Sections:

Article

MEDIA WATCH: Chicago Newsroom nails it with Ralph Martire discussion of how Illinois needs a sane tax policy... So why isn't this also being aired on every major TV news station?

Ralph Martire and Ken Davis on this week's Chicago Newsroom. One of the most important news shows on Chicago TV is Ken Davis's "Chicago Newsroom," which airs on Cable TV. And the most recent show, which can be found at http://chicagonewsroom.org/2015/05/29/cn-may-28-2015/ gives one of the most cogent explanations of what has happened to get Illinois into the "pension crisis" and how Illinois can get out of it with a sane tax policy. Here is the report from the show, which last nearly a half hour if you want to watch the video:

http://chicagonewsroom.org/2015/05/29/cn-may-28-2015/

"All is not lost. There are rational approaches that, while difficult, can help us find a logical pathway out of the pension mess if were all willing to be adults about it and accept some pain in return for future calm.

That seems to be the message from Ralph Martire, Executive Director of the Center for Tax and Budget Accountability. Hes been on the show before and we invited him back because we needed an antidote to all of the fiscal doom and gloom.

So, first things first. Whats all the noise about Moodys and junk bond ratings?

A number of the debt instruments that the City got into in the early 2000s under Mayor Daley, Martire begins, Were variable rate debt instruments that were supported by letters of credit by banks that basically said if your bond rating status dips below a certain level, into junk area, (which, of course, will never happen) once that happens it triggers a call on the letter of credit, so the letter of credit gets funded, the bond holders get paid, and the City then has to reimburse the banks.

Thats why Mayor Emanuel this week had to seek refinancing of that debt, and while he succeeded, the financing costs were about an extra $70 million.

In a way, the City was just as vulnerable as innocent homeowners who fell for adjustable-rate mortgages. The experts were pushing these flawed products, and the Citys financial people went for them, too.

At the time everyone was saying, why doesnt the City take advantage of these things? Martine explains. You could lower your current interest rates. Its very funny, the short memory the talking heads have about positions that they encouraged the City to take. So at the time it was very much supported by the private sector, saying youre gonna save the taxpayer money. And no one ever believed that the City of Chicago would drop to junk bond status. Well, reality is a brutal thing.

And the rating houses were justified in their lowering of the ratings, Martire says.

The bond rating went down for good reasons. There never has been a rational plan at the City level to deal with its unfunded liability, particularly with their fire and police pension systems, and in fact the Citys unfunded liability for its police and fire pension systems is actually harder to resolve than the States unfunded liabilityfirst and foremost, the City of Chicago has far fewer revenue tools in the kit to resolve its liabilities than the State does. The State has far broader taxing authority and can do many more things.

What Martire proposes, and some political leaders seem to be paying attention, is a dose of very tough medicine. But its a process that eases with time. Mayor Emanuel has proposed ramping up the payments needed to make solvent the police and fire pension systems. Martine agrees, but foresees a differently-shaped ramp. And it's not the one hat passed in Springfield Friday night.

If youre gonna have a ramp at all it has to be very short two or three years to get to a level dollar. he explains. And then that level dollar has to be consistently funded, and it needs to be a mandatory payment that they cant cheat. Now that could extend beyond the current payment period because frankly the significant size of the debt load the Citys carrying toward its pension systems is gonna require the re-financing to go out a few more years.

You can read how the CTBA and Martire envision restructuring the police/fire pension debt so it'll pay all its retirees and become solvent once again by about 2040, and with a mix of tax and casino money, the burden on taxpayers would actually decrease after the first 7 or so years.

As for the teachers, it's a more complicated issue, and it will require some participation by the State.

Two things you have to understand about the Teachers Pension fund, asserts Martire. Number one, when the City of Chicago got control over the pension fund from the State as part of the deal for giving Mayor Daley control over the CPS Board, the systems were 90 to 100 percent funded. And in fact, they got north of 100% funded in the early 2000s, and the intentional policy decision was made to stop funding them. So literally the contribution from CPS from the City went down to zero. It flattened out, and then they magically got an unfunded liability. I dont know why this surprised anyone. It was an intentional policy decision. So I think someone needs to step to the plate and say that was a bad decision. And we need to make amends for that and fix it.

But its not just the bad-old City thats to blame for the mess.

Second, I think if you look at one of the driving reasons policymakers made that decision was to put more money into current operations funding the delivery of education to children in the City of Chicago. And the reason they were looking for new revenue to do that is that the State was dropping the ball on funding schools. So a real reason that contributed to the decision-makers under-funding their pensions was the lack of adequate financing from the State. So you cant really resolve the City of Chicagos unfunded liability for its teachers without the State really stepping up to the plate with enhanced revenue and enhanced investments. And the State should, because the State is very much complicit in the policy decision to under-fund the pensions by its under-funding pf operational costs for schools.

Martire also calls for State sales taxes to be expanded to include some consumer services.

What we focus our sales tax on is pretty much the sale of products hard physical things you can touch. That doesnt work, because right now, in our economy, the sale of products is only roughly 17% of all economic activity. And what we dont tax services are 72% of the economy," he yells us.

So, in 30 minutes, Ralph Martire makes the argument that there is a rational way out of this mess. And before you throw up your hands to exclaim that the Illinois political class will never settle anything, Martire begs to differ. There are a number of elected officials who are very tired of going from crisis to crisis. And thats no way to govern, He says.

Weve run the numbers, he proclaims. The math works. Its just the political will to make the tax policy reforms and the re-amortization of the pension debt law.



Comments:

June 12, 2015 at 11:14 PM

By: Theresa D. Daniels

The feasibility of the solutions in this article

I'd like to read some corroborative and independent analyses of the proposed solutions to Chicago's economic problems in this article.

Add your own comment (all fields are necessary)

Substance readers:

You must give your first name and last name under "Name" when you post a comment at substancenews.net. We are not operating a blog and do not allow anonymous or pseudonymous comments. Our readers deserve to know who is commenting, just as they deserve to know the source of our news reports and analysis.

Please respect this, and also provide us with an accurate e-mail address.

Thank you,

The Editors of Substance

Your Name

Your Email

What's your comment about?

Your Comment

Please answer this to prove you're not a robot:

2 + 2 =