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Financial Advisor Asks if More Large Cities Will Follow Detroit in Bankruptcy?

Tubbergen has his radio shows available as podcasts on his website.

 

Grand Rapids, MI -- (ReleaseWire) -- 07/31/2013 -- It is difficult to stay abreast of everything that is happening financially in the United States today. Dennis Tubbergen, a financial advisor, author, radio show host and CEO of PLP Advisors, LLC can be counted on to give a hand when it comes to understanding the latest events in U.S. and world economics.

Whether people enjoy his monthly newsletter at http://www.moving-markets.com or his blog at http://www.dennistubbergen.com, Tubbergen is dedicated to sharing his viewpoints and opinions. On July 30, 2013, his blog was titled More Motown Style Bankruptcies to Follow?

"As I have been discussing for many years now, the economic winter season will take its toll on pensions which will in turn slow economic growth," began Tubbergen. "During the economic autumn season when things seem to be prosperous, promises are made to future retirees that can’t be kept during a winter season."

Tubbergen goes on to say that one obvious example is the assumed rate of return that pension funds might earn each year. Annual rates of return are assumed to be 7% to 8% on invested pension assets. While these rates of return are possible in an autumn season, a winter season sees far lower returns.

"The end result of this pension underfunding and overly rosy assumptions will be cuts to pension benefits," warns Tubbergen. "That’s not a political statement, it’s a math statement."

Tubbergen quotes below from a July 22, 2013 article in The Detroit Free Press.

Detroit may be alone among the nation’s biggest cities in terms of filing for bankruptcy, but it is far from the only city being crushed by a roiling mountain of long-term debt.

At the heart of Detroit’s problem is a growing unfunded debt on benefits owed to current and future retirees — some $3.5 billion, according to its emergency manager, Kevyn Orr — which mirrors a circumstance being seen across the U.S.

From Baltimore to Los Angeles, and many points in between, municipalities are increasingly confronted with how to pay for these massive promises. The Pew Center for the States, in Washington, estimated states’ public pension plans across the U.S. were underfunded by a whopping $1.4 trillion in 2010.

For years, watchdog groups and public-sector analysts have warned of the threat posed by unfunded liabilities. Much like the legacy pension costs that weighed on Detroit’s automakers before the Chrysler and General Motors restructurings of 2009, the worry is that revenues can’t keep up with growing debt and that rosy predictions for market returns downplay the actual financial risk.

As examples of the results: Chicago recently saw its credit rating downgraded because of a $19-billion unfunded pension liability that the ratings service Moody’s puts closer to $36 billion. And Los Angeles could be facing a liability of more than $30 billion, by some estimates.

It’s no surprise — given the pressure public pensions are putting on municipal budgets — that any move to ease those liabilities, especially through a bankruptcy court order like what’s happening in Detroit, is being watched carefully nationwide by state and municipal officials, union leaders, bond traders and retirees.

“We’re just at the front of the line here,” Michigan Treasurer Andy Dillon said Friday. “It could be a landmark case.”
"The bottom line is simple," concludes Tubbergen. "In spite of the legal wrangling that will take place between bondholders and pensions if there is no money to pay pension benefits, pension benefits will not be paid."

To read the blog in its entirety go to http://www.dennistubbergen.com and select his July 30, 2013 entry.

Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.

About Dennis Tubbergen
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at http://www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to http://www.moving-markets.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.