Grand Rapids, MI -- (ReleaseWire) -- 08/08/2013 -- 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 www.moving-markets.com or his blog at www.dennistubbergen.com, Tubbergen is dedicated to sharing his viewpoints and opinions. On August 7, 2013 his blog was titled Chicago's City Bond Rating: Triple Drop.
"Detroit and Chicago are connected by Interstate 94," beganTubbergen. "But, that’s not the only thing the two cities have in common. Chicago is also on a financial slippery slope when it comes to budgets and pension funding. The rating agency Moody’s recently downgraded the outlook on Chicago debt. It wasn’t a small drop either; it was significant."
Below Tubbergen quotes from a July 26, 2013 article in The Chicago Sun Times.
Mayor Rahm Emanuel closed the books on 2012 with $33.4 million in unallocated cash on hand — down from $167 million the year before — while adding to the mountain of debt piled on Chicago taxpayers, year-end audits show.
Last week, Moody’s Investors ordered an unprecedented triple-drop in the city’s bond rating, citing Chicago’s “very large and growing” pension liabilities, “significant” debt service payments, “unrelenting public safety demands” and historic reluctance to raise local taxes that has continued under Emanuel.
The 2012 city audits explain why. They show that an unallocated balance that was $167 million a year ago because of Emanuel’s aggressive cost-cutting efforts has dropped to $33.4 million.
Budget Director Alex Holt blamed the $133.6 million drop on “honest” budgeting and ending the long-standing practice of carrying “ghost” vacancies.
“We’re trying to be more transparent about what we’re really spending and taking in — not just carrying a bunch of people who took up money in the budget and left money on the table at the end of the year,” Holt said.
“Let’s be straightforward about what we’ve got to spend and not pretend we’re gonna hire for a position we haven’t hired for, who know how many years when those resources are need to provide other services. ... This is about matching revenues with expenses. You don’t want to over-tax people.”
"A triple-drop is big, or unprecedented as the article states," explains Tubbergen.
Below he quotes from a July 25, 2013 piece that ran in Barron's, comparing the two cities.
With Moody’s downgrading Chicago by three notches on the same day Detroit filed for bankruptcy protection, there have been some inevitable comparisons made between the two, especially as Detroit’s bankruptcy thrusts unfunded municipal pension obligations into the spotlight. Jack Ablin, chief investment officer at BMO Private Bank, writes this week that the similarities between the cities are few.
The move to Chapter 9 sets a series of new precedents and questions including whether or not cities like Chicago will be next…. Like Detroit, Chicago faces a mounting wall of pension liabilities; Moody’s estimates the total for the Windy City is $36 billion in today’s dollars.
Not to minimize the pension problem but the similarities between these two Midwestern cities end there. Tied virtually exclusively to the automotive industry, Detroit has been in secular decline since the 1970s. Its population plunged more than 25 percent since 2000, while Chicago’s is off only 7 percent, according to Census statistics. Chicago’s economy is nearly three times larger and it’s more diversified.
Ablin says Chicago also has a sizable advantage over Detroit in unemployment rates, office vacancy and municipal borrowing rate. More from Ablin:
Chicago, and Illinois for that matter, is on an unenviable fiscal track. Everyone agrees that something must be done to address the enormous pension imbalance at both the city and state level. Notwithstanding the challenges, a Chicago bankruptcy does not appear imminent. While Chicago may not be the “other shoe to drop,” there’s no doubt that the laces are loose.
To read the blog in its entirety go to http://www.dennistubbergen.com and select his August 7, 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 www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to 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.