Thomas Jefferson and others believed an informed citizenry is necessary for a sound government. But what type of government do you get if the citizens are misinformed? I would argue: the state of Illinois.
On Jan. 8, 1789, Jefferson wrote a letter to English philosopher Richard Price “that wherever the people are well informed, they can be trusted with their own government; that whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights.” Jefferson’s intent was that if citizens were “well informed,” they could have the information needed to adequately participate in their government.
In fact, the Governmental Accounting Standards Board states the same basic objective: “The board believes financial reporting plays a major role in fulfilling the government’s duty to be publicly accountable in a democratic society. Public accountability is based on the belief that the taxpayer has a ‘right to know.’”
Taking this one step further, on Feb. 7, 2020, the U.S. Securities and Exchange Commission issued a bulletin mandating “more informed disclosure practices” of financial information, whether oral or written, that derives from budgets, financial reports, public announcements, press releases and websites.
Furthermore, the omission of information is considered a form of misleading the public.
An example of questionable disclosure practices is found in the Illinois budgeting and financial reporting process, specifically regarding pension contributions. In 1994, then-Gov. Jim Edgar led an effort to pass a bipartisan bill to solve the state’s $15 billion pension deficit. The plan would resolve the deficit within 50 years. The plan was structured to pay down the debt very slowly in the first 15 years and accelerate at the end. This ensured that sitting politicians in the early days of the plan would not be required to make the necessary tax increases or budget cuts to pay down the debt in a meaningful way.
This program is shown in charts to look like a skateboard ramp, appropriately named the “Edgar Ramp.” The problem is, the plan doesn’t work.
It is so unsuccessful that the Illinois pension deficit has grown from $15 billion to $317 billion as of June 30, 2020, according to Moody’s Investors Service. The state’s latest bond offering document emphasizes, “The state’s contributions to the retirement systems, while in conformity with state law, have been less than the contributions necessary to fully fund the retirement systems as calculated by the actuaries of the retirement systems.”
The latest Illinois Annual Comprehensive Financial Report discloses cash-flow problems, significantly underfunded pension obligations, other post-retirement benefit deficits and multiple references to debt-obligation bonds.
The report says that the state’s general fund has been in a deficit for 20 consecutive years. The most serious news comes from pensions: “During fiscal year 2021, the net pension liability as reported in the financial statements totaled $151.9 billion, an increase of $8.5 billion from fiscal year 2020.” But it also goes on to quickly explain, “During fiscal year 2021, all the state systems were substantially funded in accordance with the statutory funding requirement.”
Perhaps this is where we find the origins of Gov. J.B. Pritzker’s comment in a recent budget press release in which he touts an “extra $300 million payment to our state’s pension funds.” He must be referring to paying $300 million beyond the “statutory funding” requirement.
The truth is that even though an “extra” $300 million was contributed to the Teachers Retirement System, $2.9 billion is still needed to fully fund the system, according to actuaries.
Is it confusing or misleading to the public to highlight an extra pension payment when, even accounting for that “extra” payment, the budgeted contributions aren’t enough to adequately fund pension systems?
Jefferson, the accounting standards board and the SEC say that citizens must be fully and accurately informed for our government to work. The information must be presented honestly, or citizens cannot obtain the accurate information to which they are entitled.
“Whenever things get so far wrong as to attract their notice, they may be relied on to set them to rights,” Jefferson wrote. Maybe that’s why things aren’t right: The citizens aren’t fully informed.