Another lowlight for Illinois
The words "securities fraud" are ugly. That's why in Illinois it's called business as usual.
There is so much wrong with Illinois' chronically underfunded public pension systems and so little enthusiasm by our elected officials for addressing the problem seriously that it's increasingly difficult to follow the news.
But last week, a story that deserved more attention than it got officially confirmed the public's suspicion of the unlawful negligence past governors and past legislators have displayed on the pension issue.
For only the second time in its history, the Securities and Exchange Commission charged a state — New Jersey was first and now Illinois — with "securities fraud for misleading municipal bonds investors about the state's approach to funding its pension obligations."
In other words, state officials knew they were not properly funding their pension systems but withheld appropriate details about potential consequences from municipal bond buyers.
Individuals who engage in securities fraud face potential civil fines and criminal prosecution. But the individuals who perpetrated the state's securities fraud were more fortunate.
The SEC charged the state of Illinois, which won't pay a penalty and was not required to admit wrongdoing. The SEC's action is of a piece with the entire history of the state's mishandling of its public pensions — no one ever is held accountable.
Governors and legislators who ignored, exacerbated or passed false fixes of the problem were elected and re-elected by voters who either were unaware of the extent of the flimflam or unconcerned about it because the pensions' impending economic doomsday loomed on the horizon, not on the doorstep.
Illinois' underfunding of its public pension systems is approaching $100 billion — a sum so large that some experts suggest it will never be eliminated. Readers can digest all the ugly details themselves if they wish (http://www.sec.gov/litigation/admin/2013/33-9389.pdf).
But the SEC order goes into detail on one particularly disturbing chapter in the state's legislative history that shows how our legislators don't just create problems but ultimately try to con the public by passing legislative fixes that don't fix anything.
In 1994, legislators passed and Gov. Jim Edgar signed a statutory funding plan that established a 50-year pension contribution schedule that would result in the state's pension systems being 90 percent funded by 2045.
It was a weak plan at best, but better than nothing. More ominously, it foreshadowed future legislators' unwillingness to act responsibly.
Unfortunately, legislators intentionally back-loaded the payments — small ones first followed years later by big ones — and then skipped some of the payments altogether under now-imprisoned former Democratic Gov. Rod Blagojevich and state legislators then in office. It was a double whammy that resulted in the pensions' unfunded liability increasing by $57 billion between 1996 and 2010.
As a result of this legislative malpractice, Illinois is in desperate straits.
Illinois is effectively bankrupt. Pension systems members are, with justification, demanding every penny of the generous payments promised to them. There are insufficient funds to finance both pensions and core state programs.
Even if they wanted to do so, there is no way for our legislators to get their arms around this problem without enraging key constituent groups, be they retirees, labor unions or backers of increased support for public schools or social services.
No wonder Illinois' elected leaders engaged in securities fraud to paper over all the bad news.