"Ever wonder how public pension systems forecast that they will earn 7.5 percent to 8 percent annually on investments? It's like making sausage: If consumers knew the process they wouldn't buy it -- or, in this case, buy into it.
Yet, when a pension board sets its assumed rate of return -- how much it expects to earn from holdings such as stocks, bonds and real estate -- the decision significantly impacts taxpayers.
The higher the rate, the less employers and employees must contribute now to fund future retirement benefits. But if projections don't pan out, the shortfall must be paid off solely by future taxpayers."
- Daniel Borenstein
This is a scam of the highest significance to tax payers. When the economy goes bad and the rate of return from pensions do not materialize. Then, tax payers are legally obligated n most instances to foot the bill.
I'm not worried, this is not sustainable. What happens when there is no more tax payer money to fund broke pension systems?
Bankruptcies of Mid Sized Cites Stockton, CA and San Bernadino Reduces Stigma
San Bernadino pupulation 232,000 and Stockton, CA population 292,000 both declared banruptcies this month. What makes those bankruptcies especially noticeable is the size of the cities. Stockton is the biggest city to ever declare bankruptcy.
What this means, is that othere cities can file suit. See, people are human. When they see another city go bankrupt, it makes them easier to follow suit because others have done it.
Governor Quinn of Illinois is starting to talk like a Republican. He is actually proposing some sweeping pension reform for public sector unions in Illinois. In a stunning Chicago Tribune article states that Quinn proposes:
To help shore up the vastly underfunded system, Quinn called for a 3 percent increase in employee contributions and reducing the rate of cost-of-living increases. The governor also wants to raise the retirement age to 67.
This just shows you home much financial trouble the state of Illinois is in. If something is not done soon, the state will be unable to pay its bills. The democrat party has basically been the most union friendly party you can get. Now when Democrats begin admitting there is a pension problem and then start doing something about it, that is a major admission of public sector unions have really bled the system dry.
At the same time, I approach this news with caution. Quinn is still a democrat, and democrats always look to tax and spend. Quinn will find a way to screw this up. He could call for more borrowing, more taxing, and more spending. Like any Democrat, it is in their blood to tax money from someone else, borrow more than you can handle, and spend like there is no tomorrow.
Chicago is broke. At the city level, county level, and at the state level. According to a Chicago Tribune article: the city of Chicago has a pension gap of more than 25 billion, Cook County has a pension gap of 5.2 billion, and the state of Illinois has a pension gap of over 80 billion.
Everyone know we are all broke. The problem is that the mostly liberal leadership keeps getting the solution. Illinois has been run by Democrats for decades. Their solution always seems to be to blame the rich, raise taxes, raiding pension funds, and keep increasing public sector union compensation. This formula got us to this point and in Illinois they keep trying the same old formula that keeps getting us even deeper in the hole.
The county is in such a hole, even if they ask for a 1% increase in how much county employees (currently at 8.5%), they will only generate an additional 15 million dollars. That is minisully short of the 5.2 billion needed for the county pension gap.
I just cannot see any way for Illinois to get itself out of this mess without creating some massive chaos. When that happens, the unprepared will pay the most dearly.