Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it. They will continue to add the debt burden to the taxpayers at ever increasing interest rates.

Separately, cities and towns can and do default throughout the country at a high price to local taxpayers and employees.

quote:

Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it.

When they stop paying their obligations, they are in default. It doesn't really matter that there is no bankruptcy process for a State. It can still default.
-----------------------------4118

quote:

Originally posted by chellim1:

quote:

Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it.

When they stop paying their obligations, they are in default. It doesn't really matter that there is no bankruptcy process for a State. It can still default.
-----------------------------4118

This.

If it were in fact impossible to default, then all state loans would be risk-free and pay very low interest. There would be no need for analysts (Moodys, etc.) to rate them.

And yet, every state has its own credit rating, and the interest rates vary.

Go figure.

Interest rates already are very low for most government debt. Unless a municipality is in junk status interest rates are below 3%. Those who have been paying around 5% are now or will pay the lower rates as soon as they can call.

quote:

Originally posted by chellim1:

quote:

Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it.

When they stop paying their obligations, they are in default. It doesn't really matter that there is no bankruptcy process for a State. It can still default.

By your definition, is state in default when it withholds tax refunds? Furloughs employees for several days to make payroll? Delays payment of lottery winnings? Restructures the pension plan lowering pension payout to retirees?

quote:

Originally posted by PD:

quote:

Originally posted by chellim1:

quote:

Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it.

When they stop paying their obligations, they are in default. It doesn't really matter that there is no bankruptcy process for a State. It can still default.

By your definition, is state in default when it withholds tax refunds? Furloughs employees for several days to make payroll? Delays payment of lottery winnings? Restructures the pension plan lowering pension payout to retirees?

Not necessarily tax refunds, but miss an interest payment on those bonds triggers a default, which merely means failing to perform as obligated.

One would need to see the terms of the bond offering to know what the penalty me hanism for default is.

One consequence would be that institutions could no longer invest or hold those bonds, or any linked to the issues, and might have to liquidate any it owned. That would result in catastrophic losses to those financial institutions and other affected holders.

The Washington Public Power Supply System (WPPSS), which was nicknamed Whoops, was the largest municipal bond default in history.

In the 1970s and 1980s, WPPSS sold bonds to finance the construction of five nuclear plants needed to accommodate increased demand. In 1983, poor management and unsatisfactory safety conditions caused the construction of the plants to cost four times as much as originally estimated. At the same time, demand for nuclear energy began to decline, and construction on some plants was forced to terminate.

There was still an obligation of $2.25 billion to pay back to bondholders in 1983. To offset the cost, the price of electricity was increased for customers, which caused a major uproar. The uproar led to legal troubles, causing the utility's plan to raise money from customers to backfire.

The $2.25 billion debt was defaulted, and WPPSS was unable to pay their the full amount to their bondholders, recovering by only 40% from their municipal bond disaster. From Municipal Bond Disasters Link

This wasn’t a state of course.

It is odd to think that one of the worlds top ranked schools of Economics is located at the University of Chicago.

Milton Friedman must be rolling in his grave.
"One of the great mistakes is to judge policies and programs by their intentions rather than their results.
— Milton Friedman Interview with Richard Heffner on The Open Mind (7 December 1975)"

This pension policy is certainly driving headlong into the fallacy that Friedman was speaking of.

HK Ag

isn't that just special

good for them

I wish them luck - they may need it to keep from getting lynched

"A billion here, a billion there, pretty soon you're talking real money." -- Everett Dirksen (R-Il)

quote:

Originally posted by PD:
Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it. They will continue to add the debt burden to the taxpayers at ever increasing interest rates.

Separately, cities and towns can and do default throughout the country at a high price to local taxpayers and employees.

I disagree.

If the fed.gov can default on treasury bond payments and payments to vendors of goods and services procured by the fed.gov, as we've heard time and again when there is a budget impasse, and smaller local.gov entities can default (think Orange County, Ca), states sure as hell can.

What's to stop them?

Uncle Sam? He's broke as fuck too.

The courts? Impotence rages in them.

Illinois can simply say "So sad, too bad. We ain't paying you." and there is no way to stop them or punish them.

Are there any members from Detroit on here?
What happened to Detroit and it's city employees when that city hit the toilet?

The only possible solution is to cut benefits either over the short term (default) or more rationally over a longer period. But as I understand it the courts have ruled that is a problem in Ill. So the plan should be a state constitutional amendment and then kill the beast. But I don't live there so that's just my understanding.

quote:

Originally posted by Sig2340:

quote:

Originally posted by PD:
Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it. They will continue to add the debt burden to the taxpayers at ever increasing interest rates.

Separately, cities and towns can and do default throughout the country at a high price to local taxpayers and employees.

I disagree.

If the fed.gov can default on treasury bond payments and payments to vendors of goods and services procured by the fed.gov, as we've heard time and again when there is a budget impasse, and smaller local.gov entities can default (think Orange County, Ca), states sure as hell can.

What's to stop them?

Uncle Sam? He's broke as fuck too.

The courts? Impotence rages in them.

Illinois can simply say "So sad, too bad. We ain't paying you." and there is no way to stop them or punish them.

Why should the .Gov even think about bailing out a State? Slippery slope, hell, that's a dangerous cliff! Every other (liberal) state would spend like a petulant 14yo, then cry to mommy & daddy to pay the bills when their cash ran out.

.Gov needs to just point and laugh. Illinois, Chicago and its political thieves made this mess... time to clean it up. Too bad no one will be held accountable.

quote:

Originally posted by Sig2340:
If the fed.gov can default on treasury bond payments and payments to vendors of goods and services procured by the fed.gov, as we've heard time and again when there is a budget impasse, and smaller local.gov entities can default (think Orange County, Ca), states sure as hell can.

What's to stop them?

Uncle Sam? He's broke as fuck too.

The courts? Impotence rages in them.

Illinois can simply say "So sad, too bad. We ain't paying you." and there is no way to stop them or punish them.

Are you sure about that?

quote:

Are you sure about that?

No one is ever sure they are going to be the bag holder until it happens.
But when the music stops, someone isn't going to get a chair. Probably a whole lot of someones.

quote:

Originally posted by Sig2340:

quote:

Originally posted by PD:
Some here keep tossing out the “default” word. Neither Illinois, nor any other state can default. There is no legal process in place to allow it. They will continue to add the debt burden to the taxpayers at ever increasing interest rates.

Separately, cities and towns can and do default throughout the country at a high price to local taxpayers and employees.

I disagree.

If the fed.gov can default on treasury bond payments and payments to vendors of goods and services procured by the fed.gov, as we've heard time and again when there is a budget impasse, and smaller local.gov entities can default (think Orange County, Ca), states sure as hell can.

What's to stop them?

Uncle Sam? He's broke as fuck too.

The courts? Impotence rages in them.

Illinois can simply say "So sad, too bad. We ain't paying you." and there is no way to stop them or punish them.

Their punishment, at the expense of the remaining taxpayers, comes in the bond market when they either can't sell a new (or refinance) bond issue or the rates they have to offer in order to find buyers are so high as to be unsupportable.

quote:

Originally posted by PD:

quote:

Originally posted by Sig2340:
If the fed.gov can default on treasury bond payments and payments to vendors of goods and services procured by the fed.gov, as we've heard time and again when there is a budget impasse, and smaller local.gov entities can default (think Orange County, Ca), states sure as hell can.

What's to stop them?

Uncle Sam? He's broke as fuck too.

The courts? Impotence rages in them.

Illinois can simply say "So sad, too bad. We ain't paying you." and there is no way to stop them or punish them.

Are you sure about that?

They can't...YET.

Looooong story short, current and future retires will end up eating the unfunded liability. How do I know this? It's the only possible solution.

There isn't enough money to pay all the unfunded liabilities out there. You can't tax your way out of this hole.

The same thing that happened to private multi employer pensions will eventually happen to public pensions.

This is what is currently happening to multi employer pensions:

-There is this thing called the PBGC, the Pension Benefit Guaranty Corporation. It's role is to step in and pay X pennies on the dollar when a multi employer pension fails.

- A few years ago, .gov realized that the PBGC couldn't possibly afford to pay for all of the unfunded liability they saw coming as these private multi employer pension plans collapsed.

- So, congress got tougher and passed a law that said these plans could lower benefits to CURRENT retires if the plan was considered Critical and Declining. I won't bother with the definition of Critical and Declining, suffice to say they made it a relatively low hurdle because they knew this was the only way...again, the PBGC can't possible pay for all the liability.

- In this law, they said the plans could only reduce these payments to current retires by what the PBGC would pay them if the plan defaulted plus 10%.

So here's how it works. A multi employer plan is about to go bankrupt. All of the retires and workers under the plan are about to go onto the government pay roll....

Oh, hey, the plan is critical and declining!

Pensioners bitch about the shitty deal they are about to get in reduced benefits.

The .gov, via the PBGC steps in and says, well, the deal sucks, but I'd take it because at least it's 10% more than you'll get if you come onto our plan.

They will pass similar legislation for public pensions. Do I have a crystal ball? Nope, I just am looking at the numbers.

As stated, the only way out of this problem is to cut benefits.

Keep in mind, this whole critical and declining legislation was done very quietly a few years ago and it had bipartisan support. The congress criters all know how this story is going to end and none of them want to discuss it on TV...that's for Trump and his porn stars.

They will do whatever it takes to keep .gov from paying for it. With the multi employer plans, they kept the negotiation between the private companies and workers with the whole +10% language.

I would bet they will do something similar to allow localities to do something similar. The smart states and local governments will rip the bandaid off and deal with the bad press once. The dumb ones will deal with the bleeding for decades trying to pay off that which is impossible to pay.

quote:

Originally posted by chellim1:

quote:

Are you sure about that?

No one is ever sure they are going to be the bag holder until it happens.
But when the music stops, someone isn't going to get a chair. Probably a whole lot of someones.

The federal government will not default because they control the printing press.

The federal government is not broke. The feds and most states are pulling in record amounts of taxes. If anything, they have a spending problem.

The courts have no process in place for a state bankruptcy. Puerto Rico was hoping bankruptcy court would treat them the same as a municipality but that did not work out.

No state including Illinois will tell the bond holders or issuers to go fuck themselves. Short answer - the price to pay would be insane interest rates and no one would insure the debt. Puerto Rico tried it and got no where.

I realize you may hate Illinois and you may want to see the state fail but get the facts straight on government debt. When you borrow money you gotta answer to the one who lent it to you. The only recourse taxpayers have is to vote out the politicians who are fiscally irresponsible.

quote:

Originally posted by CPD SIG:
Are there any members from Detroit on here?
What happened to Detroit and it's city employees when that city hit the toilet?

They cut the benefits, lowered the healthcare and eliminated the annual cost of living increases.

This is how all local pensions will be handled. It's the state ones that will be trickier, but like I said, an act of Congress and it is possible.

Its a real problem. It won't be pain free, its only a matter of how much pain and who will suffer it. It will also cause a bunch of political pain for those with the gumption (balls) to solve it.

There are also a bunch of problems with the poor and middle class, along with the wealthy. Generally the ones getting the golden pensions can be assumed to not be paying. They will tell you they earned that money and other people should be paying.

But one possible solution would be a state by state income tax on those receiving pension largess. Just tax them on that money at whatever rate is necessary to cover the shortage. That keeps the poor folks who don't receive a pension from paying for their "betters" comfy pension out of their SS. Sure, they'd cry because they often didn't save, relying on the government to pay them. Its even amusing to read about public employees pulling down over $100,000 per year. Use a progressive scale that allows the retirees making a painfully low retirement keep most of it. But the biggies who bring in the big bucks pay the lions share. Right back to the folks that pay them each month.

It certainly would hurt the Police and Firemen tho somehow negotiated great contracts. Many were "earning" as much in benefits as they were in wages. And supporting the elected officials who were negotiating against them. Same with school folks who then run for school boards. The same kind of scheme would work well for them, too. It makes an end run around them not being able to reduce pensions, it just taxes the pensions at a higher rate than ordinary income or SS. And it leaves the minimum wage old lady and her meager subsistence alone.