According to a March 13 Wall Street Journal editorial, “It’s now official: The Land of Lincoln has the nation’s most reckless and dishonest state government when it comes to pension liabilities.”
The WSJ concluded that the state’s “accounting practices would get private market participants thrown in jail.”
This WSJ financial curse will continue to echo throughout Wall Street’s bond markets and ratings services because on March 11, Illinois was branded with pensions fraud by the SEC. The only other state to be branded with pensions securities fraud by the SEC was New Jersey in 2010.
Accordingly, the convoluted pensions machinations in current Illinois pensions bills, such as Senate Bill 1, Senate Bill 35, and associated bills, will obviously raise specters of more federal regulatory scrutiny, including more SEC scrutiny.
The SEC highlighted that the Illinois fraud and SEC violations were triggered by the 2006 and 2007 “pension holidays” and by the state’s failures from 2005 to 2007 “to disclose that its statutory plan significantly underfunded the state’s pension obligations.”
According to the November 2012 Special Pension Briefing Report prepared by the Illinois Commission on Government Forecasting and Accountability, the five Illinois pension systems would be 90 percent funded by 2045 – if the Legislature would stop funding pet projects by seizing pension monies supposed to be dedicated to pensions pursuant to the 1994 Illinois Pension Funding Act. The legislative committee members preparing this report are ironically sponsoring cuts in pensions and benefits via SB 1 and SB 35.
In 2009, Gov. Pat Quinn’s Illinois Reform Commission identified six major areas for reform, which would save billions of taxpayer dollars, but legislative leaders have quashed or ignored virtually all of the suggested reforms.
Historically, much of the Illinois pension and budget crises can be attributed to 30 years of legislative leaders who bypassed or ignored the state’s underlying fiscal problems.
With regard to pensions, for example, academics issued a 2012 report published by the Institute of Government and Public Affairs at the University of Illinois. That report and subsequent publications proposed a partial solution to the Illinois unfunded liabilities problem of $80 billion.
Those salient proposals provided a framework for serious legislative discussions. However, those proposals were largely ignored by the Illinois Legislature – with the result that the unfunded liabilities problem increased within a year by $15 billion to a total of $95 billion.
As the Illinois Legislature continues to flounder toward technical bankruptcy, the Legislature needs to review and implement the new March 12 academic IGPA proposal published by a consortium of Illinois academics.
For years, Illinois legislative leaders have ignored academic recommendations, pensions funding, and ethics reforms (such as the reforms of the Illinois Reform Commission).
The pension and budget problems of Illinois are daunting, but the current legislative leaders of the Illinois House and Senate are experienced leaders who have the ability to redirect Illinois toward measured and reasonable solutions predicated on academic acumen.
Note to readers – Professor John Kindt has served in several academic capacities dealing with issues involving pensions and earned benefits. He has been a professor of business and legal policy at the University of Illinois for 35 years.