--This "per household" amount should be made into a per politician amount.
In Chicago, an argument could be made that former mayor Daley is responsible for almost every "per household" amount.--
Story at Crain's Chicago Business
September 17, 2013
The average Chicago household owes as much as $83,000 for unfunded pension liabilities and other City Hall debt — well over what the typical family makes in a year.
That's the discomforting bottom line in a new study on debts of the city of Chicago, Board of Education and other city governments being released today by the Illinois Policy Institute, a Chicago-based libertarian think tank.
Extending and elaborating on recent studies by others, the institute concludes that total debt of the city, other city government entities and the city's share of geographically larger units such as Cook County totaled at least $86.9 billion at the end of last year. About a third of the debt is in the form of long-term bonds for things like building roads and schools, and about two-thirds is money promised to workers for their retirement that the city's pension funds do not have on hand.
That $86.9 billion translates to $23,000 for each Chicagoan and $62,000 per household, by the institute's math.
But the total pension debt actually is $23 billion higher if, rather than using official figures, you use assumptions by Moody's Investors Service, which recently lowered the city's bond rating two notches, the report by institute Vice President of Policy Ted Dabrowski says. Including those assumptions, total debt comes to $32,000 per person and $83,000 for an average-sized household.
Moody's assumes that securities and other investments held by the city's pension funds will earn only 4 percent to 5 percent per year, half the 8 percent rates assumed by the pension systems themselves. Lowering the assumed rate of return raises unfunded liability, since less money will be on hand to pay pension and other retirement costs than had been expected.
By either calculation, the city's finances are cause for concern, the report says.
"Taxpayers should be worried," it states. "Chicago's fiscal squeeze is already threatening the city's ability to provide core services. CPS has laid off thousands of staff and closed nearly 50 schools, while the city's crime rate is among the highest in the nation."
It concludes, "When taxpayers stop receiving the services they are paying for, they'll leave. Chicago has already lost nearly 200,000 people since the 2000 census."
City labor unions — I'll work in some reaction after I get it later today — surely will respond that their members have paid what they were required to pay and are entitled to the full pension benefits mandated by law. But, consistent with similar recent reports from the Civic Federation, a tax watchdog group, there appears to be no question that the fiscal condition of the city's four retirement funds has dramatically worsened since 2006, a period that includes the deep recession of 2009-10 and the partial recovery since.
In 2006, the four funds collectively were $8.8 billion short of the assets needed to pay promised benefits, the report says. By 2012, the figure had more than doubled to $19.4 billion.
Put a different way, the collective funded ratio of assets to liabilities in the four retirement system dropped from 84 percent to 32 percent between 1998 and 2012, using Moody's assumptions on investment returns.
MOODY'S METHODS HAVEN'T BEEN COPIED
Other bond raters have not followed Moody's, at least not yet. And the firm assumes one rate of return for well-funded retirement systems and a lower figure for underfunded ones like Chicago's, report author Mr. Dabrowski conceded.
But he argued, "Moody's and to some extent S&P are driving what the market thinks of Chicago bonds."
The report could have been worse. It includes only net pension debt, unlike a recent report by Cook County Treasurer Maria Pappas that excluded pension assets. Beyond that, the institute excluded debt at Chicago's airports, on grounds that it is secured by airlines that use the fields rather than city taxpayers generally. And though it did include other general-obligation debt for things such as el stations and sewers, it's the pension shortfall that is driving the overall numbers.
For the record, Crain's Research Associate Matt Kiefer tells me the mean household income in Chicago was $66,383 in 2011, plus or minus $1,449, according to U.S. Census data. That's pretax income, folks. And it's a lot less than $83,000.
To change its pension systems, the city needs legislative approval. But so far, Springfield has not acted on reform of the state's equally underfinanced pension plans, much less dealt with the city's woes.