Standard and Poor’s Warns and Downgrades Illinois Over Public Pension Debt.

S&P: “UNCONSTITUTIONAL” PENSION REFORMS WILL BE CHALLENGED, RESULTING IN “BUDGET UNCERTAINTY.”

Yesterday, the State of Illinois received a warning about illegal public pension reform from Standard and Poor’s.  (The state also received a credit downgrade from S&P.)  Like Colorado, the State of Illinois has historically underfunded its public pension obligations.  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.  This is akin to putting current state appropriations on a credit card.  The “credit card” debt is piling up.

As we have seen, the State of Colorado has skipped approximately $4.5 billion in “annual required contributions” (ARC) to the Colorado PERA public pension plan in just the last decade.  These ARC payments are identified by Colorado PERA’s actuaries as necessary to keep up with the state’s debt.  Two days ago, Colorado’s pension administration arm, Colorado PERA, held its annual meeting with the Colorado Legislature’s Joint Finance Committees.  This meeting lasted about one hour.  Approximately five seconds of this one hour meeting was devoted to the subject of the Colorado Legislature’s accumulating public pension debt.  (It’s an unpleasant topic.)  Colorado PERA’s new Executive Director Greg Smith stated “PERA needs to be receiving the full ARC in contributions.”  That’s it.  This is the force with which Greg Smith emphasized the state’s failure to pay its bills before the Joint Finance Committees.

Alternatively, Greg Smith might have declared: “Stop 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!”

ILLINOIS WARNED.

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 ‘legal challenges’ and cause ‘several years’ of budget uncertainty.

Link to We Are One Illinois:

http://www.weareoneillinois.org/news/coalition-comments-on-sp-downgrade-points-to-summit-as-critical-step-forward

From Breitbart.com:

“Standard & 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.”

Link to Breitbart.com:

http://www.breitbart.com/Big-Government/2013/01/26/S-P-lowers-Illinois-credit-rating–blames-pensions

(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 state’s [and SB 10-001 proponents’] claims of an “actuarial emergency.”  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 – breaching public pension contracts – yet S&P has upgraded Colorado’s credit rating from AA- to AA.  That is, while the State of Colorado suffers through its recently claimed “actuarial emergency,” it has somehow managed to achieve an improved credit rating.  Let’s add this situation to our list of life’s great mysteries.

Colorado’s S&P rating in 2012: AA

Colorado’s S&P rating in 2009 and 2010 at time of contract breach: AA

Colorado’s S&P rating during 2002 to 2006: AA-

Link:

http://www.pewstates.org/projects/stateline/headlines/infographic-sp-state-credit-ratings-20012012-85899404785

Thankfully, Colorado’s “actuarial emergency” has not yet prompted the Colorado General Assembly to propose a breach of the state’s corporate debt (they have decided that debts owed to public workers are a lower priority.)  Nor has the financial support of Colorado taxpayers for the Sport of Football necessarily diminished as a result of the state’s claimed “fiscal crisis.”

From the Colorado Department of Revenue:

“The 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.”

Link:

http://www.colorado.gov/cs/Satellite/Revenue/REVX/1251610080214)

ILLINOIS DOWNGRADED.

From ktvb.com:

“Standard & Poor’s analysts said Friday the new rating reflects what the agency sees as the state’s ‘weakened pension-funded ratios’ and lack of action on reform measures.”

“‘While 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,’ analysts said.”

“Moody’s Investors Service gave Illinois its worst rating of any state in January 2012.В  Earlier this month — days after lawmakers left the lame luck session without a pension deal — Fitch Ratings changed Illinois’ financial outlook to ‘negative’ from ‘stable,’ an indication that a ratings downgrade could be coming.”

“In its report Friday, Standard & Poor’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.”

Link to ktvb.com:

http://www.ktvb.com/news/business/188402161.html

CULLERTON’S UNCONSTITUTIONAL “PUBLIC PENSION HOBSON’S CHOICE.”

Illinois Senate President John J. Cullerton is putting his money on an unconstitutional public pension “Hobson’s Choice.”

From sj-r.com:

“Cullerton 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 don’t share.”

Link:

http://www.sj-r.com/breaking/x1084481294/Quinn-wants-pension-reform-deal-by-Wednesday

From the Illinois Issues Blog:

“Cullerton opposed legislation under consideration in the House during the lame-duck session because he said it is unconstitutional.  ‘The Constitution says you can’t unilaterally pass a law taking away people’s pension benefits. You have to ask them to do it contractually,’ Cullerton said on the last day of the lame-duck session.  He believes that to pass constitutional muster, some consideration must be given to workers for any reduction in their benefits.  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.  ‘Their bill unilaterally takes away people’s rights in exchange for nothing.  That’s why it’s unconstitutional.’”

“Cullerton has pitched SB1 as a compromise.  It contains the proposal that was being considered in the House.  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.”

Link to Illinois Issues Blog:

http://illinoisissuesblog.blogspot.com/

(My comment: Of course, an Illinois appeals court has previously held that Cullerton’s idea is illegal:

“As the Illinois Appellate Court explained in a similar context, ‘the [government] cannot whipsaw citizens into ‘voluntarily’ choosing one of two means by which they will be divested of an existing property interest.’”

But, what the Hell, follow the example of the Colorado General Assembly, “Damn the Topedoes!”

See Boonstra v. City of Chicago, 214 Ill. App. 3d 379, 387, 574 N.E.2d 689, 695 [1st Dist. 1991]. В  Link:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1774163

An interesting article on Cullerton’s Unconstitutional Hobson’s Choice:

“The Choice Between Two Unconstitutional Options is Not Constitutional.”

http://businesspublicpolicy.com/?p=2327)

Politicians (particularly Colorado “corporate Democrats”) will go to great lengths to lower the tax and debt burden of their constituents . . . including the breach of public sector contractual obligations.  Would it not be simpler to just pay our public debts?  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.)

Algernon Moncrief

About Algernon Moncrief

Independent Nationwide Public Pension Rights Blogger.

Leave a Reply

Comment from your Facebook account


You may comment with your Colorado Pols account above (click here to register), or via Facebook below.