Taxpayers Beware - House of Cards Begins Epic Collapse


Rep. Ives Statement at Press Conference in Harvey, Illinois
April 16, 2018

The Illinois political ruling class has been scamming people for generations into believing that math is an opinion.

Like all scams, this one is coming undone as the truth and the inexorable math can no longer be denied.

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Last week, the truth of decades of scamming people to prop up Ponzi schemes caught up to the City of Harvey when officials announced their intent to layoff about half of their firefighters and police officers. 


Harvey can’t make its required pension contributions and finance its day-to-day operations.

The City of Harvey is not blameless here. A $7 million judgment against the city for pension contributions speaks to local mismanagement.

However, blame must also be directed at the men and women of always in Springfield whose only substantial pension reforms have been to sweeten benefits they knew neither the state nor municipal governments could ultimately afford.

Harvey is another coal in the collapsing coal mine that is Illinois.

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Government at every level in Illinois needs to be consolidated.

Fiscal discipline must be instituted in the form of hard spending caps, impenetrable property tax caps.

And it’s time to say the “b” word out loud.

Bankruptcy is not a four-letter word. It is a path to reorganize obligation and revitalize flailing enterprises, private and public.

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The other choice is to force people to choose between their job and/or their home and their pension or someone else’s.

The median home value in Harvey has declined 80% in real dollars in the last decade. The property tax rate on Harvey residents as a percentage of home value is nearly 6% or nearly 6x the national average. Last year, more than 4200 properties in Harvey have failed to pay more than $10 million in property taxes. 

Harvey residents are having their homes and home values liquidated to prop up Ponzi schemes that can no longer be sustained.

Absent reorganization, politicians will be putting residents in Harvey in the impossible position of choosing between their jobs, their pensions or their homes. They will not be able to have all three. Many will get none of the above.

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Back to the Harvey case study. And, let’s be clear, it is one of hundreds of case studies throughout Illinois. What Harvey is experiencing is a contagion that has spread throughout the state.

The catalyst for the layoffs was the intercept by the state comptroller of about $1.4 million dollars of state payments for failure of the city to pay their contributions to fire and police pension funds.

A pension reform plan put into effect in 2011 requires downstate fire and police pension funds to make annual payments sufficient to bring the pension funds to a 90% funding level by 2040.

That same law allows the state comptroller to intercept state payments to the local government if they fail to make those required pension payments.  This year is the first year that the comptroller can intercept 100% of any underpayment. 

For public employees, these layoff notices serve as a wake-up call of what happens when wholesale financial mismanagement occurs – people lose jobs.

Harvey is technically insolvent – they owe more than they own, they spend more than they take in.

Funding these pensions and paying off other debt is nearly impossible.  The net position of the general fund is -$160 million, an amount that is over 6 times the taxes they take in.

Harvey has been underfunding their pensions for years.  The city’s fire pension fund is only 22% funded, police pensions are 51% funded.  More than $104 million of their debt is related to police and fire pensions. 

By the way, 42 retired Harvey firefighters who saved a collective $1.42 million, have already collected $24.8 million in retirement.  This represents $1.6 million per year, there are an additional 20 surviving spouses who also collect.

Harvey’s official audits recognize the dire financial condition:

“The City has an accumulated unassigned deficit in the General Fund of $55,609,732 as of April 30, 2017, which has resulted from operating deficits over the last several years. The deficits raise significant liquidity risks regarding the City’s ability to meet its financial obligations as they come due without raising revenues, cutting costs of services provided, and effectuating financial restructuring.”

As I said, Harvey is hardly alone.

The City of East St. Louis in its budget document makes the following warning: that failure to reduce expenditures or increase revenues will result in annual deficits of $20 million for years to come, that it is meeting payroll by not paying the pension cost due and that their pension funds have filed to have the comptroller intercept funds and they expect this to cost them $4.4 million or more.

Chicago has its own set of problems. Police and fire pension funds hover around 20% funded.

For Chicago the day of reckoning is coming soon.
 
State elected officials gave them a five year reprieve from fully funding their pensions as required.  By FY2023, the amount they must contribute to pensions is expected to double to over $2.2 billion or about 25% of their general revenue fund.  City officials have been mum about how they will finance another billion dollars of pension liability.  Failure to do so will also see police and fire pension funds requesting an intercept of state funds due the municipality – such a scenario will lead to tax and fee increases, service cuts, layoffs, or a combination of all three.

Politicians have created these financial pressures by creating the rules local government must abide by. 

For years municipalities have asked for relief from state lawmakers as it relates to pension rules, collective bargaining requirements, and workers compensation, prevailing wage requirements, and more. 

Bankruptcy is the only way out.

Local Governments must be given the ability to renegotiate contracts and debt obligations.

In 2015 Rockford Mayor Larry Morrissey supported legislation authorizing Chapter 9 bankruptcy protection especially if there is a decrease in state revenue to the city – that could happen for Rockford as they underfunded their pensions by $6 million last year and an intercept of state funds could be forthcoming.

I filed legislation last year and this year that would have allowed a way for local governments in Illinois to file for bankruptcy protection.

Politicians have created an immoral and unjust burden on current residents and taxpayers to fund promises made by politicians over the past 40+ years and with no way to get out from under those promises.

They have allowed the government to borrow against your home and your future income with no restraint.  In fact, the only way to get out from under it is to literally move out of the state.

This is a fraud against every taxpayer in the state - as government has willfully neglected even the pretense of balanced budgets for decades at both the local and state level.  

Springfield lawmakers must act now to enact legislation allowing for local governments to renegotiate their debts, control their pension costs, and fairly manage their labor costs. 

Ted Dabrowski with Wirepoints offers more detail on the problem across the state. Click HERE to read the article with full analysis.

Please also refer to the enclosed graphic for specific firefighter pension data.


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