Monday, July 29, 2013

SUPERSIZING OBAMACARE AND THE RAPE OF THE AMERICAN PUBLIC

THE OBAMACARE (ACA) IS GOING TO MAKE CITIES SOCIAL GULOGS … 

City of Chicago’s cash cushion plummets, debt triples, arrests drop, water use rises

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. (READ: SLUSHFUND)

“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.”

In last week’s report, Moody’s noted that the city’s total fund balance at the close of 2012 was $231.3 million and that Chicago has just $625 million in “leased asset reserves.” Had the city fully funded its $1.5 billion “actuarially required contribution” to its four under-funded city employee pension funds in 2012 alone, “these two reserves would have been entirely depleted,” Moody’s said.

The “unassigned” balance is $33.4 million. Experts recommend a cash cushion of at least $200 million for a budget the size of Chicago’s, according to the Civic Federation. The city ended 2009 with an unallocated checkbook balance of just $2.7 million.

The new round of borrowing brings Chicago’s total long-term debt to nearly $29 billion. That’s $10,780 for every one of the city’s nearly 2.69 million residents. More than a decade ago, the debt load was $9.6 billion or $3,338 per resident.

Last year, now-retiring City Comptroller Amer Ahmad argued that the city’s debt load was not “troubling” because, “We still have a very strong bond rating. Our fiscal position is getting better every year and we are aggressively managing our liabilities and obligations.”

He can no longer say that after the triple-drop in Chicago’s bond rating.

The audits by the accounting firm of Deloitte & Touche provide a treasure trove of information about city finances and operations.

Interesting nuggets include:

■ The number of “physical arrests” by Chicago Police officers declined again — from 152,740 in 2011 to 145,390 in 2012. That continues a six-year trend that coincides with the hiring slowdown that caused a dramatic decline in the number of police officers. Police made 227,576 arrests in 2006. The number of arrests has been dropping like a rock ever since.

The Chicago Police Department has long argued that it doesn’t measure the success of crime-fighting strategies simply by the number of arrests.

■ Emergency responses continued their steady rise — to 472,752. That’s up from 300,971 in 2006.

■ O’Hare Airport operating revenues were up by $23.2 million, a 3.3 percent increase, thanks to rising terminal rental and use charges. Operating expenses rose $19.1 million because of rising personnel and contracting costs. Airline ticket taxes known as “passenger facility charges” generated $154.5 million in 2012.

The number of passenger “enplanements” rose by a modest 37,000 — to 33.24 million. That’s despite a continued decline by O’Hare’s two largest carriers — from 8.7 million passenger boardings in 2011 to 7.4 million in 2012 at United Airlines and from 7.6 million to 7.2 million by American.

In 2003, United and American together accounted for 67.7 percent of O’Hare enplanements. Now, it’s just 44 percent.

■Budget-oriented Midway Airport is thriving, spelling potentially good news if, as expected, Emanuel chooses to revive the $2.5 billion deal to privatize Midway that collapsed for lack of financing.

Midway boardings rose from 9.45 million in 2011 to 9.78 million last year. Operating revenues were up just $462,000 because of decreased landing fees and terminal use charges. That’s even though concession revenues rose by $1.8 million due to an increase in parking, restaurant and auto rentals. Operating expenses rose by $4.2. Ticket taxes generated $43.9 million.



■The 55 percent subsidy to retiree health care that Emanuel wants to phase out and retirees are suing to maintain cost the city $97.5 million in 2012.

■ Daily refuse collections declined from 3,983 tons in 2011 year ago to 3,763 in 2012. Last year’s 52-ton increase had reversed a five-year trend. The amount of garbage generated by the 600,000 Chicago households was 4,451 tons a day in 2006 to 4,240 in 2008.

■Thanks to last year’s record heat and drought conditions, average daily water consumption rose by 23 million gallons — to 793 million gallons — reversing a steady decline. In 2006, Chicago’s 1.04 million households were guzzling 884.9 million gallons-a-day. Operating revenues in the city’s water fund were up by $122.1 million or 29.6 percent, thanks to Emanuel’s 25 percent increase in water rates.

■ Chicago’s 165 tax-increment-financing districts had a collective balance of $1.5 billion. Most of that money is uncommitted, fueling an aldermanic demand Emanuel has rejected: to declare a TIF surplus and use the money to reduce some of the 3,000 layoffs at Chicago Public Schools.

■ The condition of Chicago’s four city employee pension funds is growing ever more precarious. The firefighters pension fund has assets to cover just 25 percent of liabilities, followed by: Police (31 percent); Municipal Employees (38 percent) and Laborers (56 percent).

■Chicago’s historical collections and works of art are valued at $13.2 million.

■ Chicago’s principal private employers were: J.P. Morgan Chase (8,168 workers); United Airlines (7,521); Accenture LLP (5,590; Northern Trust (5,448); Jewel Foods (4,572) and Ford Motor Co. (4,187). The 2012 city payroll was 33,708 — down from 40,297 in 2006.

By July 31, Emanuel must release a preliminary city budget. It’s almost certain to include another massive deficit — strengthening the city’s case in contract talks with city unions — that will have to be closed with more layoffs, service cuts and new revenues.

Emanuel’s 2013 budget held the line on taxes, fines and fees — beyond those set in motion the year before and annual increases in parking meter rates locked into the 75-year lease. The mayor also eliminated 275, mostly-vacant jobs while making strategic investments in tree-trimming, rodent control and children’s health and after-school programs.

But, aldermen warned that it was the calm before the storm: a painful solution to the city’s pension crisis that will require both new revenues and concessions from city employees.

Former Mayor Richard M. Daley postponed Chicago’s day of reckoning by balancing his final budget with $330 million in Skyway and parking meters reserves and other short-term fixes. That left just $76 million remaining from the widely-despised, 75-year, $1.15 billion deal that privatized Chicago parking meters.


Detroit Looks to Health Law to Ease Costs

As Detroit enters the federal bankruptcy process, the city is proposing a controversial plan for paring some of the $5.7 billion it owes in retiree health costs: pushing many of those too young to qualify for Medicare out of city-run coverage and into the new insurance markets that will soon be operating under the Obama health care law.

Officials say the plan would be part of a broader effort to save Detroit tens of millions of dollars in health costs each year, a major element in a restructuring package that must be approved by a bankruptcy judge. It is being watched closely by municipal leaders around the nation, many of whom complain of mounting, unsustainable prices for the health care promised to retired city workers.

Similar proposals that could shift public sector retirees into the new insurance markets, called exchanges, are already being planned or contemplated in places like Chicago; Sheboygan County, Wis.; and Stockton, Calif. While large employers that eliminate health benefits for full-time workers can be penalized under the health care law, retirees are a different matter.

“There’s fear and panic about what this means,” said Michael Underwood, 62, who retired from the Chicago Police Department after 30 years and has diabetes and Parkinson’s disease. Mr. Underwood, who says he began working for the city when employees did not pay into future Medicare coverage, is part of a group suing Chicago over its plan to phase many retirees out of city coverage during the next three and a half years. “I was promised health care for myself and my wife for life,” he said.

Unfunded retiree health care costs loom larger than ever for localities across the country, and the health law’s guarantee of federal subsidies to help people with modest incomes afford coverage has made the new insurance markets tantalizing for local governments. A study issued this year by the Pew Charitable Trusts found 61 of the nation’s major cities wrestling with $126 billion in retiree health costs, all but 6 percent of that unfunded.

“The Affordable Care Act does change the possibilities here dramatically,” said Neil Bomberg, a program director at the National League of Cities. “It offers a very high-quality, potentially very affordable way to get people into health care without the burden falling back onto the city and town.”

But if large numbers of localities follow that course, it could amount to a significant cost shift to the federal government. Authors of the health care law expected at least some shifting of retirees into the new insurance exchanges, said Timothy S. Jost, a law professor at Washington and Lee University who closely follows the law. “But if a lot of them do, especially big state and local programs,” he said, “that’s going to be a huge cost for the United States government, and it’s mandatory spending.”

Many cities are also wrestling with unfunded pension programs for retirees. But health care has become an easier target for cuts, in part because of generally stronger legal protections for pensions. Still, changes to retiree health care are playing out in courtrooms. The suit Mr. Underwood joined, filed last week in Chicago, claims that the health care benefits were also protected.

The Chicago plan, announced in May, would phase some of the city’s 11,800 retirees and their family members not eligible for Medicare out of city coverage by 2017. While some may seek insurance through new employers or through their spouses’ workplaces, others will probably be shifted to the insurance exchanges. Much of the plan for the next few years is in flux, but the changes are expected to contribute to a larger effort to save Chicago $155 million to $175 million a year in retiree health care costs by 2017.

“With the implementation of the Affordable Care Act, our retirees will have more options to meet their health care needs,” said Sarah Hamilton, a spokeswoman for Mayor Rahm Emanuel, adding that most of the city’s retirees over 65 were already covered by Medicare. “We will ensure that they have all the information needed to navigate the options available going forward, while saving vital taxpayer dollars.”

Under the health care law, starting in October every state will have an online insurance market where people can shop for private plans. These policies will have to include 10 broad categories of benefits, including emergency services, hospitalization and prescription drugs.

People earning up to 400 percent of the poverty level can get federal subsidies to help with the cost of premiums, but only for policies bought through the new markets. The premiums will vary, depending on how much coverage a plan offers.

This year, 400 percent of the poverty level is $45,960 for an individual and $62,040 for two-person households.

Cities may also provide moderate monthly stipends to help retirees with the cost of health insurance bought through an exchange. Detroit, for instance, has proposed doing that.

But retirees say they worry about what the costs would actually amount to and whether the coverage would be as generous as some have received through city plans.

A 60-year-old single man with an income of $45,000 might have to pay $4,275 a year, or about 52 percent of his total annual premium, for a midpriced plan bought through an exchange, with the balance covered by the federal subsidies, according to an estimate by the Kaiser Family Foundation, a nonpartisan research group. A couple who are both 55 with a combined income of $60,000 might have to pay $5,700 a year, or 42 percent of their total premium. In both examples, additional out-of-pocket costs of up to $6,350 per person could apply, depending on how much medical care they needed.

Professor Jost said that even with subsidies, insurance policies bought through an exchange could be more expensive for retirees than public sector health plans. Most exchange customers are expected to choose plans that cover 60 percent to 70 percent of medical costs for the average person, compared with public sector plans that have sometimes covered much more.

“These are people who stayed in the public sector all their lives because the benefits were more generous,” he said.

Some city plans, like those in Detroit, cover 80 percent to 100 percent of costs, officials said.

“The truth is, my health care is very good, with only $20 for prescriptions and $10 co-pays to see a doctor,” said Thomas Berry, 60, a Detroit Police Department retiree. “That was part of the promise that was made, and I don’t want to lose it.”

But some municipal retirees could actually end up spending less on coverage bought through the online markets than they do now. Several states have already approved rates for health plans to be sold through the new markets that are lower than what analysts had expected. But rates have yet to be announced in many other states, including Illinois and Michigan.

In an added wrinkle for Detroit, Michigan is among the states that so far have opted out of expanding Medicaid under the health care law. In such states, people with incomes below the poverty level — $11,490 for an individual and $15,510 for a couple — would not be eligible for the federal subsidies to help buy coverage through an exchange.

The law’s authors had intended for such people to become eligible for Medicaid, if they did not have it already. But the Supreme Court ruled last year that the expansion was an option for states, not a requirement. This potentially leaves a group of retirees who would be ineligible for either Medicaid or a subsidy.

In any case, officials in Detroit and elsewhere say the old insurance plans are no longer feasible. Detroit has more than 19,000 retirees — nearly twice as many people as currently work for the city — and 7,500 of them are younger than 65.

“I’m applauding Detroit,” said Dan Miller, the controller in Harrisburg, Pa., who added that in the future a similar plan might interest his city, where a state-appointed receiver is seeking to restructure hundreds of millions of dollars of debt. “I’m hoping that Obamacare turns out to be a great solution, and I would love for our city to have the opportunity to do that.”