S&P: вЂњUNCONSTITUTIONALвЂќ PENSION REFORMS WILL BE CHALLENGED, RESULTING IN вЂњBUDGET UNCERTAINTY.вЂќ
Yesterday, the State of Illinois received a warning about illegalВ public pension reform from Standard and PoorвЂ™s.В (The state also received a credit downgrade from S&P.)В Like Colorado, the State of Illinois has historically underfunded its public pension obligations.В Essentially, Illinois, Colorado and a number of other states have been skipping full payment of their public pension debt obligations in order to make discretionary public sector expenditures.В This is akin to putting current state appropriations on a credit card.В The вЂњcredit cardвЂќ debt is piling up.
As we have seen, the State of Colorado has skipped approximately $4.5 billion in вЂњannual required contributionsвЂќ (ARC) to the Colorado PERA public pension plan in just the last decade.В These ARC payments are identified by Colorado PERAвЂ™s actuaries as necessary to keep up with the stateвЂ™s debt.В Two days ago, ColoradoвЂ™s pension administration arm, Colorado PERA, held its annual meeting with the Colorado LegislatureвЂ™s Joint Finance Committees.В This meeting lastedВ about one hour.В Approximately five seconds of this one hour meeting was devoted to the subject of the Colorado LegislatureвЂ™s accumulating public pension debt.В (ItвЂ™s an unpleasant topic.)В Colorado PERAвЂ™s new Executive Director Greg Smith stated вЂњPERA needs to be receiving the full ARC in contributions.вЂќВ ThatвЂ™s it.В This is the force with which Greg Smith emphasized the stateвЂ™s failure to pay its bills before the Joint Finance Committees.
Alternatively, Greg Smith might have declared: вЂњStop making discretionary expenditures like the $500 million that you have given to local governments for pensions that are not your obligation, stop making $100 million annual discretionary grants of property tax relief, suppress your multi-billion dollar corporate welfare habit until you begin meeting your contracted debt obligations!вЂќ
From We Are One Illinois (an organization that has not abandoned its retired public employees):
“Today, Standard & Poor’s warned lawmakers that unconstitutional pension cuts would invite вЂlegal challengesвЂ™ and cause вЂseveral yearsвЂ™ of budget uncertainty.
Link to We Are One Illinois:
вЂњStandard & Poor’s rating service said Friday that the rating on the state’s general obligation bonds was downgraded to A- from A.В The agency also gave an A- rating to $500 million in general obligation bonds that the state plans to release next week.В The agency says the outlook is negative, an indication it could take the unusual step of further downgrading the state if conditions don’t improve.вЂќ
Link to Breitbart.com:
(My comment: Inexplicably, the credit rating of the State of Colorado has actually been upgraded by S&P in the last decade in spite of the stateвЂ™s [and SB 10-001 proponentsвЂ™] claims of an вЂњactuarial emergency.вЂќВ This credit rating upgrade occurred while the State of Colorado and other PERA-affiliated employers have skipped their public pension ARCs.
Colorado has adopted the type of unconstitutional public pension reform (SB 10-001) that S&P warns against вЂ“ breaching public pension contracts вЂ“ yet S&P has upgraded ColoradoвЂ™s credit rating from AA- to AA.В That is, while the State of Colorado suffers through its recently claimed вЂњactuarial emergency,вЂќ it has somehow managed to achieve an improved credit rating.В LetвЂ™s add this situation to our list of lifeвЂ™s great mysteries.
ColoradoвЂ™s S&P rating in 2012: AA
ColoradoвЂ™s S&P rating in 2009 and 2010 at time of contract breach: AA
ColoradoвЂ™s S&P rating during 2002 to 2006: AA-
Thankfully, ColoradoвЂ™s вЂњactuarial emergencyвЂќ has not yet prompted the Colorado General Assembly to propose a breach of the stateвЂ™s corporate debt (they have decided that debts owed to public workers are a lower priority.)В Nor has the financial support of Colorado taxpayers for the Sport of Football necessarily diminished as a result of the stateвЂ™s claimed вЂњfiscal crisis.вЂќ
From the Colorado Department of Revenue:
вЂњThe Metropolitan Football Stadium District tax went into effect January 1, 2001 to help fund construction of Invesco Field at Mile High, now known as Sports Authority at Mile High. The sales tax replaced the Denver Metropolitan Major League Baseball Stadium District (BD) Tax.вЂќ
вЂњStandard & Poor’s analysts said Friday the new rating reflects what the agency sees as the state’s вЂweakened pension-funded ratiosвЂ™ and lack of action on reform measures.вЂќ
вЂњвЂWhile legislative action on pension reform could occur during the current legislative session and various bills have been filed, we believe that legislative consensus on reform will be difficult to achieve given the poor track record in the past two years,вЂ™ analysts said.вЂќ
вЂњMoody’s Investors Service gave Illinois its worst rating of any state in January 2012.В Earlier this month вЂ” days after lawmakers left the lame luck session without a pension deal вЂ” Fitch Ratings changed Illinois’ financial outlook to вЂnegativeвЂ™ from вЂstable,вЂ™ an indication that a ratings downgrade could be coming.вЂќ
вЂњIn its report Friday, Standard & PoorвЂ™s analysts said even if Illinois is able to pass pension legislation soon, the state is likely to face a legal challenge, so it could be years before the budget situation or the unfunded liability improve.вЂќ
Link to ktvb.com:
CULLERTONвЂ™S UNCONSTITUTIONAL вЂњPUBLIC PENSION HOBSONвЂ™S CHOICE.вЂќ
Illinois Senate President John J. Cullerton is putting his money on an unconstitutional public pension вЂњHobsonвЂ™s Choice.вЂќ
вЂњCullerton believes offering a choice is essential for any plan to be found constitutional by the Illinois Supreme Court, a view House leaders on the pension issue donвЂ™t share.вЂќ
From the Illinois Issues Blog:
вЂњCullerton opposed legislation under consideration in the House during the lame-duck session because he said it is unconstitutional.В вЂThe Constitution says you canвЂ™t unilaterally pass a law taking away peopleвЂ™s pension benefits. You have to ask them to do it contractually,вЂ™ Cullerton said on the last day of the lame-duck session.В He believes that to pass constitutional muster, some consideration must be given to workers for any reduction in their benefits.В Legislation that passed in the Senate last year would have asked employees to choose between their compounded-interest cost-of-living adjustments or state-subsidized retiree health care.В вЂTheir bill unilaterally takes away peopleвЂ™s rights in exchange for nothing.В ThatвЂ™s why itвЂ™s unconstitutional.вЂ™вЂќ
вЂњCullerton has pitched SB1 as a compromise.В It contains the proposal that was being considered in the House.В That provision would temporarily freeze cost-of-living increases, require higher contributions from employees, put a cap pensionable salary and include a guarantee that the state makes its annual required contribution to the pension systems.вЂќ
Link to Illinois Issues Blog:
(My comment: Of course, an Illinois appeals court has previously held that CullertonвЂ™s idea is illegal:
вЂњAs the Illinois Appellate Court explained in a similar context, вЂthe [government] cannot whipsaw citizens into вЂvoluntarilyвЂ™ choosing one of two means by which they will be divested of an existing property interest.вЂ™вЂќ
But, what the Hell, follow the example of the Colorado General Assembly, вЂњDamn the Topedoes!вЂќ
See Boonstra v. City of Chicago, 214 Ill. App. 3d 379, 387, 574 N.E.2d 689, 695 [1st Dist. 1991]. В Link:
An interesting article on CullertonвЂ™s Unconstitutional HobsonвЂ™s Choice:
вЂњThe Choice Between Two Unconstitutional Options is Not Constitutional.вЂќ
Politicians (particularly Colorado вЂњcorporate DemocratsвЂќ) will go to great lengths to lower the tax and debt burden of their constituents . . . including the breach of public sector contractual obligations.В Would it not be simpler to just pay our public debts?В How about facilitating this through federally tax-subsidized public pension funding bonds?
Support public pension contractual rights and the rule of law in the United States.В Friend Save Pera Cola on Facebook!В Send some money to saveperacola.com!В (Their website explains how to do this.)