#illinois

A deadly problem: should we ban SUVs from our cities?

Activists, including one wearing a Angela Merkel mask, outside the Frankfurt International Auto, holding signs reading ‘gas guzzling vehicles off the road’ and ‘Stop petrol and diesel’.

More junk journalism from The Guardian. Why can’t the paper make sensible commentary on the auto industry? Essentially it pushes a narrative that we should ban SUVs, a long term growth market for automakers because they advertise the segment too much. Shame on trying to act in the interests of shareholders. The article encourages the movement to push for a ban of SUVs in cities. Why? The socialisation of transport!

The article makes the early assertion that passengers are 11% more likely to die in an SUV accident than a regular passenger car. Unfortunately, it cited an article written 15 years ago. In that time, SUVs have evolved leaps and bounds. A far greater proportion of SUVs are made using a monocoque chassis as opposed to the old ladder frames. Even those SUVs with ladder chassis hold 5-star safety NHTSA ratings in 2019:

2019 Jeep Grand Cherokee – 5 star (ladder) vs 2004 Jeep Grand Cherokee – 3 star

2019 Ford Expedition – 5 star (ladder) – 2004 Ford Expedition – 5 star

2019 GMC Acadia – 5 star (ladder) – 2007 GMC Acadia – 4 star

2019 Toyota RAV4 – 5 star (monocoque) – 2004 Toyota RAV4 – 4 star

2019 Mazda CX-9 – 5 star (monocoque) – 2007 Mazda CX-9 – 4 star.

Some may recall in the early 2000s when the Ford Explorer/Firestone tyre rollover incident killed 261 people. Since then, carmakers have installed so many safety items – passive and active. Automatic braking, lane departure detection, forward collision warning, electronic brakeforce distribution (which prevents rollovers). SUVs are safer than ever, including pedestrian facing features.

Never mind the huge leap in safety. Let’s shame the automakers and buyers instead.

The Guardian noted, “In Germany, in 2018 they spent more on marketing SUVs than on any other segment; they actually spent as much as they spent on other segments together” says Stephan von Dassel, the district mayor of Berlin-Mitte. “This is not some accident that people suddenly are really into these cars, they are heavily pushed into the market.”

Wow, so carmakers actually made a sensible advertising budget allocations and convinced new buyers to voluntarily select their SUVs. Those wicked capitalists. They should be burnt at the stake for being in touch with their customers. Perhaps politicians could learn from the carmakers about being in touch with their constituents?

The Guardian then noted the following,

In Europe, sales of SUVs leapt from 7% of the market in 2009 to 36% in 2018. They are forecast to reach nearly 40% by 2021. While pedestrian deaths are falling across Europe, they are not falling as fast as deaths of those using other modes of transport.

So even though the sales of these vehicles have skyrocketed, pedestrian deaths are falling. Reading the paper published by the Insurance Institute for Highway Safety, stated

“A total of 5,987 pedestrians were killed in crashes in 2016, accounting for 16 percent of all crash fatalities. The number of pedestrians killed each year has declined 20 percent since 1975…”

Surprisingly, The Guardian waits till the end to point the finger at the pet issue facing SUVs – emissions.

“Transport, primarily road transport, is responsible for 27% of Europe’s carbon emissions. A decade ago the EU passed a law with a target to reduce carbon emissions to 95g/km by 2021 but a recent report by campaign organisation Transport and Environment highlights what is calls it “pitiful progress”. “Sixteen months from before the target comes into force carmakers are less than halfway towards their goals,” the report adds. The car industry faces hefty fines in Europe of €34bn in a few months for failing to meet emissions targets.”

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How is it that diesel engines, the increasingly preferred powerplant in SUVs, have had emissions cut 97% over the last 25 years? That is monumental progress.

Yet why have legislators tried to ban petrol and diesel cars and looking to force adoption of dirtier EVs which have done 150,000km equivalent CO2 emissions before leaving the showroom? Because ideology distorts reality. Even Schaeffler AG, an auto supplier, admitted it is almost impossible for automakers to comply with the different demands of over 200 cities in Europe with EV rules. No common standards and the quest of woke city councils trying to outdo each other on being climate-friendly. Then governments need to consider the 5% of total tax revenue that fill the coffers they would be giving up, although already in the US, Illinois is looking to impose a $1,000 a year EV tax.

Shouldn’t the EU and other countries face the realities that consumers (taxpayers) like the utility these SUVs provide for their individual needs over and above saving the planet? Shouldn’t politicians realise that consumers make conscious decisions when making the second largest purchase for the household?

One can absolutely bet that if some maker came out with a Hummer sized EV, these cities that want to ban SUVs from driving in them would grant the monster truck an exemption and special parking zones.

Julia Poliscanova, director of clean vehicles and e-mobility at Transport and Environment, says regulators must step in to force car manufacturers to produce and sell zero-emission and suitably sized vehicles, for example, small and light cars in urban areas.”

What if consumers don’t want to buy small and light cars? Force car makers to produce cars their customers don’t want? That is a winning strategy. If carmakers must sell zero-emission vehicles, why on God’s earth are politicians with absolutely no engineering pedigree dictating technology to the experts? Why not let necessity be the mother of invention? If carmakers can get fossil fuel-powered vehicles to be zero-emission and keep their brand DNA at the same time, imagine the billions that could be saved on reckless waste rolling out often unreliable charging infrastructure? Maybe then carmakers could build cars its customers wanted and make money to literally fuel the economy. Politicians would still be able to virtue signal! Win-win.

Maybe the modus operandi is to socialise transport. Poliscanova said, “Smart urban policies are also key to drive consumers towards clean and safe modes…Mayors should reduce space and parking spots for private cars and reallocate it to people and shared clean mobility services.

That is the ticket – force everyone off the road. That is a sure vote winner!

More public pension roadkill ahead

CM has been writing about the public pensions crisis in the US for years. This chart only serves to highlight that the problem doesn’t seem to be getting any better. It seems in Illinois, 200 of the 650 public pension funds out there have more beneficiaries than active workers contributing to the fund. By 2021 this is expected to be half of all public pension funds in Illinois.

ZeroHedge noted,

The value of all future pension promises to be paid out to public safety workers totalled just $320 million in 2005. By 2017, that number had jumped to nearly $600 million. That’s a jump of over 80% or more than three times the pace of inflation.

It’s the main reason why taxpayer contributions can’t keep up with pension costs. Pols are doing nothing to control the growth of promises to be paid, sticking taxpayers with ever-increasing costs and ratcheting up the likelihood the pension plans will fail…

… In 1987, municipalities owed a total of $2.6 billion in benefits earned to active and retired public safety workers across the state. Today, that number has jumped to more than $23 billion. That’s a jump of nearly nine times.”

Don’t forget what the Illinois Police Dept did several years back. IN June 2017 CM wrote,

“Sadly the Illinois Police Pension is rapidly approaching the point of being unable to service its pension members and a taxpayer bailout looks unlikely given the State of Illinois’ mulling bankruptcy. Local Government Information Services (LGIS) wroteAt the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following year…Fund assets will fall from $3.2 billion at the end of 2015 to $1.4 billion at the end of 2018, $751 million at the end of 2019, and $143 million at the end of 2020, according to LGIS…LGIS analyzed 12 years of the fund’s mandated financial filings with the Illinois Department of Insurance (DOI), which regulates public pension funds. It found that– without taxpayer subsidies and the ability to use active employee contributions to pay current retirees, a practice that is illegal in the private sector– the fund would have already run completely dry, in 2015…The Chicago police pension fund held $3.2 billion in assets in 2003. It shelled out $3.8 billion more in benefits to retired police officers than it generated in investment returns between 2003 and 2015…Over that span, the fund paid out $6.9 billion and earned $3.0 billion, paying an additional $134 million in fees to investment managers.”

What have the police been doing? Retiring early and cashing in their pensions to avoid the inevitable.

The problem for Illinois is that a taxpayer-funded bailout is all but impossible. The State of Illinois ranked worst in the Fed study on unfunded liabilities.  The unfunded pension liability is around 24% of state GDP. In 2000 the unfunded gap to state revenue was 30% and in 2013 was 124% in 2013. Chicago City Wire adds that the police fund isn’t the only one in trouble.

“Chicago’s Teachers Union Pension Fund is $10.1 billion in debt. Its two municipal worker funds owe $11.2 billion and its fire department fund owes $3.5 billion…All will require taxpayer bailouts if they are going to pay retirees going into the next decade…Put in perspective, the City of Chicago’s property tax levy was $1.36 billion in 2017…Paying for retirees “as we go,” which will prove the only option once funds run dry, will require almost quadrupling city property tax bills…Last year, it would have required more than $4 billion in revenue– including $1 billion for City of Chicago workers, $1.5 billion for teachers, and $1.5 billion for retired police officers and firefighters.”

This problem is going to get catastrophically worse with the state of bloated asset markets with puny returns. Looking at how it has been handled in the past Detroit, Michigan gives some flavour. It declared bankruptcy around this time three years ago. Its pension and healthcare obligations total north of US$10bn or 4x its annual budget. Accumulated deficits are 7x larger than collections. Dr. Wayne Winegarden of George Mason University wrote that in 2011 half of those occupying the city’s 305,000 properties didn’t pay tax. Almost 80,000 were unoccupied meaning no revenue in the door. Over the three years post the GFC Detroit’s population plunged from 1.8mn to 700,000 putting even more pressure on the shrinking tax base.

In order for states and local municipalities to overcome such gaps, they must reorganise the terms. It could be a simple task of telling retiree John Smith that his $75,000 annuity promised decades ago is now $25,000 as the alternative could be even worse if the terms are not accepted. Think of all the consumption knock-on effects of this. I doubt many Americans will accept that hands down, leading to class actions and even more turmoil.

Did CM mention gold?

Joe Nation’s Pension Tracker is a really good website to look at the actuarial setting of pensions against the marked-to-market unfunded liabilities. Have a stiff drink handy before you open up.

Illinois wants $1,000 EV rego tax to make up for fuel excise they skip

CM has always argued that governments will eventually realize that moving to full EV policy will mean losing juicy ‘fuel excise’ which makes up c.5% of total taxes. Point 16 on page 19 for those interested.

Cash strapped Illinois has proposed the introduction of a $1,000 annual registration fee (up from $17.50) to account for the fact EVs don’t pay such fuel taxes. Note Illinois has the lowest investment grade among any other American state and has to allocate 40% of its budget just to pay outstanding bills. It is also home to one of the largest state pension unfunded deficits per capita in the country.

Michael McHale, spokesman for electric truck maker Rivian, said, “Imposing fees on EVs that are over 400 percent more than their gasoline-powered counterparts is not only unfair, it discourages promising new technology that will reduce our dependence on petroleum, reduce emissions, and promote the Illinois economy,”

Here is the ultimate irony. Many bought EVs to show their ‘climate change mitigating wokeness. Now that they maybe finally forced to ‘pay’ for that privilege somehow free market economics would seemingly look to sway them to go back to being dinosaurs again.

Don’t think Australia will head straight down this route too if our 50% EV target by 2030 is pushed through as a policy. By that time if you have an EV then you’ll be trapped in your own virtue signaling. CM would prefer to be Mad Max and raid fuel trucks.

Truly sickening US Public Pensions data

1 MKT PER HH DEBT 2016

Following on from the earlier post and our 2016 report on the black hole in US state public pension unfunded liabilities, we have updated the figures to 2016. It is hard to know where to start without chills. The current state of US public pension funds represents the love child of Kathy Bates in Misery and Freddie Krueger. Actuarial accounting allows for pension funds to appear far prettier than they are in reality. For instance the actuarial deficit in public pension funds is a ‘mere’ $1.47 trillion. However using realistic returns data (marking-to-market(M-2-M)) that explodes to $6.74 trillion, 4.6-fold higher.  This is a traffic accident waiting to happen. US Pension Tracker illustrates the changes in the charts presented.

Before we get stuck in, we note that the gross pension deficits do not arrive at once. Naturally it is a balance of contributions from existing employees and achieving long term growth rates that can fund retirees while sustaining future obligations. CM notes that the problems could well get worse with such huge unfunded liabilities coinciding with bubbles in most asset classes. Unlike private sector pension funds, the states have an unwritten obligation to step up and fill the gap. However as we will soon see, M-2-M unfunded liabilities outstrip state government expenditures by huge amounts.

From a layman’s perspective, either taxes go up, public services get culled or pensioners are asked politely to take a substantial haircut to their retirement. Apart from the drastic changes that would be required in lifestyles, the economic slowdown that would ensue would have knock on effects with state revenue collection further exacerbating a terrible situation.

CM will use California as the benchmark. Our studies compare 2016 with 2008.

The chart above shows the M-2-M 2016 unfunded liability per household. In California’s case, the 2016 figure is $122,121. In 2008 this figure was only $36,159. In 8 years the gap has ballooned 3.38x. Every single state in America with the exception of Arizona has seen a deterioration.

The following chart shows the growth rate in M-2-M pension liabilities to total state expenditure. In California’s case that equates to 3.2x in those 8 years.

1 MKT PER HH DEBT EXP GROWTH

Sadly it gets worse when we look at the impact on current total state expenditures these deficits comprise. For California the gap is c.6x what the state spends on constituents.

1 MKT PER HH DEBT TAX EXP 2016

Then taking it further,  in the last 8 years California has seen a 2.62-fold jump in the gap between liabilities and state total expenditures.

1 MKT PER HH DEBT TAX EXP 2016 VS 2008

This is a ticking time bomb. Moreover it is only the pensions for the public sector. We have already seen raids on particular state pension funds with some looking to retire early merely to cash out before there is nothing left. Take this example in Illinois.

Sadly the Illinois Police Pension is rapidly approaching the point of being unable to service its pension members and a taxpayer bailout looks unlikely given the State of Illinois’ mulling bankruptcy. Local Government Information Services (LGIS) writes, At the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following yearFund assets will fall from $3.2 billion at the end of 2015 to $1.4 billion at the end of 2018, $751 million at the end of 2019, and $143 million at the end of 2020, according to LGIS…LGIS analyzed 12 years of the fund’s mandated financial filings with the Illinois Department of Insurance (DOI), which regulates public pension funds. It found that– without taxpayer subsidies and the ability to use active employee contributions to pay current retirees, a practice that is illegal in the private sector– the fund would have already run completely dry, in 2015…The Chicago police pension fund held $3.2 billion in assets in 2003. It shelled out $3.8 billion more in benefits to retired police officers than it generated in investment returns between 2003 and 2015…Over that span, the fund paid out $6.9 billion and earned $3.0 billion, paying an additional $134 million in fees to investment managers.”

1 MKT PER HH DEBT TAX EXP 2016 FUND REV.png

To highlight the pressure such states/cities could face, this is a frightening example of how the tax base can evaporate before one’s eyes putting even more pressure on bail outs.

This problem is going to get catastrophically worse with the state of bloated asset markets with puny returns. Looking at how it has been handled in the past Detroit, Michigan gives some flavor. It declared bankruptcy around this time three years ago. Its pension and healthcare obligations total north of US$10bn or 4x its annual budget. Accumulated deficits are 7x larger than collections. Dr. Wayne Winegarden of George Mason University wrote that in 2011 half of those occupying the city’s 305,000 properties didn’t pay tax. Almost 80,000 were unoccupied meaning no revenue in the door. Over the three years post the GFC Detroit’s population plunged from 1.8mn to 700,000 putting even more pressure on the shrinking tax base.

「misery kathy bates」の画像検索結果

The sorry state of public pensions that are about to explode

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Perhaps the most disturbing fact that so many are choosing to overlook is the level of pension underfunding. Promises upon promises have been made and the nest eggs so many were expecting to retire on are likely to disappear or in the best case scenario be a mere fraction of what was originally thought. What a nightmare to wake up to. Decades of hard work gone up in smoke due to pension administrators sticking to unrealistic returns. Last year I wrote, ” US Pension Tracker assumes that public pension funds have a market based unfunded pension deficit of $4.833 trillion. The actuarial base (using a discount rate of 7.5%) of the pension deficit is approximately $1.041 trillion. This assumes an unfunded portion of $3.8 trillion. Using the 2016 20-year US Treasury bond yield of 1.71% the market based pension deficit explodes to over $8.8 trillion or a $7.5 trillion unfunded portion equating to around $74,000 per American household. For California alone this would push the pension debt per person above $135,000.”

Zero Hedge provides an interesting update on the coming crisis:

“We’ve written quite a bit over the past couple of months about the pending financial crisis in Illinois which will inevitability result in the state’s debt being downgraded to “junk” at some point in the near future (here is our latest from just this morning: “From Horrific To Catastrophic”: Court Ruling Sends Illinois Into Financial Abyss).

Unfortunately, the state of Illinois doesn’t have a monopoly on ignorant politicians…they’re everywhere. And, since the end of World War II, those ignorant politicians have been promising American Baby Boomers more and more entitlements while never collecting nearly enough money to cover them all…it’s all been a massive state-sponsored scam.

As we’ve noted frequently before, some of the largest of the many entitlement ‘scams’ in this country are America’s public pension funds. Up until now, these public pension have been covered by stealing money set aside for future generations to cover current claims…it’s a ponzi scheme of epic proportions…$5-$8 trillion to be exact.

Of course, the problem with ponzi schemes is that eventually you get to the point where the ponzi is so large that you can’t possibly steal enough money from new entrants to cover redemptions from those trying to exit…and, with a tidal wave of baby boomers about to pass into their retirement years, we suspect that America’s epic ponzi is on the verge of being exposed for the world to see.

And when the ponzi dominoes start to fall, Bloomberg has provided this helpful map to illustrate who will succumb first…”