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Post by jeffolie on Apr 2, 2013 10:20:06 GMT -6
CalPERS now endangered... Many CalPERS accounting assumptions will be challenged because of the legal rulings coming out of this bankruptcy. Each significant ruling during the bankruptcy most likely will be appealed up the federal court system resulting in delays and confusion for all for years. Some consequences will be painful for small businesses and workers throughout all of America. ===================================== Judge rules Stockton can enter bankruptcy protection The judge finds that the city's creditors had acted in bad faith by failing to negotiate April 1, 2013 FRESNO — A federal judge ruled Monday that Stockton was eligible for bankruptcy protection — rebutting Wall Street creditors who claimed the city wasn't really broke and setting up a battle over employee pensions. U.S. Bankruptcy Judge Christopher Klein found that Stockton can move forward with a plan to reorganize its debt. The city's creditors, he said, had acted in bad faith by refusing to negotiate. "The creditors got a big black eye today," said Karol Denniston, an attorney who helped draft the legislation that guided Stockton's mandated mediation before filing for Chapter 9 protection. "Now the stage is set for the real dog fight." In late June, the port city of 300,000 became the largest U.S. city to fail financially. At that time Stockton stopped bond payments, slashed employee health benefits and made further cuts to a strapped budget that already had forced the Police Department in California's second-most-violent city to shrink by 25%. During a three-day hearing that ended last week, Stockton officials testified that creditors had walked away from the table and refused to pay their share of negotiation fees because the city did not include cutting payments to the state's employee pension plan, CalPERS, in its reorganization plan. The $900 million that Stockton owes to the California Public Employees Retirement System to cover pensions is its biggest debt, as is the case with many cities in California. The creditors also had suggested that, before claiming insolvency, Stockton should sell its rat-infested City Hall, tax 911 calls and hike fees in a city with an 18% unemployment rate. Assured Guaranty, one of Stockton's major creditors, issued a statement Monday disagreeing with the judge's decision. The company, which according to its website guarantees "scheduled principal and interest payments when due on municipal, public infrastructure and structured financings," stressed that it had a "substantial interest in seeing the city emerge from its financial predicament as a viable and sustainable governmental enterprise for the long term." Klein, however, said Stockton needed to reorganize under Chapter 9 in order to protect the people who live there. "It's apparent to me the city would not be able to perform its obligations to its citizens on fundamental public safety, as well as other basic government services, without the ability to have the muscle of the contract-impairing power of federal bankruptcy law," the judge said during his two-hour ruling. He left the door open for Stockton's CalPERS obligations to be negotiated in the next phase of the trial. The key question will be whether federal bankruptcy law trumps California's requirement that CalPERS be funded. Until now, there has not been a major test of the conflict. " There are very complex and difficult questions of law that I can see out there on the horizon," Klein said. Stockton City Manager Bob Deis said that the judge's decision was a win for the city, but no cause for celebration. "After nine months and millions of dollars in legal fees, the judge validated what we've been saying from the beginning, that the city is insolvent and needs the protection of bankruptcy," he said. www.latimes.com/news/local/la-me-stockton-bankrupt-20130402,0,3880552.story
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Post by jeffolie on Apr 2, 2013 10:38:24 GMT -6
CalPERS now endangered " ... Its most significant effects may be felt within California - where many municipalities pay into the state's CalPERS pension fund. The judge ruled that CalPERS was just another creditor, but we still don't know who will be left holding the bag" ... wider concern is contagion: If investors fear they won't get their money back, they might demand higher interest rates from the sector as a whole. Moody's Investors Service publicly worried about such contagion last summer, in a report critical of U.S. municipalities and what the organization viewed as changing norms toward bankruptcy.========================================= April 2, 2013 What the Stockton Bankruptcy Means, And Doesn't A few years ago, it was fashionable to compare California, Illinois, or whatever U.S. state was struggling financially to the troubled island nation of Greece. Now, with Stockton, California the largest U.S. municipality to enter bankruptcy, it may be tempting to make another Mediterranean comparison - this time to the troubled island nation of Cyprus. In Cyprus as well as Stockton (plus San Bernardino, California and Jefferson County, Alabama), the question is: Who will be left holding the bag? A common theme is "haircuts," or possible losses for investors (bank depositors in Cyprus; bondholders in California) to spare wider pain to taxpayers, pensioners, public employees, and other local stakeholders. One problem with haircuts is that they can impair future market access: the government in question may have to pay higher borrowing costs to regain investor confidence. A wider concern is contagion: If investors fear they won't get their money back, they might demand higher interest rates from the sector as a whole. Moody's Investors Service publicly worried about such contagion last summer, in a report critical of U.S. municipalities and what the organization viewed as changing norms toward bankruptcy. But there are a few reasons to be skeptical about the contagion scenario applied to munis. First, although broad (worth about $3.7 trillion in 2012), the municipal bond market is not very deep. On the supply side, a few large issuers like California, New York, and Texas dominate. On the demand side, most investors are households or institutions representing households such as money market mutual funds. Because of its traditional mom-and-pop structure, muni bonds don't transact very often. When they do, different buyers may pay different prices for the same bond, and prices can rise faster than they fall (the "rockets and feathers" phenomenon). Economists have rightly criticized these features as inefficient. However, some market participants counter that proposed cures might be worse than the disease. A silver lining of less-than-perfect information and higher transaction costs in muni markets may be that shocks are transmitted slowly through the system. More educated institutional investors are probably able to sort good apples from bad; other investors simply "buy and hold." A recent IMF working paper confirms these predictions: after a bad credit event, investors apparently shift their money from places like California and the City of New York to safer issuers. Rather than suffering from Stockton's misfortune, other states and municipalities will probably benefit, much like U.S. Treasuries after the 2008 financial crisis. Interestingly, the IMF authors did detect some evidence of contagion, or bad news spreading, but in an unexpected direction from munis to U.S. Treasuries. One explanation is that investors looked at a Illinois or California and worried about prospects for a federal bailout, analogous to Cyprus and the rest of the Eurozone. Still, measured effects were small and took time to surface. The U.S. also has a long history of steadfastly refusing requests for local aid. In any event, it will take some time to parse through yesterday's Stockton ruling. Its most significant effects may be felt within California - where many municipalities pay into the state's CalPERS pension fund. The judge ruled that CalPERS was just another creditor, but we still don't know who will be left holding the bagwww.realclearmarkets.com/articles/2013/04/02/what_the_stockton_bankruptcy_means_and_doesnt_100234.html
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Post by jeffolie on Apr 2, 2013 10:51:26 GMT -6
CalPERS now endangered " .. In a case that will most likely go to the US Supreme Court ... " " ... In a case that will most likely go to the US Supreme Court, the municipal bondholders will be pitted against the California Public Employee Retirement System. I believe it safe to assume that the bondholders will lose their investment a la Cyprus, as they accepted the risk of doing so when they purchased the bond, unlike the retirees who were given government guarantees. " ... Thousands more cities across this nation are a hairsbreadth away from following Stockton into bankruptcy. According to the Federal Reserve Bank of New York, between 1970 and 2011, 2,521 bond issues were defaulted on. my jeffolie view: the current unpredictable US Sup Ct Justice Roberts declared the healthcare program a "tax" ... predicting winners and losers became futile. ======================= Stockton, CA bankrupt: Expect Cyprus like solution for bond holders WASHINGTON, April 1, 2013 ¯ It is official; Stockton, California has run out of other people’s money. Bankruptcy judge Christopher Klein found the city had met the requirements to proceed with its municipal bankruptcy case. The judge stated that “by any measure” the city was insolvent, and that the creditors did not negotiate in good faith. Stockton is the largest city to have filed for municipal bankruptcy, so far. The liberal populace, hovering just outside the liberal Mecca of San Francisco, are left looking around for someone to blame, and more importantly, someone to pay the bill. It is not surprising that they quickly found the source of their pain, the bond holders; those money loving, rich old white guys who know nothing but greed. It is their fault that huge lifelong pensions and free healthcare for life, regardless of how long you worked for the city has not turned Stockton into the utopia it should have been. It is amazing how greedy some people are, they simply don’t care about their fellow man. In a case that will most likely go to the US Supreme Court, the municipal bondholders will be pitted against the California Public Employee Retirement System. I believe it safe to assume that the bondholders will lose their investment a la Cyprus, as they accepted the risk of doing so when they purchased the bond, unlike the retirees who were given government guarantees. As is the case in Europe, sticking the inevitable losses of an institution gone wild, money will flow out of the system like water through a sieve if (when) the bond holders are declared to be the losers. Both corporate and retail (individual) investors hold a combined total of nearly four trillion dollars in municipal bonds. What will happen when they find that that “safe” investment is about as safe as a bank account in Cyprus? Where will they take their investment dollars? Contrary to popular leftist belief, most bond holders are not rich Wall Street investors. In reality, over 75 percent of outstanding municipal bond securities are owned by retail investors. While that may sound sterile, like some rich guy who doesn’t need the money, these are the people who worked their whole lives without a guaranteed pension and lifelong healthcare to supplement social security. These people, who in many cases are about to lose a chunk of their life savings to fund a bloated government pension fund are grandma and grandpa; they are the disabled neighbor whose settlement from an accident went into a fixed income fund. They are just people, like the ones in Cyprus who are going to lose hundreds of millions of dollars, all because they were foolish enough to lend it to the government. The government does not lose. They have the ability and the lack of ethics and morality to take whatever they wish, whenever they wish. Thousands more cities across this nation are a hairsbreadth away from following Stockton into bankruptcy. According to the Federal Reserve Bank of New York, between 1970 and 2011, 2,521 bond issues were defaulted on. The city always won out, why should Stockton be any different? Be careful where you put your money; those with the ability to take it, will. Read more: communities.washingtontimes.com/neighborhood/politics-blue-collar/2013/apr/1/stockton-california-bankrupt-expect-cyprus-solutio/#ixzz2PKFbVOl2
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Post by jeffolie on Apr 3, 2013 15:09:03 GMT -6
CA's amended constitution give special protection to CalPERS, but in federal courts applying state law protection may fail. NATIONWIDE BONDHOLDERS vs public pension systems " The battle between the bond market and CalPERS - with Stockton and San Bernardino in the middle ... If CalPERS has to take a "haircut" along with other creditors in Stockton's plan of adjustment for emerging from bankruptcy, it could have huge ramifications for California public employee pensions. If CalPERS stays whole and bond holders alone shoulder the losses, it could make municipal bonds much harder to sell, thus undercutting much public financing. ============================ Ruling in Stockton bankruptcy removes cities from fight between bond markets and public pensions: Editorial 04/02/2013 A federal bankruptcy judge in Sacramento could have been talking about San Bernardino when he pronounced his reason for accepting Stockton's bankruptcy application on Monday. "It's apparent to me the city would not be able to perform its obligations to its citizens on fundamental public safety as well as other basic government services without the ability to have the muscle of the contract-impairing power of federal bankruptcy law," said U.S. Bankruptcy Judge Christopher Klein. There's little question the same reasoning applies to San Bernardino. It won't be able to provide even bare-bones municipal services for its residents without bankruptcy protection. Creditors, primarily bond insurers, challenged Stockton's bankruptcy application on the grounds that the city had not done enough to cut its costs - specifically, because it had not tried to renegotiate its obligations to the California Public Employees Retirement System. The judge rebuffed the insurers soundly on that point, saying they were wrong to refuse to renegotiate what Stockton owed them unless the city renegotiated its CalPERS obligations. In that sense, Monday's ruling was a win not only for Stockton, but for CalPERS as well. In contrast, San Bernardino stopped making CalPERS payments - as well as payments to bond holders - when it declared its intent to seek bankruptcy protection. In that case, bond sellers and insurers are behind the city's application all the way because it treats CalPERS as just another creditor. CalPERS opposes San Bernardino's application for the same reason. The battle between the bond market and CalPERS - with Stockton and San Bernardino in the middle - will rage on. Judge Klein made it clear that cities' CalPERS obligations, though guaranteed under the state constitution, are not sacrosanct in federal Bankruptcy Court. If CalPERS has to take a "haircut" along with other creditors in Stockton's plan of adjustment for emerging from bankruptcy, it could have huge ramifications for California public employee pensions. If CalPERS stays whole and bond holders alone shoulder the losses, it could make municipal bonds much harder to sell, thus undercutting much public financing. In San Bernardino, residents are just worried more about their city and its services. They are right to believe that San Bernardino qualifies for bankruptcy protection just as much as Stockton does. www.presstelegram.com/opinions/ci_22930147/ruling-stockton-banrkruptcy-removes-cities-from-fight-between
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Post by jeffolie on Apr 24, 2013 11:09:01 GMT -6
Jon Coupal: The bill for unfunded pensions is coming due 04/23/2013 Expect to hear a lot more pronouncements from state and local government officials about the need for tax increases, cuts to public services, or both. CalPERS, the huge pension fund that serves most California government employees, has announced it is raising its rates, a move that will cost employers -- taxpayers, that is -- up to 50 percent more. For some local governments already on shaky financial footing, this may be the nudge that sends them down the bankruptcy road traveled by Vallejo, Stockton and San Bernardino. CalPERS is only 70 percent funded and the board justified the increase, which amounts to billions of dollars annually, based on estimates that without increased revenue, there is an even chance that the major pension plans could fall below 50 percent funding in the next 30 years. CalPERS admits to $87 billion in unfunded liabilities, although some experts say it is actually much higher. Additionally, Joe Nation, a scholar with the Hoover Institution, a Democrat and a former member of the California Assembly, has estimated that the entire unfunded pension liability of both state and local governments now approaches $500 billion. As for the CalPERS rate increase, beyond the obvious implications for tightened government budgets, there is bad news and a little bit of good news. The bad news is that none of this needed to happen. This crisis is no accident. Going back to the 1990s, the CalPERS board, Gov. Gray Davis, state Treasurer Phil Angelides and enablers in the Legislature made a series of conscious decisions that were guaranteed to drive the giant pension fund toward insolvency. Those looking for an excellent overview should read Steven Malanga's article, "The Pension Fund That Ate California," in the winter 2013 edition of City Journal. Actions by the union-controlled CalPERS board included cynically pressing lawmakers to increase pensions to unsustainable levels using misleading information, bad investment decisions promoted by Angelides, who, as state treasurer, had a seat on the board, and outright criminal activity by some board members and former board members. Information provided to the governor and the Legislature to justify huge pension increases in 1999 was ludicrous on its face. As David Crane, an economic adviser to Arnold Schwarzenegger, has written, CalPERS estimates for investment return growth relied on the Dow Jones reaching 25,000 by 2009 -- it turned out to be about 8,000 -- and 28,000,000 by 2099. It was as if the return would be so great it would be hard to spend all the money rushing in, and that taxpayers - average Californians, that is - would never be on the hook for a shortfall. That the governor and members of the Legislature were so anxious to accept CalPERS version of the future can only be explained by gullibility, incompetence and stupidity, or by a conceit that caused some of them to ignore the public good in return for support from the powerful government employee union forces. Oh, and the good news? Well, think of the current situation with regard to the unfunded pension liability as like being in debt to a loan shark. The more protracted the repayment the more protracted and intense the misery. So even though we Californians have been abused by corrupt Sacramento politicians and bureaucrats, the debt genie is out of the bottle, and the sooner we pay off our liability, the more likely we can look forward to more stable state and local budgets and a reduction in pressure for new taxes. www.presstelegram.com/opinions/ci_23090566/jon-coupal-bill-unfunded-pensions-is-coming-due
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Post by jeffolie on Apr 25, 2013 8:27:44 GMT -6
Unfunded pension promises coming home to roost: Editorial 04/24/2013 It's cold comfort to those who have been warning about unfunded pension promises to see the ill effects starting to kick in. Last week's vote by the board of the California Public Employees Pension System gives a glimpse of the pain to come for state and local governments. The board approved increasing the required CalPERS contributions from employers - meaning governments or, more accurately, taxpayers - by roughly 50 percent over five years, starting in fiscal year 2015-16. The increases will apply to state government and much of local government - any city, county, school district or special district that participates in CalPERS. (The city of Los Angeles is not part of CalPERS; it operates its own pension fund.) The policy that was approved is an actuarial change - which sounds boring and inconsequential, but actually is in some sense a bigger fiscal change than the statewide pension reform that became law last year. CalPERS will now spread its gains and losses over five years instead of the 15-year "smoothing period" that has been used until now, and will calculate its obligations on a fixed 30-year payoff schedule instead of rolling liabilities forward. The effect will be bigger bills for the governments that pay into the pension fund. More pain now (starting in 2015) and less later. It's a responsible change on CalPERS' part, aimed at reducing its unfunded liabilities to a less risky amount. The pension system was roughly 30 percent underfunded in mid-2011, though good investment returns since then have no doubt improved that a bit and reduced a shortfall of nearly $90 billion. The problem of unfunded liabilities is not restricted to CalPERS, but is faced by other pension plans as well. Last month the state Legislative Analyst's Office told state legislators that they need to act soon to close a $73 billion shortfall in the California State Teachers' Retirement System over the next 30 years. An LAO analyst said it would take a $4.5-billion-a-year increase in contributions from school districts, teachers and the state to put CalSTRS back on sound financial footing. The longer the Legislature, which sets CalSTRS contributions, waits to act, the bigger the needed cash infusion will be. For governments, the CalPERS hike is bad news at a bad time, though at least the higher payments won't kick in for two years. Ideally, but not necessarily, cities and counties will be doing better financially by then. For cities like San Bernardino or Stockton, which presumably will be crawling back from bankruptcy by mid-2015, the higher rates could present a huge obstacle. Both those cities have had to slash the size of their workforces, including police, already. It could be that the only way to afford higher CalPERS contributions would be more layoffs to reduce payroll. That's the rub, potentially, for all cities and counties: that burgeoning pension payments, as public workers retire young and live longer, will crowd out the money to pay current workers. If there is any silver lining in the CalPERS hike, it's that it might make politicians think twice about the promises they make and employees consider what they're asking for. www.presstelegram.com/opinions/ci_23098681/unfunded-pension-promises-coming-home-roost-editorial
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Post by jeffolie on Apr 25, 2013 8:44:14 GMT -6
" ... The policy that was approved is an actuarial change - which sounds boring and inconsequential, but actually is in some sense a bigger fiscal change than the statewide pension reform that became law last year. CalPERS will now spread its gains and losses over five years instead of the 15-year "smoothing period" that has been used until now, and will calculate its obligations on a fixed 30-year payoff schedule instead of rolling liabilities forward. ... The effect will be bigger bills for the governments that pay into the pension fund. More pain now (starting in 2015) and less later. ... Last week's vote by the board of the California Public Employees Pension System gives a glimpse of the pain to come for state and local governments. The board approved increasing the required CalPERS contributions from employers - meaning governments or, more accurately, taxpayers - by roughly 50 percent over five years, starting in fiscal year 2015-16.
my jeffolie view: debts, obligations, pensions that can not be paid will not be paid ... the how the lowering or ending of the unfunded pensions will happen depend on the politics and legal system....by my 'bottoming period' of 2016 America's states, cities, local agencies will default, renegotiate, modify exist public employee pensions, retirement systems massively
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Post by unlawflcombatnt on Apr 27, 2013 22:41:00 GMT -6
The difference in the bondholders and the pensioners is this:
The pensioners forwent increases in pay for increases in pensions. In other words, they agreed to take money later in lieu of at the present (i.e., increased wages.)
To not pay them the pensions they were promised in lieu of pay increases is outright fraud. They agreed to less pay under the now false premise of higher pensions in the future.
The bondholders made no such sacrifice and KNOWINGLY took the risk that they might not get paid back. And despite any protestations to the contrary about assumed "guarantees" when investing in Government debt, there most certainly IS a risk--or they wouldn't be paid any interest at all.
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