Intel and Delta Airlines Lead US In Underfunded Pensions (The Illlinois of Corporate Pensions)

Its not only State pension funds that are woefully underfunded (like Illinois at 43.4%), many corporate pension funds are worefully underfunded as well. 

The biggest offenders? Tech giant Intel and Delta Airlines (that includes the former Northwest Airlines, Western Airlines and parts of Pan American airlines) are the two most underfuded penions at 46.6% and 49.4% underfunded, respectively. So, Intel and Delta Airlines are the Illinois of the corporate pension world.

People who rely on their company pension plans to fund their retirement may be in for a shock: Of the 200 biggest defined-benefit plans in the S&P 500 based on assets, 186 aren’t fully funded. Simply put, they don’t have enough money to fund current and future retirees. The situation worsened for more than half of these funds from fiscal 2015 to 2016. A big part of the reason is the poor returns they got from their assets in the superlow interest-rate environment that followed the financial crisis. It’s left a hole of $382 billion for the top 200 plans.

Of course, the percentage of workers covered by traditional defined benefit plans—those that pay a lifetime annuity, often based on years of service and salary—has been declining for decades as companies shift to defined contribution plans such as 401(k)s. But each time a pension plan is terminated, canceled or altered, thousands of workers are affected.

Last month, the 70,000 participants in the United Parcel Service Inc. pension plan learned they won’t earn increased benefits if they work after 2022. Late last year DuPont Co. announced it would stop making payments into its pension plan for 13,000 active employees, and Yum! Brands Inc. offered some former employees a lump-sum buyout to offload some of its pension liabilities. General Electric Co. has a major problem. The company ended its defined benefit plan for new hires in 2012, but its primary plan, covering about 467,000 people, is one of the largest in the U.S. And at $31 billion, GE’s pension shortfall is the biggest in the S&P 500.

So, it isn’t just State and Local government pension plans that are woefully underfunded. Corporate America.

What happens when the global central banks stop their monetary nonsense?

Just like the dinosaurs, pension fund recipients face a bleak future.

Debt Star! Trump May Need Obama’s Secret Debt Plan, Worrying Markets

So, President Obama had a secret plan to default on the US public debt all along. And President Trump may have to use it.

(Bloomberg) Deep within the Treasury Department sits a once-secret plan written by the Obama administration that could lead to the first-ever default on U.S. debt. Bond traders are worried that Donald Trump’s Treasury secretary may have to use it.

The U.S. government will reach its statutory limit on borrowing some time in October, the Congressional Budget Office estimates. The Trump administration has asked Congress to raise the ceiling before then, but it is running into the same complications the Obama White House encountered: lawmakers, mostly Republicans, who want to use the debt limit as leverage for controversial policy changes.

Treasury Secretary Steven Mnuchin has said there are “plans and backup plans” to keep the government solvent through September. Bond traders suspect he is referring to preparations made in 2011 in case the Obama administration had to prioritize payments on government securities over other obligations. The Treasury chief got fresh hope that Congress may raise the debt limit before leaving for its August recess after Senate Majority Leader Mitch McConnell delayed the break by two weeks.

Yes, Congress and the US Treasury has a debt problem. Explosive debt, thanks to chronic spending by Congress, will really be facing a problem if Treasury rates rise.

Healthcare spending (such as Medicare) is growing exponentially.

Leading to a CBO forecast of over $30 trillion in the near future.

And then we have the massive underfunding of government pension plans which will require bailouts by taxpayers. Look at Illinois, for example at 40% funded.

The good news is that markets aren’t pricing in excessive debt … yet.

With Senators like Maria Cantwell running things in Congress, how bad can it be?

Moody’s Down Grades Hartford CT As Wage-to-Cost Of Living Gap Drives Household Debt Growth

Despite what is touted by the Federal Reserve (debt is good!), states and municipalities are drowning in debt. As are US households.

Moody’s Investors Service has downgraded the City of Hartford, CT’s general obligation debt rating to B2 from Ba2. The outlook is negative.

The Hartford General Obligation bond is at 6.971% based on $82.768.

The rating was placed under review for possible downgrade on May 30, 2017. The par amount of debt affected totals approximately $550 million.

The downgrade reflects the increased likelihood that the city will pursue debt restructurings to address its fiscal challenges. Last week, the city hired a law firm to advise it on debt restructurings. City management has made public statements indicating they will need to have discussions with bondholders about restructuring its debt regardless of the outcome of the state’s biennial budget as debt service costs escalate sharply leading to budget deficits over the next five years.

The rating also reflects the city’s challenging liquidity outlook in the current fiscal year and weak prospects for achievement of sustainably balanced financial operations. The city currently projects a fiscal 2018 deficit of $50 million and is seeking incremental funding from the state to close that gap. The state has not yet adopted a budget specifying aid for the city for the fiscal year beginning July 1. Even if the state’s biennial budget allocates sufficient funds to address the current and following years deficits and create a fiscal oversight structure, the budget is still unlikely to provide a pathway to structural balance over the longer term. City deficits, partially attributable to escalating debt service costs, are projected to grow to $83 million by 2023, making the city’s weak financial position vulnerable to further deterioration.

Rating Outlook

The negative outlook reflects the possibility that the city will restructure its debt in a way that will impair bondholders. The outlook also incorporates uncertainty over state funding in the current fiscal year and beyond and the associated impact on reserves, liquidity and the ability to achieve sustainably balanced operations.

That is the City of Hartford that is in trouble due to excessive debt relative to tax receipts. But what about US households?

The rising cost of living relative to wage growth is leading to excessive debt use to maintain a standard of living.


Yellen: Federal Debt Growth Unsustainable (Thank You, Professor Obvious!)

Federal Reserve Chair Janet Yellen just said in Congress, “Given current taxing and spending decisions, debt is unsustainable.”

Thank you, Professor Obvious.

Of course, Federal debt growth is unsustainable. But what politician is going to vote for budget cuts to slow down or stop the out-of-control growth?

US GDP growth has slowed to a “new normal” post The Great Recession.

Entitlement spending, a political landmine, continues to grow unabated.

With the expected growth in mandatory (entitlement) spending, discretionary spending will be crowded out.

Given that The Federal Reserve is the largest holder of Treasury debt (since 2011), it is safe to say that we had better hope that Japan and China don’t lose interest in funding our entitlement spending.

Yellebn’s solution is to raise taxes. Brilliant!!

Thank you, Professor Obvious!



Small Business Optimism Falls To 103.6, But Remains Above 100 (Obamasnare?)

The NFIB Small Business Optimism Index for June fell slightly to 103.6, but remains above 100.

The NFIB Small Business Optimism Index remained below 100, indicating pessismism about small business growth, for most of Obama’s two terms as President, primarily because of the (Un)Affordable Care Act that placed staggering burdens on small businesses. There was hope that Trump and a Republican-held Congress could repeal the horrid Obamacare legislation, but that is looking less and less likely.

Obamacare was so poorly designed (it was really just a wealth transfer scheme from the beginning) that you see insurers pulling out of markets, leaving some counties with zero or 1 insurer.

Obamacare premiums have been soaring, depending on the state. Some states like California have seen increases of less than 10%, but some states like Arizona have seen increases in excess of 50%, not to mention massive increases in the deductible amount.

Since much of the burden of Obamacare falls on small companies (who rarely get representation or protection in Congress), I expect the optimism index to sink if Congress fails to repeal Obamacare (or at least returns Obamacare to a more free market approach).

For small businesses, Obamacare should be renamed “Obamasnare” since small businesses are snared in the healthcare trap.

But improving economic conditions and deregulation should improve small business model.


Escape From Chicago! Personal Taxes Increase 32%, Corporate Tax Rates Rise From 7.75% To 9.5%

The Illinois House of Representatives suceeded in overriding the Illinois governor’s veto of the staggering state budget of $36 billion complete with tax increases. Personal state taxes will rise 32% and corporate income taxes will rise from 7.75% To 9.5%.

But despite a 32% income tax hike, the budget package is devoid of any structural spending reforms to slow growth in the cost of government: It lacks comprehensive property tax reform, major pension reform, collective bargaining reform, reforms to Medicaid and more.

The primary cause? Out of control public pensions.

Pensions will consume about a quarter of Illinois’s general fund this year. Nearly 40% of state education dollars go toward teacher pensions, and the state paid nearly as much into the State Universities Retirement System last year as it spent on higher education.

Anemic revenue and economic growth can’t keep up with entitlement spending. The state’s GDP has ticked up by a mere 0.8% annually over the last four years compared to 2% nationwide and 1.4% in the Great Lakes region. Since 2010 more than 520,000 Illinois residents on net have fled to other states.

Way to go, Illinois!

But Cook County leads Illinois in out-migration. Maybe they should change their name to “Cooked” County.



Illinois Senate Overrides Rauner’s Veto of Spending, Tax Bills (Tax Rate Soar 32%)

Illinois is one step away from overriding Governor Ruaner’s veto of a 32% increase in their tax rate. Not exactly an ad for businesses to move to Illinois!

Democrats spent the long weekend coaxing Republican legislators to join their suicide pact to raise taxes to plug a $6 billion deficit and pay down a $15 billion backlog of bills. And don’t forget the $130 billion unfunded pension liability—none of which will be solved by the $5 billion tax hike.

(Bloomberg) The Illinois Senate overrode Republican Governor Bruce Rauner’s veto of budget bills approved this week by the Democrat-led legislature, moving the state closer to ending its record budget impasse.

It’s now up to the state’s House of Representatives to hold its own override vote. The chamber plans to do so, but not on Tuesday, Steve Brown, a spokesman for Speaker Michael Madigan, said before Rauner’s veto was announced.

“We passed a bipartisan balanced budget for the first time in a couple of years,’’ Senate President John Cullerton, a Democrat, said on the floor Tuesday. “I’m certainly disappointed that he vetoed a balanced budget, but I’m glad that we were able to override him.’’

It is an odd time for Illinois Democrats to push for MOAR tax dollars to fund government. Particularly when Chicago wage growth is decllining.

And Illinois General Oblgation bond yields are the highest among states. They are over 150 basis points higher than the second highest state, New Jersey.

Declining population and wage growth are just the beginning.

Here is Governor Rauner trying (unsuccessfully) to reign in the crazy government spending in Illlinois.