January 31, 2015

IL GOP introduces Bill to allow Chicago Bankruptcy

By Mark Wachtler

January 31, 2015. Downers Grove, IL. (ONN) Republicans have long complained that taxpayers can’t sustain the exorbitant salaries, benefits and pensions they’re currently obligated to pay government employees. But a new Republican Bill introduced in the Illinois Legislature would solve the dilemma of billions of missing dollars from government employee pension funds - allowing municipal bankruptcies. If passed into law, it would allow Chicago and a host of other Illinois cities and towns to declare bankruptcy just like Detroit.

Chicago is drowning in debt and a new State Bill would allow the city to declare bankruptcy. Image courtesy of Reboot Illinois.







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Looting the taxpayers

A couple months ago, the city of Chicago announced it would increase education spending by hundreds of millions of dollars this year to give students the tools and resources they need to learn. But days later, officials had to admit that not one cent of the additional taxpayer money would go toward students. Instead, every penny was going into teacher paychecks. When the Illinois Attorney General secured hundreds of millions of dollars in money stolen by Wall Street banks from Illinois residents, instead of giving the stolen money back to the victims, the state announced the settlement money would instead go into government employee paychecks and pensions.



Here’s one more eye-opening example. The City of Chicago gives each of its 50 Wards $1.3 million per year to maintain their Ward, including pot hole repair, replacing streets, fixing broken street lights, cracked sidewalks, replacing warning signs, and all the other things Chicagoans depend on each and every day. That comes to a total of $65 million annually.

By comparison, how much of the taxpayers’ money goes into the pockets of the government employees who perform those tasks? According to the city’s 2015 budget - $2.7 billion. Now consider, the debt on just their pensions is over $20 billion and growing every day. See the problem? The taxpayers do and so do state Republicans in Springfield.

Illinois HB 298

Last week, State Rep. Ron Sandack (R-Downers Grove) and State Rep. Jeanne Ives (R-Wheaton) introduced and co-sponsored House Bill 298. It was immediately referred to the Rules Committee. According to Representative Sandack’s website, the law would make Illinois the 25th state in the country to allow municipal bankruptcies.

“House Bill 298 would allow desolate and debt-ridden municipalities in Illinois to seek bankruptcy protections through the federal bankruptcy law,” Sandack explained, “As more and more municipalities are looking for relief and ways to deal with rising pension liabilities and other costs, this is a tool that can help them stabilize and reorganize financial affairs in ways that benefit taxpayers.”

The GOP State Rep from the Chicago suburbs went on to detail how it would work, “Similar to the types of bankruptcy we see in the courts today, a municipality would have to file a plan according to a court-ordered schedule that divides creditors into classes and proposes treatment for each class. Creditors would get to vote on the plan and the court would approve the plan that has been accepted and is in the best interest of the creditors.”



Detroit’s settlement terms

What would a Chicago bankruptcy look like? Probably a lot like Detroit’s. In its simplest terms, there are really only two major stake-holders of each city’s massive debt, fighting for the next 100 years worth of taxpayer money - government employees and Wall Street investment firms. And while they fight it out in bankruptcy court, as happened in Detroit, city services like police, fire, garbage, building inspectors, etc. would be limited to the wealthy downtown area while outlying neighborhoods would be on their own for about a year.

Don’t think it can happen? Neither did the citizens of Detroit. That’s why one in three Detroit residents fled the city after the 2008-2009 economic collapse, dropping the city’s population from a peak of 1.9 million to under 700,000 last year.

In Detroit’s bankruptcy, both parties - government employees/retirees and Wall Street investment firms/funds - saw a write-off of money they were legally owed by the taxpayers. When the court finalized the city’s repayment schedule, $7 billion of Detroit’s $18 billion debt was erased. For the mega-banks and hedge funds who loaned Detroit taxpayers exorbitant amounts of money at inflated interest rates, they would only recoup $0.26 on the dollar. Government employees fared much better, seeing roughly 50% of future benefits eliminated. 90% of that came from forcing retirees to pay their own health insurance premiums. But they also saw the elimination of cost-of-living increases going forward and pension payments were slashed by 4.5%.

According to the Illinois State Rep who sponsored the Bill to allow Chicago and other Illinois cities to declare bankruptcy, the prospect isn’t as unheard of as most people think. State Rep Ron Sandack says that since 1937, more than 600 American towns and cities have declared bankruptcy. The most recent and well known are those of Detroit, Michigan and Stockton, Vallejo, and San Bernardino, California.

For more information on HB 298, visit the Illinois House website.

 

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