Chicago Gets An 'F' On New Fiscal Report Card As Bonds Continue To Hover Around All-Time Highs

As Illinois muni debt continues to hover around all-time highs, the number of watchdog groups offering warnings about Chicago's deteriorating finances continues to grow.  The latest such warning comes from Truth In Accounting which provided the Windy City an 'F' on their latest fiscal report card citing a staggering debt burden that amounts to $41,700 per Chicago resident. To put that figure in perspective, the median household income in Chicago is roughly $48,500. 

Here's a summary from TIA:

Despite an array of tax increases to help shore up the city's underfunded pension plans, Chicago has received an "F" grade for its financial health, according to a new analysis by the non-profit government finance watchdog group Truth in Accounting (TIA).


Repeated decisions by city officials have left the city with a staggering debt burden of $37.4 billion, according to TIA's analysis of the most recent financial filings. That burden equates to $41,700 for every Chicago taxpayer.


Chicago's financial problems are largely driven by runaway entitlement obligations in two categories: pensions and retiree healthcare benefits. The city has promised to pay out $35.8 billion in pensions and $715.5 million in retiree healthcare benefits. While Chicago has promised these benefits, little money has been set aside to fund them.


These statistics are jarring, but what's more alarming is that city government officials continue to obscure significant amounts of retirement debt from their balance sheets, despite new rules to increase financial transparency. This skewed financial data gives residents a false impression of their city's overall financial health.


Of course, the repeated warnings about Illinois' spiraling pension crisis continue to be of absolutely no concern to muni bondholders who continue to push general obligation bonds to new highs with each passing day.


Ironically, while bondholders aren't all that concerned about Illinois' financial problems, taxpayers are seemingly fed up with repeated income tax hikes, property tax hikes and the state’s political dysfunction which have resulted in record population losses over the last three years...

illinois outmigration put this massive domestic migration into perspective, Illinois loses 1 resident every 4.6 minutes.

illinois outmigration

Last time we checked, non-residents weren't on the hook to pay Illinois taxes...


Blue Steel 309 wisehiney Tue, 11/28/2017 - 22:04 Permalink

Not going to happen. The parties are compromised and can not be reformed at the ballot box. Our election system is completely ineffectual, but even more relevant is the lack of social cohesion, making our form of government (even its ideal implementation) completely unable to serve a common purpose.

This country was destroyed by immigration, not built upon it.

In reply to by wisehiney

MonetaryApostate Blue Steel 309 Tue, 11/28/2017 - 22:31 Permalink

First the money printers print hundreds of trillions of dollars, for free, then they loaned out 90x that with fractional reserve lending, then of course the gov stole much of the fake money paid to the serfs for working, & of course by the time you actually retire, well everything cost 3-8x more, so you are forced to slave harded until sudden death. money, fake debt, fake bonds...............

In reply to by Blue Steel 309

NoDebt Tue, 11/28/2017 - 20:47 Permalink

Nobody is saying you have to buy Illinois muni bonds.  I would highly recommend you do not.  Government bonds of all stripes generally do quite well right up until the shit hits the fan and then they plummet.  Fast.Years back I tried to understand why that seemed to be the case.  I thought it was maybe because you can't short a bond like you can a stock (at least not directly) so there's no "voice" given to the bear position.  All they can do is not participate in new buys, but they can't actively "vote with their money" against it.  Only one side of the price equation gets calculated- the bullish side.  Nobody liked that idea AT ALL so I stopped talking about it. I chuck it up here again only because this board still has its moments where (unproven) ideas can get knocked around, agreed with, discredited or improved upon.   

NoDebt PGR88 Tue, 11/28/2017 - 22:42 Permalink

CDSs on Munis are "weird", to use a technical term, and not available to the average Joe.  Plus, ANY CDS is only a recourse in default and doesn't really directly influence the market price of the bond (which can still soar right up until it crashes).A little backround reading about Muni CDSs, courtesty of the Tylers of 6 years ago: 

In reply to by PGR88

Montana Cowboy Tue, 11/28/2017 - 21:06 Permalink

I told this governor how to deal with this problem back in June. He could have had a zero-debt state by now. Here was my letter: June 18, 2017 Governor Bruce Rauner: I have a one-time solution to your state’s economic problem and you won’t need to borrow a single dollar. In fact, if you engineer the solution properly, your state may even wind up debt free. I am a retired California Real Estate Broker, still licensed and living in Montana. I was on the ground floor of the Jarvis Gann Prop13 movement. I have done expert witness work at many levels of state and federal court, civil, criminal, and tax. In the United States real estate is owned under a bundle-of-rights theory of ownership. The typical ownership of the fee simple interest is really just the ownership of rights. Physical attributes can’t be owned. Interestingly, the owners of these rights are billed for property taxes while the owners of other interests (ie tenant’s and lender’s interests) are billed nothing. Another form of ownership is allodial title. It holds that land is owned independent of any superior landlord or other claimant. Property taxes cannot be levied against allodial title. Although Nevada experimented with selling allodial rights to property owners, they discontinued the practice around 2005. There were too many complications with federal rights. True allodial rights could not be guaranteed. How about a compromise between these two systems? The fee simple bundle-of-rights theory can be preserved, but a permanent property tax waiver would be recorded in favor of the property for a one-time fee. The waiver would apply to the existing lot, zoning use, and square footage of improvements, forever, regardless of ownership changes. It should also contain an option for the homeowner to purchase additional square footage waivers in the event of added improvements. For example: John and Mary Doe pay $50,000 to the state for their $250,000 home to become forever non-taxable. Any lender will gladly loan this money to the Doe’s as a lien against their home under the theory that the home’s value will automatically and instantly escalate as a result of the tax waiver. This presumes the fee demanded by the state can be economically justified using annuity algorithms. The revenue from the transaction must be shared between the state, counties, and cities to the extent that present revenues are shared. Borrowing is now shifted to the homeowner and away from the government. The plan can be offered to only some classes of property, like single family or vacant land. It can be expanded as needed to commercial properties. It can be offered only in counties that also agree to the plan. It can be limited to the number of participants dictated by revenue needs. A lottery can be used if there are too many applicants. The arguments against this plan is a cash cow is lost forever. That may very well have happened already. Much of property tax revenue is spent on government obligations that do not result in any asset in the hands of government. Once that reaches 100%, there is effectively no property tax revenue. Then, government must borrow elsewhere and spend to create the illusion homeowners are getting something for their taxes. This one-time payment can also be perceived as an interest-bearing perpetual source of tax revenue, just now in the hands of the state rather than the homeowner. In the above example, 5% on $50,000 is $2,500 per year. The homeowner can’t even get a 1% risk-adjusted yield in the current banking environment. But Illinois probably can’t borrow at less than 5%. Whatever those numbers are, the differential is a win-win opportunity. So the homeowners that don’t take this offer from the state can’t really complain that they are bearing the tax burden for those that did. Feel free to call me if you would like some further discussion. You should also get some input from title officers of major title insurance companies in your state. I suspect they will tell you how easy it is to implement this plan with recorded and indexed documents. I feel certain that lenders will be excited about lending into this new created equity.  

DesertRat1958 Tue, 11/28/2017 - 22:21 Permalink

“I’ve seen a copy of the report, and frankly, I’ve seen better papers from graduate students in finance,” said Richard P. Larkin, director of credit analysis at Herbert J. Sims & Company, a municipal bond broker and underwriter. “It’s ludicrous, reckless and irresponsible, and it’s being done without any regard for the consequences.”
“I am not sure where to start when it comes to a low point. Was it your Dec. 19, 2010 appearance on 60 Minutes in which you predicted “hundreds of billions of dollars” of municipal bond defaults, triggering a wave of panic selling? These defaults, of course, never happened. That was a doozy.”
“Whitney’s sin is that she isn’t intellectually honest enough simply to say she screwed up. Instead she and her defenders offer up absurd explanations to defend an indefensible market call that caused average investors to lose lots of money even if it got Whitney a book deal in the process.”

kevindow Tue, 11/28/2017 - 22:21 Permalink

"Last time we checked, non-residents weren't on the hook to pay Illinois taxes..."First and foremost, we must eliminate Federal tax deductions for SALT. This will in fact level the playing field for all states, as nobody will be able to deduct SALT. Obviously, this will hurt the over-taxed Blue states, and hopefully spur fiscal conservatism.However, if all else fails and the Blue states continue on their disastrous course, IL and other similar Blue states will "require" a Federal taxpayer bailout. I say, let the Socialist Dem state governments suffer the same fate as Venezuela, which is really the inevitable end result of socialism/liberalism/progressivism. Have a nice day !

dunce Tue, 11/28/2017 - 23:13 Permalink

Every resident is NOT a taxpayer. The real burden must be calculated using the number of taxpayers and that is not a fixed number because many can and will flee the mess democrats made. It is likel;y that the number of taxpayers is declining at about the same rate as the liabilities are growing. Most will not just leave the city but the state as well to be certain of escaping the inevitable. Hopefully the federal bail out will be pennies on the promised dollar.

Shinebama Tue, 11/28/2017 - 23:52 Permalink

I left Shit Congo earlier this year. Fuck that little 9 fingered runt of the litter jew Emanuel. I'm in a small town in Ohio, and was shocked when the woman at one apartment complex told me I was the 3rd person from Shit Congo she had seen that day. The rats are jumping off the ship at an alarming pace.