New Jersey government shuts down

SUBHEAD: Illinois and New Jersey state insolvencies are just the start... Kentucky is next and more are on the way.

By Tyler Durden on 1 July 2017 for Zero Hedge -
(http://www.zerohedge.com/news/2017-07-01/chris-christie-announces-new-jersey-government-shutdown-orders-state-emergency)


Image above: With the government shut down New Jersey closed all its public parks and beaches to the public this July 4th weekend. Here police (still operating) turn away people from Liberty State Park. From (http://www.app.com/story/news/politics/new-jersey/chris-christie/2017/07/02/gov-christie-get-h-off-beach/446242001/).

We've written quite a bit over the past couple of months about the pending financial crisis in Illinois which will inevitability result in the state's debt being downgraded to "junk" at some point in the near future (See article below).

Chris Christie announces New Jersey government shutdown and orders a state Of emergency.

Illinois, Maine, Connecticut: the end of the old fiscal year and the failure of numerous states to enter the new one with a budget, means that some of America's most populous states have seen their local governments grind to a halt overnight until some spending agreement is reached. Now we can also add New Jersey to this list.

On Saturday morning, New Jersey Gov. Chris Christie declared a state of emergency in the state, and announced a partial state government shutdown as New Jersey become the latest state to enter the new fiscal year without an approved budget after the Republican governor and the Democrat-led Legislature failed to reach an agreement by the deadline at midnight Friday, CBS New York reports.

In a news conference Saturday morning, Christie blamed Democratic State Assembly Speaker Vincent Prieto for causing the shutdown.

And, just like Illinois and Connecticut, Christie and the Democrat-led Legislature are returning to work in hopes of resolving the state's first government shutdown since 2006 and the first under Christie, before NJ is downgraded further by the rating agencies.

"If there's not a resolution to this today, everyone will be back tomorrow," Christie said, calling the shutdown "embarrassing and pointless." He also repeatedly referred to the government closure as "the speaker's shutdown." Christie later announced that he would address the full legislature later at the statehouse on Saturday.

Prieto remained steadfast in his opposition, reiterating that he won't consider the plan as part of the budget process but would consider it once a budget is signed. Referring to the shutdown as "Gov. Christie's Hostage Crisis Day One," Prieto said he has made compromises that led to the budget now before the Legislature.

"I am also ready to consider reasonable alternatives that protect ratepayers, but others must come to the table ready to be equally reasonable," Prieto said. "Gov. Christie and the legislators who won't vote 'yes' on the budget are responsible for this unacceptable shutdown. I compromised. I put up a budget bill for a vote. Others now must now do their part and fulfill their responsibilities."

Politics aside, the diplomaitc failure has immediate consequences for Jersey residents: Christie ordered nonessential services to close beginning Saturday. New Jerseyans were feeling the impact as the shutdown took effect, shuttering state parks and disrupting ferry service to Liberty and Ellis islands. Among those affected were a group of Cub Scouts forced to leave a state park campsite and people trying to obtain or renew documents from the state motor vehicle commission, among the agencies closed by the shutdown.

As funds run out elsewhere, it will only get worse. Police were turning away vehicles and bicyclists at Island Beach state park in Ocean County.

A sign posted at the park entrance featured a photo of Prieto and the phone number of his district office in Secaucus, along with the caption: "This facility is CLOSED because of this man."

When asked about the sign, Christie spokesman Jeremy Rosen said the governor wanted to make sure people knew why the site was shuttered.  "Speaker Prieto singlehandedly closed state government," Rosen said, adding that the governor wanted to make sure families "knew that the facilities were closed and who is responsible."

Not all things will be affected: remaining open under the shutdown will be New Jersey Transit, state prisons, the state police, state hospitals and treatment centers as well as casinos, race tracks and the lottery.

A major point of disagreement is the ongoing stalemate between Christie and lawmakers over whether to include legislation affecting the state's largest health insurer into the state budget.

Christie and Senate President Steve Sweeney agree on legislation to make over Horizon Blue Cross Blue Shield, including allowing the state insurance commissioner to determine a range for the company's surplus that if exceeded must be put to use benefiting the public and policyholders.

But Prieto opposes the plan, saying that the legislation could lead to rate hikes on the insurer's 3.8 million subscribers and that the legislation is separate from the budget. Prieto has said he will leave open a vote on the $34.7 billion budget that remains deadlocked 26-25, with 24 abstentions, until those 24 abstentions change their mind.

Democratic Assemblyman Vince Mazzeo, of Northfield, was among those abstaining. He reasoned that if the governor did not get the Horizon bill, then nearly $150 million in school funding -- $9.6 million of which would go to his district -- would be line-item vetoed out of the budget.

And indeed, Christie said Friday during a news conference that he would slash the Democratic spending priorities if he did not get the Horizon bill as part of a package deal on the budget.  "You want me to wave a magic wand to get a budget?" Christie said. "I can't get a budget to my desk.

Only the Senate and Assembly can get the budget to my desk."

But where things may get nasty quick, is that Christie said public workers should not expect any back pay. "Yeah, don't count on it." Christie said of furlough pay. "That was Jon 'I'll Fight For a Good Contract For You' Corzine. I ain't him."

Meanwhile, the fingerpointing has begun, including Democrats pointing at other Democrats.

"It seems like he's just being stubborn," Mazzeo said of Prieto. "With all due respect to the speaker, then there should be some type of negotiations." But Prieto said it's lawmakers - fellow Democrats - like Mazzeo who are to blame for the shutdown. He said he is willing to discuss the Horizon legislation but after the budget is resolved.

Christie has balked at the proposal because he says lawmakers plan to leave town to campaign for re-election and he will be a lame duck.

According to CBS, all 120 lawmakers face voters this year. Finally, putting the sheer chaos of it all in context, Christie who is term-limited and is expected to be out of office by January, has his family staying for the holiday weekend in a state-owned house at Island Beach State Park. The park is closed because of the shutdown

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Jersey and Illinois are not alone
SUBHEAD: When the ponzi dominoes start to fall, Bloomberg has provided this helpful map to illustrate who will succumb first...
By Tyler Durden on 1 July 2017 for Zero Hedge -
(http://www.zerohedge.com/news/2017-07-01/americas-pension-bomb-illinois-just-start)


Image above: Diagramatic map of USA illustrating percentage of funding for state pension obligations. From original article by Bloomberg News.

Unfortunately, the state of Illinois doesn't have a monopoly on ignorant politicians...they're everywhere. And, since the end of World War II, those ignorant politicians have been promising American Baby Boomers more and more entitlements while never collecting nearly enough money to cover them all...it's all been a massive state-sponsored scam.

As we've noted frequently before, some of the largest of the many entitlement 'scams' in this country are America's public pension funds. Up until now, these public pension have been covered by stealing money set aside for future generations to cover current claims...it's a ponzi scheme of epic proportions...$5-$8 trillion to be exact.

Of course, the problem with ponzi schemes is that eventually you get to the point where the ponzi is so large that you can't possibly steal enough money from new entrants to cover redemptions from those trying to exit...and, with a tidal wave of baby boomers about to pass into their retirement years, we suspect that America's epic ponzi is on the verge of being exposed for the world to see.

And when the ponzi dominoes start to fall, Bloomberg has provided this helpful map to illustrate who will succumb first...

Of course, if you live in a state like South Dakota, you may take some solace from the fact that your public pension is fully funded...don't.

Once the dominoes start to fall, and they will, those "ignorant politicians" we mentioned above will think they're doing the right thing when they attempt to "socialize the issue" with federal bailouts and tax hikes. Unfortunately, this is one crisis that will be too large for even American taxpayers to bailout.

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Illinois can no longer function

SUBHEAD: It enters third year without a budget, resulting in the state's imminent downgrade to junk status.

By Tyler Durden on 20 June 2017 for Zero Hedge -
(http://www.zerohedge.com/news/2017-06-20/illinois-comptroller-state-can-no-longer-function-we-have-reached-new-phase-crisis)


Image above: The seal of the State of Illinois with motto "State Sovereignty -National Union". From (https://commons.wikimedia.org/wiki/File:Seal_of_Illinois.svg).

With just 10 days to go until Illinois enters its third year without a budget, resulting in the state's imminent downgrade to junk status and potentially culminating in a default for the state whose unpaid bills now surpass $15 billion, Democratic Illinois Comptroller Susana Mendoza issued a warning to Illinois Governor Rauner and other elected officials on Tuesday, saying in a letter that her office has "very serious concerns" it may no longer be able to guarantee "timely and predictable payments" for some core services.

In the letter posted on her website, Mendoza who over the weekend warned that Illinois is "in massive crisis mode" and that "this is not a false alarm" said the state is "effectively hemorrhaging money" due to various court orders and laws that have left government spending roughly $600 million more a month than it's taking in.

Mendoza said her office will continue to make debt payments as required, but indicated that services most likely to be affected include long-term care, hospice and supportive living centers for seniors.

She added that managed care organizations that serve Medicaid recipients are owed more than $2.8 billion in overdue bills as of June 15th.

"The state can no longer function without a responsible and complete budget without severely impacting our core obligations and decimating services to the state's most in-need citizens," Mendoza wrote. "We must put our fiscal house in order. It is already too late. Action is needed now."

Unveiling the most dire language yet, in her letter Mendoza said "we are now reaching a new phase of crisis" perhaps in an attempt to prompt the Democrats and Republicans to sit down and come up with a compromise:

As Illinois’ Chief Fiscal and Accountability Officer, my Office is responsible for managing the state’s financial accounts as well as providing the public and the state’s elected leadership with objective and timely data concerning the state’s difficult fiscal condition. As you are quite aware, I have been very vocal regarding these issues and the budgetary impasse since assuming office six months ago; however we are now reaching a new phase of crisis.

She then addresses "the full extent of [Illinois'[ dire fiscal straits and the potential disruptions that we face in addressing even our most critical core responsibilities":

Accordingly, I must communicate to you at this time the full extent of our dire fiscal straits and the potential disruptions that we face in addressing even our most critical core responsibilities going forward into the new fiscal year.

My Office has very serious concerns that, in the coming weeks, the State of Illinois will no longer be able to guarantee timely and predictable payments in a number of areas that we have to date managed (albeit with extreme difficulty) despite an unpaid bill backlog in excess of $15 billion and growing rapidly.

The cause for alarm in America's most bananish state is well-known: living far beyond one's means, resulting in soaring deficits and the critical need for constant debt funding.

My cause for alarm is rooted in the increasing deficit spending combined with new and ongoing cash management demands stemming from decisions from state and federal courts, the latest being the class action lawsuit filed by advocates representing the Medicaid service population served by the state’s Managed Care Organizations (MCOs).

As of June 15th, the MCOs, and their provider networks, are owed a total of more than $2.8 billion in overdue bills at the Comptroller’s Office.

There is no question that these obligations should be paid in a more timely manner and that the payment delays caused by the state’s financial condition negatively impact the state’s healthcare infrastructure.

We are currently in court directed discussions to reach a workable and responsive payment schedule going forward, but any acceleration of the timing of those payments under the current circumstances will almost certainly affect the scheduling of other payments, regardless of other competing court orders and Illinois statutory mandates.

There was one silver lining: a default is not imminent, at least not in Mendoza's view, as the comptroller explained that "debt service payments will not be delayed or diminished going forward and I will use every statutory avenue or available resource to meet that commitment."

It is a necessary pledge in order to attempt to avoid further damage to our already stressed credit ratings and to make possible the additional debt financing that we all know will be required to achieve some measure of stability going forward.

And when "every available resource" runs out, that's when things get really bad.

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Meanwhile, as the state's budget director warns of fire and brimstone, in a last ditch attempt to reach an agreement with the legislature, Illinois' Republican Gov. Bruce Rauner will deliver a brief address Tuesday night calling for unity as lawmakers prepare to return to Springfield for a special session, a move Democrats quickly dismissed as a political stunt.

The speech, which is closed to the press but expected to air live on 6 p.m. television newscasts, comes just days after Rauner launched a TV advertising blitz attacking Democratic House Speaker Michael Madigan, whom the governor has spent years vilifying as the source of the state's deep financial woes according to the Chicago Tribune. Democrats have long argued that Rauner's frequent political attacks do little to bring about common ground. The governor says political gamesmanship is part of being in public service but should not impact what happens at the Capitol.

Rauner will give his remarks at the Old State Capitol, where Abraham Lincoln gave his "House Divided" speech and Barack Obama kicked off his first White House run in 2007.

The speech will fall short.

Democratic governor candidate J.B. Pritzker called Rauner's address a "sham," saying Rauner "either doesn't have the slightest clue what unity is or just doesn't care." House Democrats called it laughable, saying if Rauner wanted to negotiate he would do it behind closed doors not in front of television cameras. "I find it tragically comedic that a governor who has done more to divide this state than probably any other governor in history is going to give a unity address," said Rep. Christian Mitchell, D-Chicago.

It's not just the Democrats: Republican lawmakers said they would vote for that tax plan, but only if the hike were limited to four years starting in July, and were tied to a four-year property tax freeze. The Senate Democrats' plan makes the tax hikes permanent and applies them retroactively to the beginning of 2017.

While Rauner is expected to talk about the need for unity and compromise, House GOP leader Jim Durkin said last week that Republicans expect "substantial compliance" from Democrats, warning that he would reject "reform light or anything that is significantly diluted."

Finally, in a harbringer of what's to come for the entire state, Bloomberg reports that Chicago’s junk-rated school system just went "no bid", and is paying bond-market penalties similar to those seen during the financial crisis.

The Chicago school district, slammed by the fallout from the Illinois budget gridlock, has been stuck paying punitive interest rates on $167.5 million of adjustable-rate bonds after PNC Capital Markets failed in March to resell the securities once previous owners sold them.

Remember the failure of Auction-Rate Securities just before all hell broke loose in 2008? Well, it's kinda like that.

The rate on the bonds, which are supposed to stay extremely low because investors can resell them to banks periodically, jumped to a maximum 9% on March 1 from 4.64% the week before and has stayed there ever since, according to data compiled by Bloomberg.

The spiraling interest bills are reminiscent of the chaos that erupted in the wake of the Lehman Brothers Holdings Inc.’s bankruptcy in 2008, when state and local governments were stung by soaring costs after investors sold the variable-rate securities en masse just as banks were scrambling to raise cash. In Chicago’s case, though, it reflects how skittish investors have become about holding the debt of the cash-strapped school system.

In another preview of what's coming once Illinois is junked, the school district agreed this week to pay a rate of 6.39% for a short-term $275 million loan from JPMorgan Chase & Co. to help make a pension payment and cover the cost of staying open through the end of the school year.

As we reported last week, the schools didn’t receive $215 million more in state aid to make the retirement-fund contribution after a measure was vetoed by Governor Bruce Rauner.

Illinois has failed to pass a budget for more than two years as the Republican governor and Democrat-led legislature battle over how to close the state’s chronic budget deficits.

"Chicago Public Schools has been unable to crate a fiscally responsible budget and it relies on outside sources that, as we see, sometimes comes through and sometimes don’t,” said Matt Dalton, chief executive officer of Rye Brook, New York-based Belle Haven Investments, which manages $6 billion of municipal bonds, including about $3 million of insured Chicago school debt.

“That’s unsettling investors."

Unfortunately, that's just the beginning, and once the state itself is junked, investors will be even more unsettled.

But the biggest insult and injury is to the near-insolvent state is that Illinois is facing a full-blown crisis just one day after chronic defaulter Argentina managed to pull off a 100 year bond offering, which was 3.5x oversubscribed.
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Union pension will need bailout

SUBHEAD: Teamsters' Central States Pension Fund is under funded and won't meet obligations required by government.

By Tyler Durden on 12 May 2016 for Zero Hedge -
(http://www.zerohedge.com/news/2016-05-12/here-come-lot-angry-teamsters-one-americas-largest-pension-funds-demands-taxpayer-ba)


Image above: Teamsters protesting failure of pension funding. From original article.

Over the past few months, we have covered the unfolding saga (here and here) of the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, all the way through Kenneth Feinberg's rejection of the proposal to cut benefits on behalf of the Treasury.

When the proposal was rejected, we said that the final resolution will be in the form of an inevitable taxpayer-funded bailout

If the Treasury won't allow any pension cuts, and the government created safety net won't be there to keep the benefits flowing, how will the cash continue to flow to members? With the precedent now set by the Treasury that no cuts will be allowed, the answer will likely come in the form of a massive bailout.

As it turns out, that is precisely what fund director Thomas Nyhan believes as well. Nyhan said the rejection means the CSPF likely won't be able to offer another proposed fix without getting funding from Congress, either directly or through the Pension Benefit Guaranty Corp.

However with the PBGC also on its way to insolvency, and unable to shoulder the additional burden in world of zero and negative rates, that leaves us with... drum roll please... the US taxpayers, aka Congress, footing the bill.

"There are only two solutions. Either the plan receives more money or has to have fewer benefits. I'm hopeful that come probably 2017, we can actually all get to work on something that can provide a solution. If there is no legislation at any time, we're going to end up going to insolvency." Nyhan said. 

The full-court press is now on, as now everyone involved is calling on congress to step in. Visitors to CSPF's website this morning were greeed with a banner directing to a rescue plan website.

Before you could enter the rescue site a pop-up message is shown, simply saying that since congress effectively shut down the proposal, they can now stand up and pass legislation to bail the fund out.

"Central States strongly urges these members to act now to pass legislation that protects the pension benefits of the over 400,000 participants of Central States Pension Fund"

With the Treasury denying the possibility of pension cuts, the ball is now in Congress' court to initiate a bailout.

When it does, because it will, the flood gates will be open for the rest of the insolvent funds to come knocking with their hands out, and we can formally welcome the arrival of helicopter money - whether Yellen wants it or not - in the United States.

What follows is Tom Nyhan testifying before congress back in 2013, laying it out in very plain terms that without funding, or significant benefit cuts, the game is over.

"Unless the fund substantially reduces its liabilities, or receives a large influx of assets, it's projected become insolvent within ten or fifteen years, and at this point our options are very limited."

Nobody listened, and now - in this bold new age of pension fund crushing zero and negative interest rates - it is game over.


Image above: Thomas Nyham testimony egards to the Central States Pension Fund before the House Subcommittee on Health, Employment, Labor, and Pensions. From (https://youtu.be/xWJAmJFcWC0).

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Pension fund cuts coming?

SUBHEAD: Woe betide. A major union pension fund is threatened by low interest rate yields on investments.

By Tyler Durden on 20 April 2016 for Zero Hedge -
(http://www.zerohedge.com/news/2016-04-20/going-be-national-crisis-one-largest-us-pension-funds-set-cut-retiree-benefits)


Image above: Regardless of a sense of injustice and unfairness - if and when the pension stop coming, we will go through something like what the former Soviet Union went through in the late 1980's. A cataclysmic social convulsion and contraction that leads to a rebirth - of sorts. From original article.

A dark storm is brewing in the world of private pensions, and all hell could break loose when it finally hits.

As the Washington Post reports, the Central States Pension Fund, which handles retirement benefits for current and former Teamster union truck drivers across various states including Texas, Michigan, Wisconsin, Missouri, New York, and Minnesota, and is one of the largest pension funds in the nation, has filed an application to cut participant benefits, which would be effective July 1 2016, as it "projects" it will become officially insolvent by 2025.

In 2015, the fund returned -0.81%, underperforming the 0.37% return of its benchmark.

Over a quarter of a million people depend on their pension being handled by the CSPF; for most it is their only source of fixed income.

Pension funds applying to lower promised benefits is a new development, albeit not unexpected (we warned of this mounting issue numerous times in the past).

For many years there existed federal protections which shielded pensions from being cut, but that all changed in December 2014, when folded neatly into a $1.1 trillion government spending bill, was a proposal to allow multi employer pension plans to cut pension benefits so long as they are projected to run out of money in the next 10 to 20 years.

Between rising benefit payouts as participants become eligible, the global financial crisis, and the current interest rate environment, it was certainly just a matter of time before these steps were taken to allow pension plans to cut benefits to stave off insolvency.

The Central States Pension Fund is currently paying out $3.46 in pension benefits for every $1 it receives from employers, which has resulted in the fund paying out $2 billion more in benefits than it receives in employer contributions each year.

As a result, Thomas Nyhan, executive director of the Central States Pension Fund said that the fund could become insolvent by 2025 if nothing is done.

The fund currently pays out $2.8 billion a year in benefits according to Nyhan, and if the plan becomes insolvent it would overwhelm the Pension Benefit Guaranty Corporation (designed by the government to absorb insolvent plans and continue paying benefits), who at the end of fiscal 2015 only had $1.9 billion in total assets itself. Incidentally as we also pointed out last month, the PBGC projects that they will also be insolvent by 2025 - it appears there is something very foreboding about that particular year.

As the Washington Post writes:

Ava Miller, 64, and her husband, Ed Northrup, 68, could see their combined monthly pension income cut to about $3,000 from the nearly $7,000 they receive now, according to a letter they received from Central States in October.

If the cuts go through, Miller, who worked as a dispatcher in Flint, Mich., said they will need to dip into their savings to help cover their $1,300 mortgage payment, heating bills and trips to visit her 84-year old mother. Northrup, a retired car hauler, has started applying for truck driving jobs that could supplement their potentially smaller pension payments.

What makes the cuts more painful, Miller said, is that she took pay cuts so that the company could continue making contributions to the pension.

"I did everything I was supposed to," Miller said, adding that she and her husband made extra payments on their car loan to cut down on their monthly bills after they received letters in October informing them of the potential cuts.

All hope is not lost, however.

Democratic candidate Bernie Sanders has proposed a bill that would repeal the measure allowing cuts, and instead calls for the government to provide assistance to troubled pension funds.
In other words, another bailout.

Which brings us to the current juncture, where we remind everyone that the governments own safety net, the PBGC has itself become insolvent, and according to CNN, projects that more than 10% of the roughly 1,400 multiemployer plans, covering more than 1 million workers fits the current criteria to be able to apply for benefit cuts for participants.

"This is going to be a national crisis for hundreds of thousands, and eventually millions, of retirees and their families. It's going to open the floodgates for other cuts." said Karen Friedman, executive president of the Pension Rights Center.

We can't help but wonder that as more pension funds become insolvent, and more and more participants are forced to take reductions in benefits, whether helicopter money won't soon become a reality for the United States, even before it becomes one in Japan.

Especially if it is spun by some opportunistic politicians as the "only hope" for America's workers to preserve some of their retirement savings.

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