unfunded pension liabilities in the states' credit ratings.
Jeb Bush and Newt Gingrich sticking their oar in on a plan to make some sort of federal bankruptcy for states. Ace posting on that story. The states are not amused about any of this. LA Times editorial against the idea. Various quoting of pols.
The impact of state indebtedness on current services and infrastructure projects.
Three strategies for broke states - relates to government-run schooling.
Forget about education - a real low-hanging fruit of state expenditure is Medicaid.
NEW YORK
Bloomberg decides it's about time to get around to addressing NYC pensions. Given that he can't run for mayor again, and may be seeking a larger political stage. Banning trans fats and promoting bike lanes only gets you so far.
An "alternative view" on public pensions. I'll let you make your own rebuttals. For example, I'm sure the people of NJ are very happy that pension payments are contributing to communities in Florida. Small portion of the budget? Tell that to Salinas. I guess from one point of view, 14% is small. If it stayed there.
Double-dipping in New York ["retiring" and then getting rehired - so getting both salary and pension payments at same time.]
CALIFORNIA
Marcia Fritz of California Foundation for Fiscal Responsibility talks about the need for pension reform in the Golden State.
The "new" governor Jerry Brown decides to give the pension issue a pass, and proposes other cuts...that doesn't even cut half the budget gap.
San Diego town council not covering public workers for prior sweet deal made improperly. To wit: the workers have got to eat it, to the tune of about $100MM collectively. Hey, the workers who got payments over what they should have should be happy they're not being asked to pay the excess back for benefits already received. Anyway, it will almost definitely go to court.
California pols really not happy about idea for state bankruptcy.
More from San Diego - the downside of getting new employees out of the defined benefit system. They don't pay into the fund. Now, given that defined benefit plans for state pensions are not supposed to be Ponzi, this shouldn't be a big deal. I don't see why new employees really should be plugging up the holes of overly generous benefits for prior ones.
ILLINOIS
Not exactly only about Illinois, but a Washington Examiner editorial notes the sweetheart deal Quinn cut with unions right before his election.... and the proposed transparency bill by Rep. Issa in the House that could derail such a deal. [Of course, there's no way this sucker is getting much past the House. But you've got to start somewhere.]
Illinois is getting a little extra scrutiny from the SEC on its recent pension accounting switcheroo. More on same. And more on same from the NYTimes. An editorial on the issue.
An editorial with one of my favorite proposals: no pensions for legislators. They already get to vote on their own salary.
Chicago proposal on pensions: increase employee contributions, make goal to reach 80% fundedness in 50 years [as opposed to 90% in 30... either way, I think there will be a cashflow problem long before the proposed horizons].
Illinois still not current on its bills.
HA HA – Rahm is booted from ballot
I just couldn't wait to post this.
The Illinois Appellate Court has tossed mayoral frontrunner Rahm Emanuel off the ballot, reversing the decision of a lower court.
The Appellate Court reached a 2-1 decision to remove Emanuel.
Appellate judges Thomas Hoffman and Shelvin Louise Marie Hall ruled against Emanuel. Justice Bertina Lampkin voted in favor of keeping President Obama’s former chief of staff on the Feb. 22 ballot.
“It’s a surprise,” said Kevin Forde, the attorney who argued on Emanuel’s behalf.
Opponents have been trying to get Emanuel removed on the grounds that he did not reside in Chicago for a year before the upcoming February election. He moved to Washington, D.C., two years ago to work for President Barack Obama.
But Emanuel’s legal team has argued that he always intended to return to Chicago, noting that he maintained ownership of his Ravenswood home.
The Appellate Court concluded that Emanuel’s claims of intent to return were not enough.
Maybe he spoke too soon on the pensions thing, and that's what got him.
I bet the leftie blogs are rubbing their hands in glee over this.
Super Chocolatey DOOOOOM: Illinois finance and pension links 24Jan2011
Looks like both Chicago and New York lost. Boo hoo.
Time to get back to the real stuff. Some of these links will be repeats from prior posts... just because.
- Let's start out with proof that the businesses in Illinois aren't totally stupid. So Springfield increased business taxes. Many Illinois businesses decide it's time to call U-Haul. Mmmm, where are those taxes going to come from? More on how politicians do not consider the exit possibilities.
- Ah, Chicago Labor leaders. They're always so well-behaved. Double-dipping? Pish tosh. I'm sure it's all above board.
- Evanston gets a reprieve on funding their pension - helps in the short run, but if I were an Evanston employee or current retiree, I'd be wary.
- James Pethokoukis on the kleptocracy that is Illinois. Gee, I'm sure Illinois politics has nothing to do with federal politics, right?
- All that tax-raising doesn't fix things, of course. Just more of the same old, same old. More from the NYT on the same subject.
- Some warnings from the "progressive" side: yeah, Rahm wasn't kidding about pension cuts. Look at the numbers. And look at these numbers. I guess that's why Rahm thought he could get away with it. I don't think the union endorsements will get any of his opponents to threshhold.
- A little too late, perhaps: constitutional amendments to keep a cap on spending. And more on the same story.
- When a state has to explicitly stipulate that it will pay its bills.... makes me want to check if I'm getting paid in IOUs again.
- Novel idea to cap the spending: putting Illinois pols into debtors prison. Hey, we've not tried that yet. Soft landings seem more common.
- Think 2 pensions not enough? How about 4? 5?
- Pension plan fine? That's news.
- Want to see how the most bankrupt Illinois pension plan has evolved? Just check out page 3 of this pdf. This is the one claimed to be in a death spiral, as it's selling off assets. Some more on the TRS history. Keep an eye on TRS - I think it will be the first big bust. More from Bill Zettler at Champion News on this.
- Illinois paying for past sins? Well, gotta be paid sometime
- Illinois retirees - expect to pay more for healthcare. Hope! Change!
No Federal Bailouts: Let Them Eat IOUs
I first saw David Skeel's proposal to make a federal law to allow for entire states to go bankrupt back in November 2010. Kenneth Anderson at The Volokh Conspiracy pointed out some real state sovereignty issues with this proposal-- federal judges making essentially political decisions? [not like they've not already dictated state budgets before].
Later Joe Mysak notes that Chapter 9 bankruptcy, which is available to municipalities, would not fix the public pension problem painlessly.
People look at historical examples, which show that under municipal bankruptcies, everyone will get screwed. Except the politicians who had set up the problem and left in a timely manner. States do go bankrupt, in terms of defaulting on their bonds -- it was more common in the 19th century, and we've not had a good state bond default for almost 80 years now.
I've been sitting on some of these links for months and cogitating on the possibility of federal bankruptcy law for states, and yadda yadda yadda. I'm going to let the law-talking dudes talk that one over. I'm more in the money-counting/number-crunching crowd. And definitely, like Tom Sowell, in the No Bailouts crowd.
There's going to be a lot of whining from the "Ooooooh, won't somebody think of the poor public employees!" crowd, in trying to gin up a federal bailout, but boy, your timing is bad. Reality will hit, and that "will" is not that far in the future.
Those who wrote a "positive right" to the public pensions for workers forgot that government is not all that great at enforcing positive rights like that -- if they've not been good at preparing for their promises, they will be able to squeeze taxpayers only so much to try to fulfill them. Once the financial event horizon has been crossed, it will not matter what various parties "deserve", it will not matter what is "guaranteed" in various state constitutions. When there ain't no money, somebody is going to have to alter their expectations, and that's going to hit a lot of somebodies.
While some have argued that the recent plummet in the muni market is overblown [and yes, the market does usually overreact/overshoot whenever it does large moves], I still say bondholders should do some of their own, independent analysis of the financials. There are probably plenty of good bonds out there, as we only hear of the large state profligates in the news -- California, Illinois, New Jersey, New York. But the fireworks may start first with municipalities... my eye is on Chicago.
And don't expect to get bailed out like Goldman Sachs did with regards to AIG -- the Democrats aren't in charge of the House any more, like they were in 2008.
Chicago Update 11Jan2011
While waiting for the snow to drop on our heads, let's see what Rahm has been up to in his campaigning:
In contrast to his main rivals in the mayor’s race, Rahm Emanuel has told labor leaders that he favors reducing pension benefits for the city’s existing work force and not just for new hires.
Although Mr. Emanuel has not yet publicly detailed his plan to confront the city’s perennial budget deficits and the severely underfinanced employee pension funds, he told union officials in a private meeting on Dec. 15 that he thought it could be necessary to cut the pensions of all employees, said people who attended the meeting.
....“The sticking issue for all of us is the pension issue,” said a labor activist who attended the meeting with Mr. Emanuel. “I can’t tell my members we are going to support a guy who is going to cut your pensions.”
The labor leader and others who attended the meeting said they did not want to be identified for fear that Mr. Emanuel would retaliate if he were elected.
Nice pension.... wouldn't want to see anything happen to it....
As the RedState Labor Union Report says, Chicago's pension plans are close to being the worst in the country, in terms of solvency.
And while the other candidates are making noises about a two-tier system, so that only new hires would have the lower pensions, I guess Rahm really isn't that stupid and realizes that current pensioners and employees are a far greater problem in fiscal magnitude than theoretical future employees. The pension isn't in deep shit because they've not put money by for people who don't work for the city yet.
So maybe Rahm isn't totally stupid. Sounds like he knows the fiscal score - must have talked with Daley.
I don't think the unions don't realize it's not a matter of not pissing off Rahm. Doesn't matter if they do anything overt. There's not enough money to give everybody goodies, and the unions are too hoggy to fit at what will be a much shrunken trough.
Well, maybe enough money to buy off some union leaders, but that will be it.




