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The Next Chicago? Houston Faces Pension Crisis In Latest Example Of Local Government Fiscal Folly
When it comes to state and local government crises, Illinois and Chicago, respectively, have become the poster children for what not to do if you want to be considered fiscally responsible.
Illinois’ budget crisis was thrust into the national spotlight earlier this year when a State Supreme Court struck down a pension reform bid, setting off a series of events which culminated in Moody’s downgrading the city of Chicago to junk.
From there, the nation media picked up on the story, leading to all sorts of amusing coverage including several pieces documenting the plight of Illinois lottery “winners” who the state began paying in IOUs thanks to the fact that Springfield couldn’t pass a budget even with the help of $30,000/month “guru” and Laffer disciple Donna Arduin.
The fiasco culminated in the October announcement by Comptroller Leslie Geissler Munger that the state would miss a $560 million pension payment in November. As a reminder, here’s a look at Illinois pension problem:
Now, as WSJ reports, cracks are starting to show in Houston, where public sector pension plans have been underfunded for years. Here’s more:
Houston is weathering a prolonged plunge in oil prices, but the city may have an even bigger problem: its pensions.
Though economic growth has only slowed, not stalled, in Texas’ largest city, its finances are showing what several investors and analysts describe as warning signs.
Those include a rapidly growing gap in funding its retirement plans for public workers and a limit on its revenue-raising capabilities imposed by a voter-approved cap on property taxes.
The $3.2 billion pension-funding gap is threatening Houston’s Aa2 credit rating from Moody’s Investors Service, hurting demand for its debt and emerging as an issue in the city’s mayoral race.
Moody’s this summer warned it may downgrade the city’s debt if Houston fails to address its pensions, noting the cap limits the city’s financial flexibility.
A downgrade could lower prices for outstanding bonds and increase Houston’s borrowing costs at a time when it needs improved infrastructure.
And as we’ve documented extensively, this is a growing problem in America:
Houston is the latest U.S. city to face threats from credit-rating firms and investors over bulging pension obligations. Investors have grown concerned about state and local governments’ ability to address unfunded retirement costs. Examples include Chicago and the states of Illinois and Connecticut, whose unfunded retirement costs have ballooned after investing losses from the 2008 financial crisis and chronic underpayments by policy makers.
“Correcting” the problem means either, i) increasing revenue, i.e. raising taxes, or ii) cutting back on public services.
Houston residents are reluctant to support any tax increases [but] unsustainable pension costs have contributed to reductions in hiring of police officers and spending on pothole repairs.
Of course the situation isn’t helped by the ubiquitous (among public sector plans) practice of using outrageously optimistic return assumptions:
Among other concerns, the city’s plans assume relatively high investment returns of 8% or above, meaning the funding gap may be understated, said Marc Watts, chairman of the Greater Houston Partnership’s Municipal Finance Task Force.
Yes, “relatively high investment returns,” as in, “returns that in today’s world can’t possibly be generated by anything that even approximates a conservative mix of assets.” Of course Moody's is not a fan of these type of assumptions. As we documented back in June, after 2008, Moody’s stopped relying on the investment return assumptions of cities and states opting instead to use its own models. Unsurprisingly, this led the ratings agency to adopt a much less favorable view of state and local government finances.
And while some city officials claim concerns are overblown, a more realistic assessment seems to be that sooner or later, perpetually borrowing from the future will catch up to the city and as we saw with Chicago, Moody's isn't exactly shy about pulling the trigger lately. Don't forget, one energy job generally creates the purchasing power of three non-energy jobs, which, in the face of a prolonged slump in crude, doesn't bode well for Houston's economy. We'll leave you with the following from John Bonnell, senior portfolio manager of tax-exempt investments with San Antonio-based USAA Investments who spoke to WSJ:
“If they end up doing nothing to address this budget issue, 10 years from now Houston could be facing the same problem Chicago is now."
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< Next Chicago?
< Next Detroit?
Q: How can this be possible when the City of Houston's homeless outreach vans are new Mercedes Benz?
A: Business owners donate the money to the police.
How are business owners going to feel about making up a shortfall in the cops pensions?
Chicago first then Detroit that is the order of decay.
Houston needs more blacks, they are big taxpayers.
More mexicans, more anchor babies...oh wait
No, they need more lesbians in the administration.
NIRP will save them!
oh wait...
Send in the Syrians!
Houston is the libtard capitol of Texas. What a hole. -"DFW resident"
You couldn't be more wrong. The DPRA, Democrat People's Republic of Austin, is the libtard capitol of Texas. -"Wanna buy an overpriced house?"
MW, I lived in Austin for over 8 years. Yes, it has a large population of libtards. At least it is a nice place to go. Houston is just a dump.
tx is like other states -- libs, freaks, free sh-t army fustercluck in the big cities
Nope. As someone who lives in Houstonnd and lived in Austin for 25 years, Austin is the libtard capital. Houston is rushing to catch up but its still Austin
That $50 million resort made for illegals is going to get crowded there soon.
Exactly. Starving pensioners and dilapidation is small potatoes in comparison to electing emotionally regressed individuals. That's all that matters in ''Feelwings'' USA!
Nice ass at :37
https://www.youtube.com/watch?v=CyBcHUe4WeQ
I couldn't last that long.
Way to go, Annise Parker! That chart shows data during her regime. In fact, she was the Comptroller/Finance Director/Whatever under Bill White. Mayor White made a cut to pension promises as one of his first acts in office. That caused plenty of grumbling downtown, but he did it anyway. He cautioned that more cuts probably were needed and that the city did not dare get silly. Obviously, his successor lacked the discipline. Besides that, Houston is said to have one heckuva bond program. I guess Houston is supposed to grow without a pause for the next 30 years.
"Houston is weathering a prolonged plunge in oil prices"
They are weathering prolonged control by leftist politicians. Promise free stuff to all of your voters but don't worry about paying for it.
Because those 25 year old Bluebird school buses they haul your kids around in are not classy enough for homeless people.
"Yo, like, dem shorty buses are like stigamacisin us freestyle people."
The next Chicago is the Federal government with unfunded liabilities of $210 trillion per Kotlikoff.
That's only $1,720,000 per taxpayer
"The kid will pay for it."
"?"
"Well, some 20 odd years after he gets born, he'll have to get a job right?
So no problem."
" No one saw this coming. "
... esp the fat cat recipients ....
The Night Chicago Died:
https://www.youtube.com/watch?v=p-L0NpaErkk
They promised too much, maintained the false promise, while knowingly underfunding the pension fund. Now they're going to want us to bail them out?
Just say no.
Exactly the Just Say No Defense is the best option
BK all the states counties, cities- pay nothing - and take the heat - the cops will play games but they in the end will suck it up since what they get paid is double what their true value is - just gut the system and start over
Yes.
Please note that today's "they" are different people than yesteryear's "they" so you can't be mad at them.
Declare bankruptcy and renegotiate all those bloated contracts.
That's almost every state, it's more unsustainable than social security...
can't escape the math of the situation.
but when u do try to bring that up, you are branded a racist who hates children & clean air/water.
This is how I handled them.....
I am a racist and hate children. So ?? What else you got. This is about being ripped off by public parasites.
Yeah, and the frontrunner to replace the lesbian mayor is Sylvester Turner. Don't expect to see an adult in that office.
Long race cards.
Face it folks. It's them against us.
Ten years out Houston "might" be facing the same trouble Chicago is facing now? Considering a 4 year election cycle, that possibility will be extended out ten more years at each election. Kinda like perpetual motion.
My local government just sent me a letter threating to fine me £1000 for not registering to vote. I voted in fucking May! What the fuck kind of government threatens to fine someone £1000 for not filling in a form that won't be relvent until the next election. The UK government.
Fuck the fucking politicians.
uhhhhh . ... man, get the 1% to pay for it, dude ... . they have everything and will, like, totally heed what our politicans want . . .
Another ZH post to reaffirm my previous posts. Did anyone investigate their early payout options since my last post (1rst one below)?
If so I'd be curious to hear what if any options someone has. Don't wait. The fraud is nearing its end.
http://www.zerohedge.com/news/2015-09-16/how-underfunded-are-us-corporat...
http://www.zerohedge.com/news/2015-08-16/goldman-weighs-americas-pension...
http://www.zerohedge.com/news/2015-08-12/solyndra-20-nears-bankruptcy-bo...
Here's my option.
All these big cities are more or less the same in how they fund employee pensions. The comptrollers all go to the same seminars, use the same big investment funds. If you think Chicago is so much worse than your city, well now Houston is joining the club. Dont be surprised when your local government finally admits what shady accounting tricks they've been up to a few years from now. At least Chicago has been honest about the mess all along which makes me think they have a chance to pull out of it ( even I cant believe I just typed that )
What buying union votes with public tax dollars is a bad idea?
Public worker unions are not legal in Texas.
Houston property taxes are one of the highest in the U.S.
Detroit is already looking for more bailouts.
And they'll get them via the printer.
Gutted by LIBOR, Freetrade and bailouts.
50K a year for a retired teacher payed out for 20 to 30 years each....
Yeah, that's doable!
They could cut salaries and pensions.....but NOOOO they can never do that
You can do that for new hires, sure. But the problem is the ones who have already earned theirs. I don't care what the budget issues are, you don't pull that rug out from someone who has already earned theirs. They can't get that time back, and can't make new plans at this stage of the game.
You pay the ones you promised, and learn the valuable lesson of NOT making promises you can't keep.
Raise the damned taxes if you must...and if the people get pissed, then let them go after their elected officials, who caused this mess in the first place. But you DON'T screw the ones who did what they were supposed to. They kept their end, now 'the People' must keep theirs.
I am SO sick of all this 'blame the pensioners' nonsense. People were happy to take their labor, and made promises. Many of them did not make alternate plans, and aren't part of the S.S. system, because they didn't think they needed it. Just because somebody stole the money doesn't mean 'the People' are off the hook.
Open up YOUR checkbook.
And, don't forget, I promised them nothing.
Mr. Bemused! Thank you so much for volenteering YOUR capital to fix this problem.
Send your cheque to the city of Houston.
The pensioners will thank you.
Cheers,
Squid
Spoken like someone on the verge of government retirement.
Why do you think the choice is between keeping promises and reneging?
Reneging is gonna happen in either an abrupt, catastrophic break or as a managed easing away from un-keepable promises.
Even the IRS knows that sometimes you gotta take what you can get and move on, regardless of what is actually "owed".
The status quo will not stand. Period.
Hey, bozo, my "rep" didn't ask my permission. They just voted for more shit for the unions, I mean the chilluns.
Fuck the "public servants". They get better pay and benefits than any private sector mid level manager or below, and they can go suck a tailpipe if they think taxpayers are going to fund all those "promises".
They kept their end ...
Yeah, they kept their end alright ... by working with crony politicians who agreed to these unrealistic unworkable deals in exchange for their votes. They get no sympathy from me.
Houston has great diversity because Houston is a sanctuary city. Houston has great diversity because Houston has a lesbo dyke mayor who is more interested in homos being able to use whichever bathroom they fancy rather than boring city finances. There will be unfunded liabilities for the next mayor to worry for.
When one drives away from Houston's gilded enclaves of white privilege they will find a vast human cesspool of diversity. Dirty stinky humans from all around the globe that trash the local neighborhoods the same way they trashed their old hoods back home. They diddle their childerns and eat neighborhood dogs. Cats too, sometimes.
Don't leave home whithout an extra 15 round mag is the rule in Houston. I just keep one in the console full time. Open carry comes to Texass 1/1/2016.
Ditto. Drive aroound Harwin, Richmond and Westheimer. Its a third world down there
But the Indian food is good in that area.
Otherwise, I never went near there.
Domino Effect
Gold-plated pensions for empty skirts and suits that rode a desk for 20 years.
Now we need to compare state and federal retirement systems with the private retirement system (SS Admin).
I recently did a study of these retirement systems. Using an Excel spreadsheet, I gave each category identical earnings histories, and then computed the monthly retirement “benefit” (actually, the return of invested money; at least in the case of the privately-employed).
Result?
The Social Security sucker got $1500 / month.
State bureaucrat, $6300 / month.
Federal, $4,200 -$5,200 / month.
Again, each had identical earnings histories.
Part of Houstans problems is that a large influx of Katrina Refuges have become permentally settled.
"as many as 40,000, by some estimates, permanently have settled in the Houston metro area."
http://www.houstonchronicle.com/news/houston-texas/houston/article/Ten-y...
Granted it's not the only reason their in this mess but it certainly has not helped things in the long run. Imagine the finances’ of any city when a large contingent of non-contributing, crime and violence prone people get dumped on them in mass. Driving up insurance rates driving out business and taxpaying residents.
This Macroeconomic Chart says it all
http://www.gordontlong.com/03-10-09-Vicious%20Cycle-2.GIF
http://www.gordontlong.com/Tipping_Points.htm
Most of these pensions are FUBAR, with a few outliers. Pensions crisis headlines are like coach roaches, for every one you see and read about, there's a dozen you don't.
Don't worry WAR will keep our minds off of this Depression.
Credit boom of the 80s = abundant liquidity, devaluation of money
Freetrade = bye bye industry, we need cheaper goods due to inflation, centralize wealth
Bailouts = now that glass stegall is gone, we can centralize wealth further and bankrupt the country once derivatives explode
LIBOR = bankrupt municipalities by overcharging them and forcing them into early termination fees
FED Reserve's ZIRP = will stay at 0 if not negative since the real economy (production) is gone.
Houston is becoming a shithole. i know caused i lived here in the 70's and early 80's moved away and then moved back in 2006. just bought some land near Aggieland. Got to get the fuck out of here
houston's not bad if you avoid the south, se, e, ne, sw, nw, n, cental sides of it
It's a good thing that pensioner's don't know how to read their cities CAFR. I wonder if ZH will have the guts to discuss the CAFR con.
we don't talk about balance sheets. isn't that illegal or something?
i'm with you - sell some of that sh-t and shore up the funds
same goes for social security -- dc has 100+ trillion balance sheet. a small portion sold would shore up ss funds for a loong time. they used ss money to buy/maintain these assets. SELL SOME OF THAT and put it back
Weyerhauser or Georgia Pacific might very well pay good money for part of the Sabine National Forest. Sabine County and the school district might appreciate the taxes. That acreage ended up in federal hands as the result of a bankruptcy, not because it is 100% unique.
Land of the DEBT. And nothing else..
NJ state pensions is already $56 billion underfunded, surprised they're not in a crisis soon...