Chicago moved closer to keeping its largest pension fund from running out of money within the next decade, Bloomberg News reported yesterday. The city council’s finance committee yesterday approved raising the levy on water and sewer usage over the next five years to avert insolvency for the municipal pension, the most underfunded of the city’s four retirement systems. Last month, Mayor Rahm Emanuel outlined his plan to get the Municipal Employees’ Annuity and Benefit Fund of Chicago to 90 percent funded in 40 years. The hike still needs to be adopted by the full council, which next meets on Sept. 14.
While Californians have counted on pension promises not being rolled back, a state appellate court in August said that benefit cuts are permissible if the pensions remain "reasonable" for workers, Bloomberg News reported yesterday. The Marin Association of Public Employees, which lost its lawsuit seeking to prevent the county from reducing the final salary levels used to calculate pension payments, says that it will ask the state’s Supreme Court to overturn the ruling. If upheld, it would give California and its local governments a way to cut costs just as lackluster investment returns threaten to leave them under pressure to pump more money into retirement plans. Efforts to reduce retirement expenses have focused on steps such as steering new employees into 401(k)-style plans or persuading unions to consent to measures such as increasing retirement ages or cutting cost-of-living adjustments. While the California court case has no impact beyond the state, it could inspire challenges elsewhere by local governments seeking to push through changes over the objections of workers. "Courts around the country faced with similar litigation would likely hold in a similar fashion," wrote Bank of America Merrill Lynch analysts led by Philip Fischer in a note to clients.
With a $5.3 million budget deficit looming for 2017, Kane County, Ill., officials are on the verge of making a pension move some government finance experts believe has more risk than value, the Chicago Daily Herald reported yesterday. The plan involves issuing $52 million in pension obligation bonds. The proceeds from the bonds would pay off the county's current unfunded IMRF pension obligation. The county pays about 7 percent interest to IMRF on the unpaid balance. The county finance committee unanimously approved the plan on Wednesday. It will go to executive committee, then the full county board for a final vote. Based on the advice of Robert W. Baird, the firm that would issue the bonds for the county, officials say they believe the bond loan would carry a 3.5 percent interest rate. The savings from the lower interest rate would free up about $15 million for the county during the next 28 years.
One of the thorniest tasks awaiting a seven-member board charged by Washington, D.C., with cleaning up Puerto Rico’s debt crisis is deciding how to balance a $70 billion debt load with nearly $43 billion in unfunded pension liabilities, according to a Wall Street Journal analysis today. The issue is coming to a head now because the White House is set to name as soon as next week the members of that oversight board, drawn from lists of candidates submitted by congressional leaders in both parties. Puerto Rico’s constitution calls for the island to pay its general-obligation bonds ahead of public services or pensions, but a law signed by President Barack Obama in June clouds that hierarchy by directing the new board to ensure pensions are adequately funded. For the oversight board, “there are no good options here,” said Matt Fabian, a partner at research firm Municipal Market Analytics. Cutting payouts to debtholders ahead of pensions will inflame creditors, but cutting pension payments to plan members could accelerate the migration and economic decline that the oversight board is tasked with stemming. Creditors fired a pre-emptive volley last month when they sued the island’s government in federal court after it passed a budget that increases funding for pensions without setting aside money for debt payment. The budget diverts “vast resources to purposes that apparently enjoy political favor but are indisputably junior to constitutional debt,” the complaint said. Read more. (Subscription required.)
Wells Fargo, Advanced Micro Devices and Fifth Third Bank have in recent years agreed to settlement deals that seek to muzzle former employees in ways that some lawyers said could violate U.S. whistleblower protection laws, according to a Reuters analysis today. Five lawyers, including three who represent whistleblowers, said that the settlements appear aimed at blocking workers from airing their concerns and contain similarities to those used by other companies that ran afoul of government rules. The deals by Wells Fargo, AMD, and Fifth Third Bank were among a dozen such corporate settlements reached between 2012 and 2015 that were reviewed by Reuters. The companies each struck deals with departing workers that limit the employees' ability to receive money arising from any government investigations into their former employers. Some language in the settlements could run afoul of rules adopted by the U.S. Securities and Exchange Commission (SEC) in 2011 that generally bar corporate attempts to muzzle whistleblowers, the lawyers. Since 2015, the SEC has brought four cases targeting specific types of so-called whistleblower gag orders, such as confidentiality agreements that bar employees from discussing internal wrongdoing.
One of the toughest tasks that awaits the federal control board charged with overseeing Puerto Rico’s finances may be how to strengthen the island’s retirement system, the worst-funded pension program among U.S. states and territories, Bloomberg News reported yesterday. That’s because whatever is done will likely pit bondholders against public employees since the legislation authorizing the restructuring of the commonwealth’s obligations didn’t provide any fresh cash. The commonwealth is increasing its contribution to the system in the current fiscal year that began last month to $747.3 million, while at the same time declining to allocate money to pay interest on its bonds. That prompted hedge funds holding Puerto Rico’s general-obligation debt to file suit against Governor Alejandro García Padilla, claiming that the administration is diverting cash in violation of its constitution and citing the additional funds going into the pension system this year. Read more.
In related news, a collection of advocacy and business groups brought a legal challenge to a debt restructuring deal for Puerto Rico’s power utility that they claim will unfairly and excessively raise electricity rates for the utility’s customers, MorningConsult.com reported yesterday. The Puerto Rico Electric Power Authority (PREPA) is asking for approval for a new surcharge and a rate hike it from 16.5 cents per kilowatt-hour to 20.1 cents/kWh by next year, as part of a $9 billion restructuring deal struck earlier this year, the groups said. The Institute for Competitiveness and Sustainable Economy of Puerto Rico and eight other industry groups representing retailers, hospitals, hospitality firms and other consumers of electricity filed their separate challenges to this action in a Puerto Rican commonwealth court. The rate increase is “one of the largest in recent U.S. history to be imposed on a state-wide or territory-wide basis,” according to a statement from the plaintiff groups. Read more.
The city has begun legal proceedings against CBL and Associates Properties to recover money the Clearwater Employee's Pension Plan lost as a result of the company's alleged securities fraud, the Tampa Bay (Fla.) Times reported on Saturday. The Tennessee-based real estate trust is under investigation by the FBI and the Securities Exchange Commission for allegations officials inflated financial information when applying for loans to acquire property. Federal authorities have also asked questions regarding the company's relationship with Sen. Bob Corker (R-Tenn.), who has made millions in profit trading CBL stock, the Wall Street Journal reported in May. Clearwater Finance Director Jay Ravens said the pension fund lost $600,000 after CBL stock value declined amid the allegations.
Small-business owners say they are shouldering higher costs and scaling back expansion plans because of a revised federal rule that gives employees more leverage in settling workplace grievances, the Wall Street Journal reported today. The new policy, intended to hold businesses accountable for labor-law violations against people whose working conditions they control but don’t claim as employees, was put in place last year through a ruling by the National Labor Relations Board, which referees workplace disputes and oversees union-organizing elections. The rule, expected to affect fast-food, construction and other industries reliant on contract workers and employees of franchisees, also aims to ensure workers can unionize and collectively bargain with businesses that help control their fates. The policy broadens the circumstances in which two businesses can be counted as employers of the same group of workers, reversing the NLRB’s 30-year-old standard for determining such “joint-employer” status.
Atlantic City’s Trump Taj Mahal casino will close at the end of the Labor Day weekend amid labor strife stirred by the last in a series of bankruptcies for the former gambling empire of Donald Trump, the Wall Street Journal reported today. The Republican presidential nominee hasn’t been involved in the management of the casino for years, but his name remains on the facade of the boardwalk property, which is owned by billionaire Carl Icahn. Represented by Unite Here Local 54, some 1,000 Trump Taj Mahal workers went on strike July 1, asking for the restoration of health care benefits lost in the company’s most recent bankruptcy. Icahn pledged to invest $100 million into the Trump Taj Mahal to get it in shape to compete, but dialed down the investment after the company left bankruptcy-court supervision.
Chicago will pay at least $902 million in 2017 to its four retirement funds that are only 23 percent funded, Bloomberg News reported yesterday. The shortfall across the four funds ballooned to $33.8 billion from $20 billion a year earlier, mostly due to new accounting rules. Chicago hasn't paid enough into its retirement funds for years, leaving the city of 2.7 million strapped with hundreds of millions of dollars of obligations and the lowest credit rating of any big U.S. city except Detroit. Officials have been spending more than they're bringing in, and borrowing to push off debt payments, a practice Mayor Rahm Emanuel has promised to end by 2019. Long-term debt-service payments in 2017 are currently projected at about $2 billion.
