Pension costs are already unraveling the state’s finances. Now it’s the city of Chicago’s turn. The city’s out-of-control pension liabilities and “accelerating budget pressures associated with those liabilities” has resulted in another credit downgrade by Moody’s Investors Service. The national credit rating agency downgraded the city’s nearly $8 billion in general obligation bonds to A3 from Aa3. This is a triple-notch downgrade. Chicago is now just four notches above junk-bond status — any further downgrades mean the city is likely to face problems borrowing money. The agency made good on its April 2013 promise to evaluate state and local pension plans on more realistic assumptions. At that time, Moody’s placed 29 local governments under review – including Chicago. The rating agency has long critiqued pension funds’ use of overly ambitious investment return targets that allow funds to understate their true pension shortfalls. Based on the new Moody’s methodology, which uses more conservative assumptions, Chicago’s 2012 pension shortfall jumps nearly 90%, to $36 billion from $19 billion.However, Chicago’s burgeoning liability is not the city’s only problem. The yearly bill to pay for those pensions is set to spike 2.5 times to $1.2 billion in 2015 from $467 million in 2014. The increase is due largely to a law that will require significantly higher pension contributions by the city beginning in 2015. These contributions will create a “tremendous strain” on the city’s operating budget, hurting the Chicagoans that most depend on core government services such as education, health care and public safety. Chicago’s crisis is no different from what the state is experiencing. Under new Moody’s methodology, the underfunding for the state’s five state-run funds is set to approach $200 billion. Pensions are threatening to bring down both Chicago and the state as a whole. It’s time for Illinois to follow the lead of the private sector. That means moving away from defined benefit plans and embracing 401(k)-style plans going forward. Today, more than 80% of private sector workers are covered by defined contribution plans such as 401(k)s. States have also begun to move in that direction. Michigan converted all new state workers to 401(k)-style plans in 1997. Alaska did the same in 2006. Even Democrat-controlled Rhode Island, with the nation's second-worst pension system, switched to defined contribution plans for existing workers in 2011.Illinois and Chicago must modernize their retirement systems by adopting defined contribution plans, such as the ones found in House Bill 3303 and Senate Bill 2026. Ted DabrowskiVice President of Policy
Thursday, July 18, 2013
A majority of people across the globe believes China will eventually eclipse the United States as the world's leading economy, a new survey released on Thursday showed, although America is still widely seen as holding on to the top spot for now.
Since the 2008 financial crisis, perceptions of the economic power balance have changed, the report published by the Pew Research Center revealed. Some of America's closest allies now feel China is moving ahead.
(Read More: China ramps up Treasury purchases to record high)
"Throughout much of Europe, the prevailing view is that China will ultimately eclipse the U.S. as the leading superpower. And this is the majority or plurality view in five of the seven Latin American nations polled," said analysts led by founding director of the Pew Research Center, Andrew Kohut.
"This trend has been especially apparent among some of America's closest allies in Western Europe. Today, for example, 53 percent in Britain say China is the leading economy; just 33 percent name the U.S." said Kohut.
(Read More: Forget the Headlines: Chinese Buying Big in US)
Roughly 6 in 10 Germans also back the view that China occupies the top position, while only 19 percent think the U.S. is the global economic leader.
The Chinese are also confident of their ascent to global economic power, with two-thirds believing their country has already or someday will replace the U.S. as the world's superpower.
"Some 47 percent say China has or will replace the U.S., and 47 percent say this will never happen. American opinion has shifted significantly since 2008, when only 36 percent said China would become the top global power and 54 percent believed it would never replace the U.S," he said.
(Read More: Amid concerns about US and China, crude notches slim gains)
However, despite this shifting perception of power, America's image as a positive and liberty-respecting nation remains strong. Across the countries surveyed a median of 70 percent say the American government respects the personal freedoms of its people. In contrast, few believe the Chinese government respects the freedom of its citizens.
"One of the major challenges for China's global image is that few believe the Chinese government respects the personal freedoms of its people. In only 11 countries in the survey do at least half hold this view. In contrast, majorities or pluralities in 37 of 39 nations believe the American government respects the individual freedoms of its citizens," said Kohut.
UPDATED: Detroit has filed for Chapter 9 bankruptcy, according to the Associated Press and Reuters, becoming the biggest U.S. city in history to do so.
The home of the nation's resurgent auto industry has as much as $20 billion in debts and liabilities, dwarfing previous city and county filings.
Earlier Thursday, the Detroit Free Press, the city's hometown paper, said the filing would set off a 30- to 90-day period "that will determine whether the city is eligible for Chapter 9 protection and define how many claimants might compete for the limited settlement resources that Detroit has to offer."
The Detroit Free Press said Gov. Rick Snyder would need to sign off on the deal. It said his office did not return phone calls immediately for comment.