All Forum Posts by: Sid Franklin

https://www.dnainfo.com/chicago/20160721/portage-p...

These two paragraphs by Politico's Natasha Korecki does the best job of summarizing Chicago's school problem than I've ever read. The educational dilemmas facing middle class and upper middle parents that need (or want) to use public education in Chicago to educate their children are very, very real - and have happened in the Chicago's past as well.  These issues will be exacerbated as Chicago continues to cut classroom education funding to catch up on its pension debt.  Obviously, there will be increased pressure from Chicago parents to apply catch up property tax hikes to CPS class rooms.  If these problems are not addressed, the folks that are driving Chicago's booming real estate market will be forced with choosing between the suburbs or private schools to educate their children.

http://www.politico.com/tipsheets/illinois-playboo...

Good Wednesday morning, Illinois. Oh, to be a Chicago parent. The build-up and hope of landing a coveted spot in one of the city’s elite magnet schools has been compared to applying to an Ivy League university -- or to playing the lottery. There’s thousands of applicants for a paltry number of openings that are doled out in lotteries. If you’re among the few to land a position: the lottery “prize” is actually what’s standard, if not subpar, to many suburban schools: manageable classroom size, adequate resources, involved parents, extracurricular activities -- all paid for with tax dollars.

If you’re not among those chosen in the lottery -- your child could be in a neighborhood school where classrooms are beyond crowded, resources are often inadequate and, in some parts of the city, security is of concern.

Here's a good post on selective enrollment education at Whitney Young.

https://www.dnainfo.com/chicago/20160202/morgan-pa...

10,000 students apply annually to be admitted to the Near West Side high school. Only 350 will make the cut.

That's the spin from City Hall...but we're far from being out of the woods right now. Please don't forget that a bad market, actuarial changes (ROI estimates, life expectancy, etc.), and pay raises (especially late career pay raises) and benefit hikes can blow a hole in all of these funding estimates. In addition, CPS pensions have not been properly funded either. There's a $250 million annual new property tax hike levy on the table now for the CPS Board to pass. Karen Lewis says that it's not nearly enough money to cover the pension payments and properly educate Chicago's school children. I think her assessment is correct.

I agree that the Municipal Employees fund is a mess and will, most likely will be put on a path to proper funding via another $250 mil  annual property tax levy voted on by city council in 2016.  The true property tax impact, like the $543 mil police and fire tax levy hike will likely be staggered out to 2017, 2018, 2019, etc. so as to avoid the hike all hitting at once and prevent immediate political backlash over taxes and falling property values.

None of these pension property tax levy hikes address retiree healthcare benefits.  The Illinois Supreme Court has ruled that these benefits cannot be cut and must be paid.  Where's the funding going to come from to cover those payments?  In addition, Cook County, the Park District and several other taxing bodies will be imposing catch up property tax levy hikes to deal with their own pension and retiree healthcare under funding issues on Chicago property owners.  The state may also take the sales tax revenues they have historically shared with the City of Chicago and other municipalities to help pay down its own pension and retiree healthcare debt.  That would blow a massive hole in Chicago's budget.

Once the City fully raises property taxes $1 billion annually by 2018 or 2019 and other tax hikes have hit, the property tax bills will be much higher than they are today.  The City has chosen to use property taxes primarily to pay its debts.  The impact of those taxes is on the horizon.  When they fully hit Chicago property owners - especially if schools, public safety and parks are cut - I find it hard to fathom that property values will not be impacted.

Is it safe to flip for the next 1-3 years?  Probably.  However, I am a "buy and hold" investor and I'd rather wait until the full costs of the City's massive debt are imposed upon it's property owners before engaging in that investment strategy.

Are you saying that income tax hikes, property tax hikes and other tax hikes to catch up on pension debt (and not pay for anything else) could never negatively impact the value of real estate in Chicago or Illinois?

I've already answered this question in an earlier post.  Why don't you like discussing the financial consequences for real estate investors of Chicago's massive debt?  Shouldn't investors know short and long term costs and known risks before making an investment decision?

Here's a good post on the problems with CPS' hide the ball budget cuts.  The article predicts higher class sizes at CPS because of these cuts in the Fall of 2016.

https://www.dnainfo.com/chicago/20160719/norwood-p...

[S]chools will get approximately 7 percent less this year for each student in kindergarten through 12th grade as compared with last year, officials acknowledge.

Local school leaders say cuts to programs are inevitable and class sizes will be forced to grow across the city.

One reason: individual schools will now have to carry the costs of special education in their budgets, a departure from past practice where CPS' central office picked up those expenses.

The pension payments are being paid in full under the stop gap 6th month budget that the state recently adopted.  If pension payments were delayed or skipped, the state's credit ratings would have dropped even further.  The state's pension and retiree healthcare debt has grown so much over the last 10 years that it's now the primary reason why a full budget deal cannot be done without a return to a 5% income tax and massive cuts.

Eric, my point was that you're making statements without any basis in fact or reality.  I suggest that you watch the Big Short.  Your statements are eerily similar to some of the folks in that movie.  Your big boat photo tends to back that up...

Which pension payments have recently been reduced or put off for payment at a later date by the City of Chicago, Cook County, the State of Illinois or another entity impacting Chicago taxpayers?  When a government does that in Illinois now, their bond rating usually gets whacked very hard and creates very negative news articles.

Here are a couple of articles that illustrate my point.  The Bond Buyer is reporting that Detroit announced plans to pay for higher contributions to its public safety pension fund by hiring fewer firefighters.  There's also a good post on how "catch up" taxes are being sold to voters in California.

http://www.bondbuyer.com/news/regionalnews/detroit...

http://www.foxandhoundsdaily.com/2016/07/pensions-...

I think these we're discussing problems exist, unfortunately, throughout the entire State of Illinois but Chicago's and Cook County's a very pronounced and more public because of their size and media coverage.  One of the things to be wary of is a lack of transparency in a community.  If they make it difficult for a regular resident to determine how their town's money is being spent and the size of their debts, then that's a red flag.