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By: Mark Glennon*

Governor JB Pritzker on Monday gave perhaps his most deceitful performance yet on Illinois’ pension crisis in interview at the Economic Club of Chicago, which handed him a full hour of uninterrupted spin. He did it while explaining his opposition to amending the Illinois Constitution to allow for pension reform, which is the only legal route, short of bankruptcy, to real reform.

We are fed up with this kind of deception, so let’s fact check his comments in detail and, on a couple points, compare them to the state’s most recent bond disclosure document, which isn’t much better.

The buyout sham

There “are better ways to reform pensions,” Pritzker said. He offered only two examples, the first being the state’s pension buyout program. Under Illinois’ pension buyout programs, he claimed, 20% of those retiring are accepting a cash buyout equal to 60% of projected pension benefits. He claims a that a study shows it will save “billions and billions,” perhaps $25 billion.

Pritzker should have read the state’s basic disclosure statement, called an Offering Statement or OS, issued earlier this month for its most recent bond offering. It tells a very different story. It reports that only 818 workers and retirees who are eligible for either of the state’s buyout programs have applied for one. That’s less than 2.3%, not 20% as Pritzker claimed. That’s being generous because Pritzker was specifically referring to the particular program that offers a full buyout of all pension benefits at 60% of their value. The OS, though not entirely clear on this, says As of September 30, 2019, no SURS members have elected that buyout option. SURS, for university pensioners, is the only pension for which the OS has specific numbers on that program.

I reached out to Pritzker’s press secretary to ask where he got his numbers but have received no response.

And what about those huge savings Pritzker claims? The OS says “The State is unable to quantify the amount or timing of any [reduction in pension liabilities] at this time.” In other words, Pritzker brags about savings to the public but the state says something different when the penalty would be securities fraud.

Nobody has produced any proof of savings for the buyout programs from the start, and it’s probably because the savings will be trivial. Alleged savings from it were “plucked out of thin air,” as one journal for government professionals put it. There was no actuarial analysis or debate, and the “savings” were dishonestly used in the 2019 budget to justify a bogus $400 million reduction in state pension contributions. The Civic Federation in July published an analysis showing savings to the state pensions of just $13 million for the fiscal year that had just ended. For perspective, that’s less than two-tenths of one percent of what taxpayers contribute to pensions each year.

Finally, the buyout program imposes costs that nobody is talking about. The state authorized $1 billion of new bond borrowing to pay for the buyouts, $300 million of which were sold earlier this year. But because of the low take-up in buyouts, just $115 million has been used, according to the OS. The rest is sitting idly while taxpayers pay interest on the bond at 5.7%.

And don’t the buyouts destroy the standard actuarial assumptions behind life expectancy for those who don’t take the option? Those who take the option undoubtedly include many who, for whatever reason, don’t expect to live long. That negative selection bias invalidates assumptions behind the remaining pool of pensioners. If that impact has ever been measured, we haven’t seen it.

In short, the buyout program is the “shammiest of shamtaculars,” as actuary Mary Pat Campbell wrote earlier. Pension actuary and Forbes columnist Elizabeth Bauer has long ridiculed the program, too. Our sources inside the government say no material savings should be expected.

Consolidation does little

The second example of a “better way” to reform pensions, according to Pritzker, is the pending consolidation of investment functions for suburban and downstate police and firefighter pensions.

But that’s extremely limited, since police and fire pensions represent less than five percent of the state’s total unfunded pension liabilities. The concept is not replicable for our bigger pensions and, even for the smaller pensions covered by the proposal, savings are speculative.

There’s something else about the pending consolidation legislation that is getting increasingly suspicious and potentially huge, though Pritzker didn’t talk about it. Aside from consolidation, the bill also contains a supposed fix for Tier 2 pensioners in those police and fire funds. Tier 2, for all workers hired after 2010 under any pension in the state, is a separate problem because it’s unfair to those workers and may run afoul of federal minimum safe harbors.

But the state already passed legislation in 2017 purporting to fix the problem by replacing it with a new Tier 3. However, Tier 3 was never implemented and the legislation has become a zombie, as we put it earlier. There are no signs it ever will materialize. The pending consolidation legislation takes an entirely different and less convincing approach to fixing Tier 2. Why? Will that be a precedent for our other pensions?  We suspect so, but nobody is saying.

The problem is that nobody will put a price tag on the cost of fixing Tier 2, whatever the approach may be. That may account for the silence. The bond OS from earlier this month punted on the issue in a very evasive way. After discussing Tier 3, but not the other approach, it says,

TRS, SURS and SERS [the state’s three big pensions] are currently analyzing the long-term impact that Tier 3 will have on their respective financial positions. The State makes no prediction as to the impact such reform will have on the Retirement Systems or the State’s contributions to TRS, SURS and SERS going forward.

Some disclosure that is. “Still working on how much this will cost,” it might as well say. How many more years do they need?  And it’s simply not credible to believe that, with the legislation passed two years ago, nobody has made some estimate of the cost. That ought to be made known to bond buyers and the general public. We suspect the cost of fixing Tier 2, however it is done, may be huge and that the state is hiding the problem. The Civic Federation also raised this concern recently, focusing primarily on the new approach in the pending consolidation bill. An honest discussion of our pension problems by Pritzker would have included this issue.

No legal obstacle to a constitutional amendment

Pritzker also repeated a standard public union talking point about why a constitutional amendment would be a waste of time. He said pension reform after an amendment would still be struck down under the Contract Clause of the United States Constitution.

We won’t dwell on that because we have written so often already about why it’s false, and our position was validated by the Rhode Island Supreme Court in the first decision directly on the issue.

Politically impossible – because they make it so

Pritzker’s final reason for opposing a constitutional amendment to allow for pension reform is one that should always make your head spin: It wouldn’t get the votes needed in the General Assembly to get on the ballot, he said.

He might as well have said “because we’re not going to vote for it, that’s why.” It’s just another version of “not politically feasible.” With Pritzker and the General Assembly committed to doing whatever public unions want, well, why bother to ask about real pension reform?

Pritzker should have added something else to what he thinks isn’t politically feasible in Illinois: honesty.

*Mark Glennon is founder of Wirepoints.

For further reading on these topics, see our earlier articles:

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Mike

The IDOI Public Pension Division 2019 biennial report released October 1, 2019 to JB Pritzker and the General Assembly stated the 17 systems are cumulatively 48% funded with an unfunded actuarial liability of $200,224,896,429.

Included were TRS, SERS, SURS, JRS, GARS, IMRF, Cook County, Cook County Forest Preserve, Downstate Police, Downstate Fire, Chicago Police, Chicago Fire, MEABF, LABF, CTPF, Chicago Parks, and MWRD.

Not included were various transit, housing, and mosquito abatement pension funds, and OPEB funds.

https://insurance.illinois.gov/Reports/Pension/pension_biennial_report_2019.pdf

jeff

The really sneaky thing in IL is the ancillary taxes. 10.25% sales tax. High cell phone taxes. High water taxes. A tax when you use the city’s parking app, a tax if you take a cab or an uber. restaurant taxes. hotel room taxes, parking taxes etc and on and on and on. It’s as if the Beatles song The Taxman was a how to manual.

Poor Taxpayer

Best day of my life was the day I moved out of Illinois and started to become RICH.

Poor Taxpayer

A U-Haul will solve the problem. Call a mover today and start a better life for you and your family. Illinois is DOA, no hope. Even the cops, firemen and teachers with the HUGE PENSIONS are running out of Illinois.
Last man standing will be a dead man. 83 Degrees and Sunny in South Florida, NO state income taxes. Freeze you a$$ of in poverty or start a great new life.

DantheMan

The Situation: Illinois leaders are basically ignoring it’s problems thus allowing them to grow, while also lying to the public about the problems. The media is (for the most part) letting them get away with it so voters are underinformed or worse, mislead. Wirepoints suggested first corrective action: A state constitutional amendment or bankruptcy (city by city). Wirepoints suggested subsequent corrective actions: Unknown (at least by me) My suggested first corrective action: Get out of Illinois My suggested subsequent corrective actions: NA (not applicable) The purpose of my above words is not to be critical of Wirepoints. In fact, I… Read more »

This tangled history contains a few warnings about different political conceptions of the UBI idea. “The right tends to see it as a replacement for the welfare state,” says Snircek. “Basically, in their conception, UBI is a way to do away with benefits and marketise everything. And, obviously, that has to be warded off completely.”

s and p 500

There’s a scene in “The Irishman” when Al Pacino as Jimmy Hoffa is standing in front of a model of the Dunes Casino in LV. He agrees to use money from the Teamsters pension fund to build it. Pension funds still invest in casinos through private equity, although now casino investments are riskier. Apparently there’s more dishonesty connected with pension funds than there ever was in the 1950’s.

NB-Chicago

Mark–great writing, 1.) you write ” police and fire pensions represent less than five percent of the state’s total unfunded pension liabilities”. But arent the police & fire pension liabilites born by local municipalities and not state? The police and fire pension consolidation will only potentially help municipalities theoretically lower prop taxes ( good luck with that) and has nothing to do w state pension debt–correct? 2.) Dont get how Tier II works for all the 650 cop & fire pensions. Is Tier II cop pension in municipality x follow same rules as municipality y, for example? Or does each… Read more »

After report of potential conflicts, lawmaker requests formal inquiry of next Illinois Supreme Court Chief Justice Anne Burke

Illinois Entrepreneur

Let’s all remember that Pritzker is a trust-funded heir. He has accomplished nothing that his inherited money didn’t buy. He has essentially spent a lifetime managing that money, and he got bored. So he ran for governor. If his goal was to “fix” the state and leave himself a legacy, he was either completely ignorant of what it would actually take to do it, or he didn’t care, and just wanted to play governor for awhile. Neither is flattering. Remember when he asked Blagojevitch for the state treasurer position? He thought that would be “cool.” This guy is so unserious… Read more »

Astonished

Pritzger’s brother is now a self-described girl. It’s a very well-documented fact that insanity has a hereditary component. ————— As George Carlin noted, think of the average person and realize that half of all people are dumber than that. Democratic systems (so-called self-rule) are touted endlessly as the “best” way to organize a society’s coercive sector (AKA the state.) Even a cursory inquiry into this makes the whole thing a belly-laugh. We are ruled by fools, demons and crooks because as Nobel-Prize-Winning Economist F.A. Hayek noted almost a century ago, in a democracy the scum rises to the top (because… Read more »

Illinois Entrepreneur

I tried to “+” your comment more than once, but it wouldn’t allow me!

Freddy

Great comment! Have you read http://www.naturalnews.com? founded by Mike Adams. Search Illinois politics on his website. Scroll way down on an article to comments. He calls the Dems “Demon”crats because of the policies they push. Some interesting reading but at first just take it with a grain of salt then take a look around at the country as a whole and see what’s happening. Then he makes more sense.

Astonished

Sadly, I see no way forward that doesn’t lead down, through a valley of great hardship. The number of parallels between Illinois, the USA and the entire Western world and the decline and fall of the ancient Western Roman Empire cannot be counted. The past bakes into the cake what the future brings us. As contagious diseases wracked the ancient world, ours is being destroyed by contagious Bad Ideas. I classify the current Politically Correct Cult as an ersatz religion, a Cargo Cult to be descriptive, and its dogma and sacraments are baking into our future hardships that none of… Read more »

debtsor

Only in Illinois can Democrats whine about a millionaire governor, and then replace him with a billionaire governor in the most expensive gubernatorial election in United States history. Not a single peep out of anyone about the hypocrisy! I don’t want to make broad generalizations about Democrats because that’s usually just partisan and illogical, but in this case there are clearly are some. They just don’t care about the hypocrisy, or the lies, or the cognitive dissonance in their positions. All they care about is power. And the result of that power is the figurative orgy of progressive bills that… Read more »

When the CTU struck against Emanuel in 2012, the school district was already looking at multi-year billion dollar deficits and an official $8 billion pension shortfall. While Emanuel tried to fight off the union demands,  he eventually caved  and doled out raises that the district and residents could not afford. That eventually led to teacher pink sheets, school closings and even bigger pension shortfalls. Today, the district’s official pension shortfall  exceeds $11 billion .

Mike

File a complaint with the SEC.

A Governor speaking at a public event in his official capacity should not be allowed to contradict bond disclosure documents.

Flashback to March 11, 2013.

“The Securities and Exchange Commission today charged the State of Illinois with securities fraud for misleading municipal bond investors about the state’s approach to funding its pension obligations.”

http://www.sec.gov/news/press-release/2013-2013-37htm

mike Williams

So my question is, how well is the Illinois media reporting the lies? Anything less that it being the opening segment or the front page headline is unacceptable.

Astonished

The “media?” Politicians? Campaign donors?

It’s a big club, Mike, and you ain’t in it.