Speaking on a Global Metro Summit panel at the University of Illinois-Chicago with Philadelphia Mayor Michael Nutter and Los Angeles Mayor Antonio Villaraigosa, Daley appeared to indicate that allowing the pensions to go bankrupt so they could be reorganized was something he believes could happen.
“I’m one who believes that pension funds can go bankrupt and then you reorganize, and that’s the hardest thing to say.”
Moderator Richard Stengel, managing editor of Time Magazine, then asked Daley: “Let them go bankrupt?”
“Yes, and then you reorganize it. I think the way government is trying to do it, we keep cutting and then some way, we’re going to tax everyone. I think even government can go re-organization, you want to call it go bankrupt, reorganize it, to the tune of this economy and this century.”
In other words let workers starve while the CEO’s and banksters make off with record profits and one percent of the population gets 34% of the American income.
Talking to reporters afterward, Daley sought to clarify his remarks.
“No, no, what I said is the whole idea that if you allow this to go, unfortunately, there would be a dire financial situation. And that’s why we’re all part of the solution, and not part of the problem. And in that sense, that’s the end result of something that would take place, but we should not get to that position.”
When pressed about the use of the term “bankruptcy,” Daley quickly said:
“Yeah, well, yeah, just in the sense that it comes to financial crisis, you don’t want to get to that. What we’re saying there are solutions prior to that.”
Daley’s comments came after much of the Chicago City Council sent a letter to Governor Pat Quinn urging him not to sign a pension reform bill passed by the General Assembly. Daley again lambasted the plan.
Daley has been publicly attacking the bill over the past week, saying it would lead to the biggest property tax increase in Chicago history. He said he doesn’t know whether Quinn will listen to Chicago officials’ pleas not to sign the legislation. According to Daley:
“(Quinn) wants to tax people. What can I do? We can’t go tax crazy, but people may want to go tax crazy”.
The bill requires municipalities move toward funding police and fire pensions up to 90 percent of obligations by 2040, and allows the state to withhold sales tax and income tax revenue from cities that don’t do so. Daley says that to meet the pension funding standard would require a $550 million property tax hike in Chicago.
A letter to Quinn signed by 43 of Chicago’s 50 aldermen acknowledges the need for pension reform. ‘Reform’ means that any legislation should include increased employee contributions and lower benefit payouts. Better to say ‘austerity’ but of course this doesn’t play well and language is everything. Daley went on:
“That’s what we’re asking, just to slow down and get some facts. Just because you want to tax people, fine. But you have to get facts on this. (Quinn) is saying the taxpayers should pay for everything. I differ with that. I think there’s a solution here, but it isn’t all for taxpayers to pay for everything. I disagree with that.”
The economic forum was hosted by the right wing Brookings Institution, the London School of Economics and Political Science, and the Alfred Herrhausen Society, the international forum of Deutsche Bank.
At the conclusion of the forum, Daley was presented with a Global Metro Award for his efforts to transform Chicago into a global city. And transform it he did by assuring that wealth was redistributed to the top, as usual. Now workers face harsh austerity measures while Daley sucks up rewards and accolades. But this is only the tip of the iceberg.
In Michigan the situation is equally dire or worse. Cities and towns across Michigan have had property-tax collections plunge as much as 20 percent in the past year, the steepest drop since a 1994 state tax rewrite, forcing scores of communities to choose by March whether to borrow to pay bills or risk default on bonds. The municipalities rely on property taxes for as much as 60 percent of their revenue, according to the Michigan Municipal League. State support that typically makes up an additional 20 percent to 35 percent of city budgets has been slashed by almost a third in the past year, during the longest recession since the 1930s. The answer the ruling class has for working people is debt and more debt.
Robert Daddow, deputy executive of Oakland County stated:
“This gets real bad in about 90 to 150 days. The question becomes whether they can secure enough cash from banks and whether banks are willing to lend in a credit-crunch situation.”
The value of taxable housing in Oakland County, which is home to the headquarters of Chrysler Group LLC, fell about 12 percent this year, Moody’s said in a Nov. 23 report. It will drop 10 percent further in 2011 and 5 percent more in 2012, Moody’s said. According to Moody:
“Declining housing values and a growing unemployment rate within the county demonstrates the county’s exposure to the challenges in this region.”
Micigan unemployment in October was 12.8 percent; it has been as high as 14.5 percent in December 2009 as the auto industry contracted. Of course this is an underestimation as the figures do not represent the true state of unemployment for they do not count those who have given up looking for work, are part time employees or have just fallen off the radar. The state in October trailed only California and Florida in its number of foreclosure filings, according to RealtyTrac Inc., an Irvine, California-based data firm. A total of 19,288 properties in the state, one in 235 households, got a default or auction filing or were seized by banks last month, the company said. The rate was up 17 percent from a year earlier.
Summer Minnick, director of state affairs for the Ann Arbor, Michigan-based Municipal League, noted:
“Right now, we have several communities on the brink of severe problems.”
Under state law, Michigan has the final say on whether a municipality can enter bankruptcy. None ever has, according to the state Treasury Department. Detroit said in March it was considering moving toward a filing. Hamtramck, where General Motors Co. manufactures the Chevrolet Volt, has also pressed state officials for a bankruptcy, saying that Detroit, which largely surrounds it, owes it money.
The answer the ruling class has is to float bonds meaning more debt. Southfield, an Oakland County city with what Moody’s in 2008 called a “satisfactory financial position,” estimates $19.9 million from its general operating-tax levy this fiscal year, a 16.7 percent drop from three years ago, when it budgeted for $23.9 million. Its administrator and treasurer asked the state Legislature in September for permission to sell $50 million in bonds to cover operational costs.
A Southfield general-obligation bond maturing on July 1, 2023, was valued on Nov. 29 at 100.736 cents on the dollar to yield 4.195 percent, according to data compiled by Bloomberg. The security was insured by Financial Guaranty Insurance Corp., whose parent, FGIC Corp., sought Chapter 11 bankruptcy protection in August after suffering losses from the drop in the U.S. housing market. The bond-insurance unit wasn’t part of the filing.
Brad Reynolds, chief investment strategist for LJPR LLC in Troy, Michigan, weighed in:
“I see a lot of red flags, but hear very few fire alarms.”
Reynolds’ firm holds about $100 million in municipal bonds, 90 percent of them from Michigan issuers.
Under a 1990 law, a Michigan governor can declare a financial emergency for a city and install a manager to run its business. Of the seven such declarations, four have occurred since December 2008. Rick Snyder, Michigan’s newly elected Republican governor warned that:
“Hundreds of jurisdictions” in the state may face financial collapse in the next three to five years”.
Nationwide, the value of defaulted municipal securities fell to $2.48 billion through October, compared with $7.28 billion in 2009 and a record $8.15 billion in 2008, according to Richard Lehmann, publisher of Distressed Debt Securities Newsletter. Lehmann told Bloomberg News last week there may be a “new wave” of defaults in 2011 as federal economic-stimulus aid declines and budget pressures mount.
Cities on the state Treasury Department’s list include the industrial centers of Detroit, River Rouge, Jackson and Benton Harbor. Suburbs are also in danger. Many of the bankrupt cities are upscale suburban bedroom communities that had new homes and suffered inflated prices.
Meanwhile, the combination of foreclosures, falling tax revenue and unfunded municipal pension liabilities is becoming unmanageable, according to Charles Moore, senior managing director at Conway MacKenzie Inc., a firm that works with municipalities on financial restructuring.
“I think there’s a very high likelihood we’ll see defaults in 2011 and I expect it will only increase in 2012 and 2013.”
All over the country the tune is the same. Communities are falling apart, worker pensions are targeted for austerity and the banks hold the keys to the future. With Obama adding a trillion dollars to the national debt it is unlikely that the federal government will be much help. The key of course is to retrieve the money stolen by the same banks that now are perched to finance more debt for cash strapped cities while forcing workers to accept less. Yet without a strong working class movement this seems unlikely. What does seem likely is further community impoverishment and city failures as the New Year begins.