August 02, 2013 12:00 PM UTC

Truthout: Illinois Plutocrats Manipulate State Bond Ratings to Escape Public Pension Contracts, Lower Their Tax Burden.

• 3 Comments
• by: PolDancer

The Illinois Legislature is currently debating potential reform of its public pension systems.  Like Colorado, Illinois has traditionally failed to pay its public pension bills.  Like many Colorado politicians, many Illinois politicians are contemplating various means of escaping accrued public pension debt.  A recent article in Truthout exposes the surreptitious efforts of those conspiring to break public pension contracts in Illinois to rig the "pension default" game.

http://truth-out.org/opinion/item/17917-bombshell-plutocrats-brazenly-collude-to-hurt-state-economies-and-screw-working-people

Truthout:

"These days, many Americans walk around feeling like no matter how hard they work, how much they manage to save or how carefully they plan for the future, the game is rigged against them.  They suspect that behind closed doors, CEOs and Wall Street honchos are eagerly scheming to rip them off."

"Their worst fears of corruption and collusion just came true in Illinois, where corporate titans were caught red-handed in the act of Rigging the Game."

(My comment: This Truthout article exposes a representative of an Illinois business interest lobbying group, the Civic Committee of the Commercial Club of Chicago, [former Illinois Attorney General Ty Fahner] boasting of "working to scam the Illinois bond rating.")

Truthout:

"Fahner has tried a number of dirty tricks to attack pensions in his career.  But his most recent admission is absolutely breathtaking in its brazenness: He boasted of working to scam the Illinois bond rating."

(My comment: As I understand it, Ty Fahner admits [on video] that his organization has contacted the three large bond rating agencies in the U.S., Fitch, Moody's and S&P, and encouraged the agencies to downgrade their investment ratings of Illinois state debt.  Arguably, such downgrades provide ammunition to attack public pensions in Illinois.)

Link to the video:

The smoking gun. In this video, the Civic Committee’s Ty Fahner admits he colluded with the bond rating agencies to destroy Illinois pensions.

Truthout:

"During Fahner’s talk to the Union League Club, an unidentified person in the audience suggested that pressuring credit agencies to rig the state bond ratings in order to attack pensions might be a jolly good idea.  Fahner gleefully replied that he had already thought about that — and his group has tried it."

"Audience member: 'Maybe sometimes you gotta be irresponsible to be responsible.  If a political solution really doesn’t produce a favorable outcome, maybe you really need a market solution.  And a market solution, I don’t mean bankruptcy, I mean actually talking down the state rating even further so the state’s bonds essentially become below investment grade.  And it drives up the borrowing cost to the state and all of us to a significant level enough that you really feel the public pressure…'”

"Fahner: 'The Civic Committee, not me, but me and some of the people that make up the Civic Committee… did meet with and call – in one case in person – and a couple of calls to Moody’s and Fitch and Standard & Poors, and say, How in the hell can you guys do this?'"

"Fahner went on to take credit for downgrades to Illinois credit ratings, saying, 'If you watch what happened in the last few years, it's been steadily down.'”

"Check out the video at minutes 46:30 to 49:43 for the full remarks on the ratings scam:

Fahner: 'Civic Committee helped jaw down state’s bond rating.'"

(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 a PERA financial "crisis."  Colorado is in a financial crisis?  Colorado's bond ratings have been upgraded?  Doesn't make sense does it?

S&P has upgraded Colorado’s credit rating from AA- to AA.
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 PERA "financial crisis" has not yet prompted the Colorado General Assembly to propose abrogating Colorado's contracts with corporations, or defaulting on Colorado bonds held by corporate interests [debts owed to corporations are a much higher priority than state debts owed to PERA peasants.])

Truthout:

"Fahner, a top GOP fundraiser, can’t abide the notion that teachers, firefighters, nurses and other public workers in the state of Illinois can still expect a decent retirement. Not a luxurious retirement, mind you — the average pension is $32,000 a year, and most state employees will not receive Social Security.  But even a modest retirement for hard-working people is too much for today’s fatcats."

Truthout:

"Fahner is part of a virulent strain of public raiders and economic crackpots who have become dominant in the Republican Party (and increasingly among the Democrats, too) who are hell-bent on destroying unions and attacking public employees.  Ultimately they wish to privatize everything and reduce their tax responsibilities down to nothing."

(My comment: As we have seen in Colorado, many Colorado Democrats have also conspired to break Colorado PERA pension COLA contractual obligations.  Even Colorado public sector unions have joined the plutocrats in attempting an unconstitutional taking of contracted PERA retiree COLA benefits.  Of course, such a taking from PERA retirees [who no longer pay union dues] will help minimize future pension contributions from active PERA members [who do pay union dues].  Follow the money.  In some states, public sector unions defend contractual public pension rights, obviously Colorado is not one of those states.

SB10-001 was a policy error of epic proportions on the part of Colorado public sector unions.  For a short-term gain, if they are successful in breaking Colorado PERA pension contracts, they will leave their members without contracted inflation protection for life.  If you believe that the Colorado Legislature will not extract every red cent from the PERA trust funds to the extent permitted by Colorado courts, you are sadly mistaken.)

Truthout:

"That’s why Fahner has declared war on pensions and is promoting a pension crisis in order to justify it.  He has called for cost of living cuts, raising the retirement age, capping pension earnings and shifting the cost of the pension obligation of teachers to local school districts, many of which are too poor ever to pay.  He styles himself as a savior who wants only to protect the public from debt, when in reality he is a brutal plutocrat who will stop at nothing to line his pockets at public expense and reduce his and his friends' taxes."

(My comment: As we have seen, many in Colorado have also promoted the idea of a "pension crisis" in order to justify the breach of Colorado PERA pension contracts.  Obviously, in spite of the Colorado Legislature's failure to pay its full PERA pension bill for a decade, no such PERA "pension crisis" exists in Colorado.  At the time of the Colorado PERA pension contract breach in 2010, the combined funding ratio of the Colorado PERA trust funds was 69 percent.  The PERA funding ratio has been as low as 54 percent in the past and yet there was no perceived "pension crisis."

Silver and Gold Record:

“One attendee asked if there was any similar controversy in the 1970s, when PERA's unfunded liability went as low as 54.7 percent.  [Colorado PERA Executive Director Meredith] Williams said former Gov. Richard Lamm, who co-chaired the PERA commission, made that same observation last year when he recalled that there was no outcry when he was governor and the unfunded liability was below its current level.”

https://www.cu.edu/sg/messages/5245.html

States that face a public pension "crisis," states that are unable to meet their contractual public pension obligations, are not able to voluntarily pay off $700 million in local government legacy pension debt that IS NOT their contractual obligation [$142 million of this appropriation at the 2013 Colorado legislative session.]

In Colorado, corporations have also joined the effort to claw back earned, contracted compensation from the middle class.  To me, this doesn't make sense.  Corporate America could not function without the sanctity of contractual obligations.  Here we have corporate lobbyists listed on the website of the Colorado Secretary of State as having supported SB10-001 in 2010, the bill that broke the contracts of Colorado PERA pensioners, a bill that takes the property of Colorado's elderly to keep taxes low in the state with the lowest per capita state tax burden in the nation:

Peter Kirchhof – Colorado Concern – supporting
Janice Sinden – Colorado Concern – supporting – http://www.coloradoconcern.com/, Colorado Concern is a business organization. Denver Mayor Hancock has selected Janice Sinden to be his Chief of Staff.

Link: http://www.coloradoconcern.com/index.html

From the Colorado Concern website:

“Colorado Concern’s membership now includes 100 CEOs and business and community leaders from across the state.”

The Colorado Concern Board of Directors:

“Joe Blake – Chancellor Emeritus, CSU System
Dr. Ted Clarke, MD – Chairman and CEO, COPIC
Steve Farber – President, Brownstein Hyatt Farber Schreck
Pat Hamill* – Chairman and CEO, Oakwood Homes
A. Barry Hirschfeld – President, A B Hirschfeld & Sons
G. “Buck” Hutchison – President and CEO, Hutchison Western
Bill Hybl – Vice Chairman, Broadmoor Hotel
John Ikard* – President and CEO, FirstBank
Walt Imhoff – Retired Managing Director, Stifel Nicolaus & Co.
Walter Isenberg – President and CEO, Sage Hospitality
Don Kortz – Chairman of the Board, Fuller Real Estate
David McReynolds – President, Columbine Health Plan
Larry A. Mizel – Chairman and CEO, M.D.C. Holdings, Inc.
Kay Norton* – President, University of Northern Colorado
Kathryn Paul – President and CEO, Delta Dental of Colorado
Blair Richardson – Managing Partner, Bow River Capital Partners
Dan Ritchie – Chairman and CEO, Denver Center for the Performing Arts
Dick Robinson – Co-CEO, Robinson Dairy, Inc.
Richard M. Sapkin – Managing Principal, Edgemark Development, LLC
Sylvia Young – President and CEO, HealthONE”)

Truthout:

"Illinois has real problems. However, Fahner desperately hopes the public will not catch on to the fact that states are having difficulty paying out pensions because of the lack of revenue caused by a Wall Street-driven financial crisis and the deep recession it set off, regressive taxes, and the myriad bond scams financiers have already inflicted on states, cities, towns, and municipalities which have triggered funding crises for pensions and other programs. (See 'How Wall Street Fraudsters Plunder Public Finances, And 5 Ways to Fight Back.')"

"As the audience member correctly adduced, pushing down the bond rating is a great way to screw workers, the state and taxpayers.  Pension funds buy bonds, often from the state, to stay financially healthy.  In order for the pension fund to buy the bond, it must have a passing grade.  If the grade is lowered, say from A to B, the price of the bond goes down, and the pension fund will suffer a loss.  If the bond rating is dropped below a minimum standard, then the pension fund must sell the bond, and take a much bigger loss."

"Lowering the bond rating also has the effect of artificially inflating the interest rates that bond holders must pay on future bonds, making them more expensive to buy and reducing the state’s ability to borrow. The basic idea is to manufacture a crisis by financially starving pension funds.  Fahner & Co. know this will put political pressure on Illinoisans to take away worker pension benefits."

(My comment: The Colorado Legislature has also manufactured its Colorado PERA pension "crisis."  It has accomplished this by habitually underfunding the PERA pension [failure to pay the ARC], cutting PERA pension contributions over the last 20 years, shifting labor costs from PERA-affiliated employers to the PERA trust funds [Bill Owens PERA service credit "fire sale,"] cutting state tax receipts beyond that even required under the TABOR amendment, ensuring that Colorado is a "tax haven," inserting a ridiculous and unnecessary "100 percent PERA funding threshold requirement" into the PERA statutory contract through SB10-001, slashing PERA's maximum amortization period from 60 years to 30 years [over the last 15 years,] using public resources for copious corporate welfare, and even granting access to the PERA trust funds for more corporate welfare.)

Truthout:

"CEOs think nothing of willingly and knowingly screwing the bond rating and economic standing of their home state in order to enact their anti-worker philosophy and fatten their own bank accounts."  "Committing economic treason against fellow citizens and taxpayers is simply a matter of course for today’s American plutocrats."

Truthout:

"The state attorney general should immediately open an investigation into whether any members of Fahner’s group sold bonds before the downgrades, based on their conversations. That is plainly insider trading.  Everyone who held bonds at the time of the downgrades also took a loss.  Attorneys general and treasurers in other states whose portfolios took a hit should also consider suing, given that political pressure seems to have played a role in causing their losses."

Truthout:

"It’s time for the trustees of the pension funds to stand up for those whose interests they are charged with protecting, and not shrug off one more crime against the public interest that reduces pensions for working people."

(My comment: Fat chance of PERA trustee advocacy for PERA retirees happening in Colorado.  In 2010, Colorado PERA Board trustees were persuaded to support the breach of the fully-vested pension contracts of Colorado PERA retirees.  The trustees used PERA trust fund assets that belong to PERA retirees to pay for political and lobbying campaigns to break those retiree's pension contracts.

Our Colorado PERA Board trustees are in the pocket of corporate interests.  Note that the trustees have recently granted corporate access to the Colorado PERA trust funds for corporate welfare.  Is the provision of corporate welfare through PERA's “Colorado Mile High Fund” in conformance with the fiduciary obligation of the Colorado PERA Board of Trustees to act “for the exclusive purpose” of providing PERA pension benefits?  How does this scheme guarantee improved investment performance for this tranche of the PERA trust funds for beneficiaries?

If Colorado businesses are so desperate for capital why do these businesses not take advantage of available historically low market interest rates?  Is it simply the case that these businesses are considered too great a risk by private lenders?  This risk must be assumed by the beneficiaries of a public pension fund?  Public pensions should invest in businesses that the private sector won’t touch?

If the geographical restriction of PERA Trust Fund investment options is a prudent investment philosophy will the PERA Board please explain why this policy has not been in place at Colorado PERA for decades?  Why the artificial, geographical restriction of investment options is summarily rejected by securities industry professionals?

How did the PERA Board go about determining the geographical investment boundaries that offer the greatest risk/reward potential for the investment our funds? What analysis was conducted?  What advantages did Colorado’s borders offer over limiting investment of the funds to venture capital or private equity opportunities in Massachusetts?  California?  Australia?

Complete PERA "Colorado Mile High Fund" propaganda available here:

http://www.copera.org/pera/about/latestnews.htm#ColoradoFund

Complete Truthout article available here:

http://truth-out.org/opinion/item/17917-bombshell-plutocrats-brazenly-collude-to-hurt-state-economies-and-screw-working-people

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