McHenry County Blog

When State Senator Pam Althoff’s Telephone Town Hall Meeting contacted me after her five hour session (with committee meetings in the morning), I decided to listen in.

Some notes I took follow.

A man from Woodstock with a $10,000 property tax bill said, “Taxes are out of control for Dorr Township. I can’t afford to retire in my home. As soon as I can, I’m moving out of this state.”

[I would point out that Woodstock School District 200 took every dime it could and that was most of the local tax increase.]

Althoff took two polls, the first about the Democrats 67% income tax hike. She said she would announce the results during the hour and did.

• 71% said cut spending and the tax hike
• 21% favored leaving the tax hike in place but not allowing government to grow
• 2% wanted government to continue to increase in size
• 6% were undecided

At least two people talked about government employee pensions.

Althoff said that something would have to be done or 15-20 years from now “people will get a pink slip.”

I’m not sure one can get fired from a pension program, but her point was that the five public pension funds would eventually run out of money.

When asked where she stood on the union-backed pension plan (the one State Senate President John Cullerton is sponsoring), she said, “I supported both of the pieces of (pension) legislation.”

Another person pointed to the 3% annual pension increases, which are compounded, in public pensions as a big problem. He said that nobody in the private sector gets anything like that.

Althoff agreed and pointed out that the compounding was more than 50% of the problem.

A poll was taken on what Althoff characterized as “conceal and carry.”

Althoff said she was in support of such legislation.

The results were

• 47% support
• 29% do not support in any form
• 26% support with exemptions
• 4% were undecided

A nurse called to ask if the state’s assuming administration of Obamacare would result in something like the pension crisis down the road.

Althoff did not try to dissuade her of that possibility.

A man called about fracking. He was worried about his well water.

He apparently thinks it will occur in McHenry County.

Althoff said she was undecided but did not tell him natural gas and oil has not be found under McHenry County’s acreage.

A man from a small town without zoning whom Althoff recognized as someone she had talked to before talked about windmill regulation in places like his. Althoff just passed a bill to give them some control within their village limits, but with no power outside those limits. Municipalities with zoning have some power within a mile and a half of their boundaries.

When the hour was up Althoff invited people to leave messages on her answering machine.

A press release from State Senator Dan Duffy:

Duffy Passes Bi-Partisan Pension Reform Measure

SPRINGFIELD – On Wednesday, May 15, the Illinois Senate unanimously passed House Bill 140, a bi-partisan measure sponsored by State Senator Dan Duffy (R-Lake Barrington).

Duffy worked with State Rep. Jack Franks (D-Marengo) to pass the legislation, which would eliminate benefits packages currently afforded to part-time members of state-funded transit boards.

“Illinois is notorious for its large number of wasteful boards and commissions,” said Duffy.

“While we’re financing these boards, paying their members often exorbitant salaries as well as benefits, we’re not making payments on pensions for teachers, firefighters, and policemen.

“Benefits for these boards and commissions are low hanging fruit, and are a good place to start in making up for the $100 billion unfunded pension liability in Illinois.”

House Bill 140 stipulates that members of the Regional Transportation Authority Board, Suburban Bus Board, Commuter Rail Board, and Chicago Transit Authority Board are not eligible for pension or insurance benefits if they become a member of these boards on or after the effective date of the legislation.

“For members being reappointed to these boards, previously accrued benefits will remain unchanged, but all benefits will be eliminated for any future terms of service.

Bi-partisan effort is largely to thank for the passage of this legislation.

“I have enjoyed working on this truly bi-partisan piece of legislation with my house colleague Democratic Rep. Jack Franks,” said Duffy.

“Rep. Franks and I agreed fully on this issue and by coming together we were able to pass this legislation unanimously in both houses of the General Assembly.

“Now it’s up to Governor Quinn to sign this bill into law and help us cut some waste out of our overburdened pension system.”

The Southtown has a Phil Kadner column about the negative effects (more later than soon) of shifting the burden of paying teacher pensions from State government to local school districts.

He missed one aspect that some may find significant.  I explain that puzzle piece in the following comment I left under his piece:

Phil Kadner writes, “You paid tax money to fund the pensions. But your elected leaders chose to spend the money on something else.”

The Illinois State Capitol where Democrats plan to shift teacher pension costs to local school districts, which will raise property taxes.

But he leaves out who encouraged the legislators to spend the money elsewhere.It was the teacher union lobbyists.

When I was looking at budgets, there was a section for education.

It was divided into three parts:

1. k through 12
2. universities
3. pensions

The pressure was always to increase State Aid to Education.

The reasoning (not stated publicly, I dare say) was that with higher financial assistance, teacher salaries could be raised, which, in turn, would increase teach pensions.

Kadner’s comments about Mike Madigan’s proposed pension shift deserve wider dissemination.

He points out,

“Chicago finances its teachers’ pension system, the argument goes, and Chicago taxpayers also contribute to the system for teachers outside the city.

“What Madigan and the other Chicago politicians don’t say is that Illinois’ education funding system always has been rigged to shift more money to the city.”

He continues his chain of logic:

“The goal is to spread the cost shift over so many years, 10 to 15, that school districts won’t initially object and taxpayers won’t care.

“The cost initially will be a small fraction of your local school district’s budget. But over time those costs will compound and eventually amount to billions of dollars.

“It’s very similar to the scheme the Legislature used to drive the pensions systems to near collapse.

“By the time the financial crisis hits the school districts, the lawmakers today no longer will be in office. No one will remember who is to blame.”

A press release from State Senator Pam Althoff:

Springfield, Ill. – State Sen. Pamela Althoff (R-Crystal Lake) said last week the Senate passed a pension reform measure backed by the Senate President and acted on a number of other measures, including medical marijuana legislation, a bill to open the state’s system of education funding up to additional scrutiny and a measure creating the state-based health insurance exchange.

Pension Reform – Senate Bill 2404

On May 9, Senate President John Cullerton presented his pension reform legislation to the Senate, Senate Bill 2404, and chose to ignore Speaker Madigan’s pension proposal that already passed the House. President Cullerton’s measure passed with some bipartisan support.

Althoff voted in favor of the measure in order to keep the discussions of reform moving forward as she feels this is not the final version of reform.

“All stakeholders should be a part of the discussion for the pension reform solution,” Althoff said.

“Although the current form of Senate Bill 2404 does not produce the same savings as Speaker Madigan’s proposal, it does in fact save the state money.

“With that said, there is opposition to this bill and it is assumed that these issues will be taken up with other aspects of the Madigan proposal in the House.

“It is important that these discussions move forward and we achieve a solution that sustains our systems while protecting our retirees and workers.”

Rough estimates project Senate Bill 2404 will reduce the state’s pension payments in the upcoming fiscal year by $850 million, and would save a total of $46 billion over the next 30 years. While the measure would not strengthen the current funding formula, it would guarantee the state could make the pension payments required under current law.

However, opponents of the bill say Senate Bill 2404 does not do enough to stabilize the pension systems or reduce the state’s pension liabilities, which have been estimated by some to exceed $100 billion. They noted that in comparison Senate Bill 1, the pension proposal being pushed by Speaker Michael Madigan, promises savings of about $150 billion over 30 years, including approximately $2 billion in 2015.

Supporters of the measure contend that it may be more likely to meet Constitutional muster through provisions which give employees a choice of benefits. But opponents said there was no guarantee that the proposal would be held constitutional and pointed out that a retired teachers organization has already pledged to challenge the measure in court.

Senate Bill 2404 would require employees in every system but the Judges choose one of three options:

• Keep their current Cost of Living Adjustments (COLA) on their future pension benefits – which is 3% compounded annually. Give up access to State health insurance when they retire and have future salary increases not count for their pension; or
• Keep the current COLA but agree to a three-year delay in that COLA. Retain retiree health insurance. Future raises would count toward pensions. Workers would be required to pay an additional one week’s pay each year toward their pensions; or
• Take a lower COLA (3% with no compounding) and agree to a two-year delay in that COLA. Employees could keep their retiree insurance and pensionable raises and not have to make extra contributions.

Retirees would be able to retain their current 3 percent compounded COLA, but must choose between:

• Keeping access to health insurance and having a 2-year freeze in their COLA; or
• Giving up health insurance with no COLA freeze.

The measure now moves to the House for consideration, although successful passage of it remains rather unlikely.

Education Funding Transparency – House Bill 3133

In addition to pension reform, Senate lawmakers turned their attention to other matters, including a bill sponsored by Senate Republican Leader Christine Radogno that would open up the General State Aid formula to greater public scrutiny.

The Senate Executive Committee approved House Bill 3133, which would require the approximate amounts forecast to be paid for state Poverty Grants and Foundation Level Grants to be listed out in a state budget bill for easy review; the Property Tax Extension Limitation Law adjustment must also be listed separately.

The measure was introduced in response to a study conducted by Senate Republicans that revealed the General State Aid allocation has been listed as a lump sum in the state budget, which makes it difficult to decipher how state education funding is being allocated.

House Bill 3133 seeks to increase transparency of the state’s system of education funding, which will allow policy-makers to detect trends that—until very recently—had been concealed, and ensure that schools are being funded in the way the General State Aid formula was intended.

Medical Marijuana – House Bill 1

The Senate Executive Committee also advanced legislation that would allow for the dispensation of medical marijuana, a measure which has received significant attention from the media and the public. House Bill 1 would allow a patient who has been issued a registry identification card by the Department of Public Health to possess up to 2.5 ounces of cannabis during a 14 day period. The measure specifies certain qualifying diseases and illnesses, but does not include general eligibility for chronic pain or nausea.

The measure establishes criteria for medical marijuana cultivation centers and requires them to be registered by the Department of Agriculture. The Department of Agriculture may approve up to 22 licensed marijuana growers, but no more than one per State Police District.

House Bill 1 stipulates that a cultivation center would only be permitted to provide medical cannabis to dispensing organizations whose purpose is to dispense cannabis and paraphernalia to qualified patients. The dispensing organizations would have to register with the Department of Financial and Professional Regulation (IDFPR); IDFPR would be allowed to approve up to 60 dispensaries.

In response to safety concerns, the bill provides a framework to allow for employer regulation and discipline for use of cannabis in the workplace. It also stipulates that a patient may not drive while under the influence of medical cannabis. A provision was included in the bill allowing for field sobriety tests to be administered to a medical cannabis card holder suspected of driving under the influence, and states that evidence would be admissible in court.

State Health Insurance Exchange – House Bill 3227

The Senate also moved forward with implementation of a state-based health insurance exchange as part of the requirements of the federal Affordable Care Act, often referred to as “Obamacare.” The Senate Insurance Committee approved House Bill 3227, establishing and outlining the structure of the Illinois Health Benefits Exchange. It is projected plan enrollment will begin Oct. 1, 2014. The exchange will initially have two components, one serving individuals and one serving businesses with 50 or fewer employees. In 2016, the two parts could be merged and could also include employers with up to 100 employees.

Additional Senate Action

The Senate considered a number of additional measures both in Senate Committees and as a full body. You can catch up on legislation moving through the Senate, as well as measures that have been approved by the General Assembly, at the Senate Republican’s “Senate Action” page.

Governor Quinn Requests Federal Assistance for 11 Counties Affected by Flooding

On May 9, Gov. Quinn asked President Obama to declare 11 Illinois counties major disaster areas following the storms and heavy rainfall in April. If that request is approved, the residents in those counties will be eligible to apply for grants and low-interest federal loans to help recover from the historic flooding. The counties included in the request are Cook, DeKalb, DuPage, Fulton, Grundy, Kane, Kendall, Lake, LaSalle, McHenry and Will.

A communication from State Rep. Mike Tryon:

May is shaping up to be a busy month in Springfield, as members of the House and Senate are trying to complete their work in time for a May 31 adjournment.

This Friday (May 10) is the deadline for Senate Bills approved in that chamber to make their way through our House committees and then those bills have until May 24 to reach 3^rd Reading in the House.

While last week and this week will have House members spending a lot of time in committees, starting May 13 we can expect long days on the House floor as we hear hundreds of bills that have passed in the Senate and are seeking House approval.

Similar activity is taking place across the hall in the Senate Chamber, as the bills that were successful in the House through the end of April are now moving through the Senate approval process.

In addition to the movement of Senate and House Bills, May is the month when the FY14 budget will be finalized with House and Senate approval of appropriations.

Some highlights from last week include:

Madigan Pension Bill Clears Illinois House

With only two votes to spare, House Speaker Mike Madigan successfully pushed through a pension bill that requires participants from four of the State’s five pension systems to pay 2% more for their retirement benefits while limiting cost of living adjustments (COLA’s) and increasing the retirement age for all State employees under the age of 45. The bill also caps pensionable income at $113,600, and includes a provision that requires the State to make full pension payments every year.

I voted NO on this latest pension bill, SB1.

I have studied the pension issue in great depth with regard to constitutionality, and while I was fully supportive of capping pensionable income and making some other adjustments moving forward, I could not support elements of the bill that I firmly believe are unconstitutional.

The Illinois Constitution is clear in its language that states,

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

In other words, the pension benefit is a legally-binding contractual condition of employment.

We can’t go back after the fact and change the earned benefits of today’s retirees.

Courts in other states agree.

In fact, nearly identical pension reform language regarding reductions to COLAs in Arizona and Colorado were recently challenged in court and found to be unconstitutional.

In Colorado, not only were the reductions in COLAs found to be unconstitutional, but the courts ruled that the money must be paid back to pension recipients.

I could not support a scenario where a bill was passed, budget changes were made, and then hundreds of millions of dollars would have to be re-budgeted and repaid after the bill was found to be unconstitutional.

Over the last few years I have sponsored three different pension bills that were comprehensive and constitutionally-sound.

These bills addressed areas of pensions that are not protected by the constitution, like capping pensionable income and changing employee contributions moving forward, and each bill also identified solid revenue streams for pension stabilization.

But as he so often does, Speaker Madigan buried the bills in the Rules Committee, and refused to allow them to be heard.

Senate President Cullerton Announces “Agreed “ Pension Bill

Just hours before Speaker Madigan’s pension bill passed in the House, Senate Majority Leader John Cullerton announced he had reached an agreement with pension system/state employee union leaders on a bill that addresses the pension crisis while protecting the constitutionally-guaranteed elements of employee benefits. The very unions that would certainly challenge SB1 in court say they are on board with the Cullerton bill, SB2404.

I look forward to reading and researching this bill, and if it indeed meets constitutional muster, I will strongly consider adding my name as a cosponsor. While it would probably not fully solve the problem, it could be a great first step in reining in an out-of-control liability. Leader Cullerton presented his bill to the Senate Democrat Caucus on Monday, and most, if not all, Senate Democrats are ready to support that bill.

Whereas the Madigan bill unilaterally cuts pension benefits to employees, the Cullerton plan offers employees a choice over what benefits they would be willing to sacrifice.

Under the Cullerton plan, current employees would choose from the following options:

• Option 1: Give up the current 3% compounded COLA for a flat 3% COLA that would be delayed for three years after retirement. In exchange, they would receive access to retiree health care plans and their future raises would count toward pensions. They would also have an option of enrolling in a 401(k)-style plan to supplement their pensions.
• Option 2: Keep their compounded COLAs but lose access to retiree health care which is subsidized by the State. Their future raises would not count toward pension benefits.
• Option 3: Keep their COLAs and access to retiree health care, but pay 2% more of their salaries toward their retirement benefits. Their COLAs would be delayed for three years after retirement.

Today’s retired pension recipients and those who provided notice of their intent to retire by Jan. 1 of this year would choose from the following options:

• Option 1: Keep the 3% compounded COLA but give up access to retiree health care.
• Option 2: Retain access to retiree health care and a 3% compounded COLA, but the COLA would be frozen in years 1 and 3 of retirement.

Leader Cullerton said SB2404 could come to the Senate floor for a vote on Thursday of this week. If successful, it will move over to the House for our consideration.

Illinois Recovers $38 Million through New Unemployment Safeguards

The Illinois Department of Employment Security (IDES) has announced that thanks to an investigation and subsequent legislation sponsored by a bipartisan group of legislators in the Illinois House, the agency has recovered $38 million in taxpayer funds that were improperly distributed to 22,000 individuals who received unemployment benefits while their address was an Illinois jail or prison. When the improper distributions were identified, new safeguards were put in place to cross-check unemployment benefit rolls against lists of persons convicted of crimes and serving time. I was shocked to learn that such common-sense steps were not already a part of the unemployment benefit screening process, but am pleased to know that it has been corrected and money has been recovered.

Welfare Reform Bills Filed in the Illinois House

I have signed on as a cosponsor for four bills which aim to reduce fraud and abuse within the State’s welfare system. Together, they will go far in addressing issues like the fraudulent use of food stamps and the inappropriate use of funds from the Temporary Assistance for Needy Families (TANF) program. Included in the package of welfare reform bills are:

• House Bill 2784 guarantees that TANF benefits are used for the basic needs for which they are intended, like rent, utility and food costs.
•  House Bill 3174 and House Bill 2490 would prevent criminals from receiving aid. They would suspend public aid and benefits to inmates at State correctional facilities and recipients with outstanding warrants.
• House Bill 133 ensures that a person using a LINK card (food stamps) is the authorized user. The proposal would require all LINK cards to display a photo of the cardholder to ensure that the person presenting it at the checkout counter is the same person who is entitled to use it.

Today, roughly 1/3 of all Illinoisans receive welfare benefits. It is my hope that through the passage of these bills, the number of individuals who receive welfare benefits will more accurately depict the actual number of citizens who qualify for the benefit. The bills are currently sitting in the Rules Committee.

House Republicans Call for Vote on Highly Restrictive Fracking Bill

A group of House Republicans held a press conference last week and pushed for a House vote on a widely-supported, bipartisan Fracking bill that has the potential to bring more than 45,000 jobs to Illinois and inject $9.5 billion into the Illinois economy. Fracking, or hydraulic fracturing, is the process through which natural gas and oil are extracted from the earth through horizontal drilling. The process involves injecting water, sand and chemicals into rock formations to release the natural gas and oil. In spite of the fact that more than 50 House members from both sides of the aisle (myself included) have signed on as cosponsors of the bill, Speaker Madigan is refusing to release the bill from committee. Even the environmental community is on board with this bill, due to the strong provisions for environmental protection. The bill is the result of thousands of hours of meetings involving energy and environmental organizations, which resulted in an agreement that permits high volume fracking while enforcing the nation’s strictest water and air protections. It is the biggest job creator our state has seen in many years, and I join my colleagues in urging the Speaker to release the bill for consideration in the House.

Gambling Expansion Plan Clears Senate; Headed to the House

A gaming bill (SB1739) that would expand gambling in Illinois was approved in the Senate on May 1 in a 32-20 vote. The bill would authorize the creation of a 4,000-gaming-position land-based casino in Chicago and allow for electronic gaming at horse racetracks. It would also allow for the creation of four new riverboat casino licenses to be used in Danville, Lake County, Rockford, and in southern Cook County. It would also increase the authorized size of each existing riverboat casino from 1,200 gaming positions to 1,600 gaming positions. The bill is now pending in the House. I cannot support the bill as it is currently written, because nearly all revenue that could/should have been earmarked for Education, for paying down the backlog of bills or for pension stabilization has been wiped out through revenue promises made to a variety of special interest groups.

Supreme Court Grants IL Attorney General Lisa Madigan Extension on Concealed Carry Case

U.S. Supreme Court Justice Elena Kagan decided on Friday to give IL Attorney General Lisa Madigan an extra month to decide whether or not she wants to appeal an Appellate Court ruling that Illinois must allow for concealed carry. The decision does not affect the existing June 9 deadline for concealed carry in Illinois, as set by the 7^th Circuit Court of Appeals. It also does not delay or impact when the case could be heard by the Supreme Court if Madigan decides to pursue an appeal of the 7^th Circuit Court of Appeals decision. The new deadline for an appeal decision is May 24.

I will continue to update you as needed as important issues move through the House and Senate during this very important month.

Probably no one but those on a state or teachers’ pension know or even care about the details, but House Speaker Mike Madigan finally stepped up to the plate Thursday and hit his ball out of the park.

Of course, those who have watched Madigan over the years know that the pension problem is only a problem because he agreed to pension sweeteners and diversions over the years he has been in the House of Representatives.

In any event, the legislation is billed as the way to put the State of Illinois house in order, so let’s see who voted how.

Representatives with a part of McHenry County voting in favor of the bill were

• Jack Franks
• Dave McSweeney
• Tim Schmitz
• Barb Wheeler

The lone vote “No” was cast by

• Mike Tryon

The Daily Herald has figured out what the late former Huntley School Board member Larry Snow discovered in May two years ago.

Taxpayers pick up the bulk, if not all, of the teachers’ side of pension payments to the Illinois Downstate Teachers Retirement Fund throughout the suburbs.

Jake Griffin poses the question:

“Does it matter if districts cover teacher contributions?”

He concludes, “It turns out total compensation for suburban teachers who receive this benefit is about the same as for those who don’t, an analysis of salaries shows.”

As one school administrator puts it, the taxpayer-paid pension payment is “in lieu” of salary.

However, the article notes, “‘There is a small tax advantage if the contribution is covered by the district,’ said Dave Urbanek, a TRS spokesman.”

A press release from the U.S. Attorney’s Office:

U.S. SUES COOK COUNTY AND COUNTY PENSION FUND to Enforce the Employment Rights of Army RESERVE Member

CHICAGO – The United States today filed a civil lawsuit alleging that a Cook County pension fund and Cook County willfully violated federal law by failing to allow a U.S. Army Reserve member to lawfully contribute to her pension for the time she was serving in the armed forces, announced Gary S. Shapiro, United States Attorney for the Northern District of Illinois and the Justice Department.

The lawsuit was filed in U.S. District Court in Chicago on behalf of Army Reserve Capt. Latoya A. Hayward, of Chicago, against the Cook County and the County Employees’ and Officers’ Annuity and Benefit Fund of Cook County. It alleges violation of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA).

According to the complaint, in 2008 Hayward began working for John H. Stroger, Jr. Hospital, which is owned and operated by Cook County.

During her employment with Stroger Hospital, Hayward was mobilized for a two-year tour of duty with the Army Reserves starting on July 27, 2009.

During Hayward’s period of active service, she was mobilized as a nurse case manager at Walter Reed Hospital as part of the Warrior Transition Brigade.

Upon Hayward’s return from duty, the complaint alleges that the county pension fund notified her that not only was she ineligible to make payments into her pension for the 90-day grace period following her active military service, but also that her employee contributions for the two-year period of her active military service would be subject to a 3 percent interest fee.

Among the protections provided by USERRA are pension-related benefits that treat service members who are called to active duty as if they have had no break in service for purpose of the administration of pension benefits.

According to the complaint, both of the pension fund’s requirements for her participation in the plan violated USERRA’s pension protection provisions.

“Members of the Army Reserves sacrifice time away from their jobs to serve their country,” said Mr. Shapiro. “Federal law ensures that they are not discriminated against after they have returned and their employment rights are protected,” he said.

“When Congress enacted USERRA, it was to protect our men and women in uniform from experiencing this kind of alleged injustice,” said Jocelyn Samuels, Principal Deputy Assistant Attorney General for the Civil Rights Division.

“The Justice Department is committed to vigorously enforcing federal laws that protect the employment rights of our service members.”

The case stems from a referral by the U.S. Department of Labor following an investigation by the department’s Veterans’ Employment and Training Service.

The Civil Rights Division and Assistant U.S. Attorney Jeffrey M. Hansen, are representing the government and working with the Labor Department to protect the jobs and benefits of National Guard and Reserve service members upon their return to civilian life.

Additional information about USERRA can be found on the Justice Department website: www.servicemembers.gov and www.usdoj.gov/crt/emp, as well as on the Labor Department’s website at www.dol.gov/vets/programs/userra/main.htm.

Maybe that headline is a little bold, but we’re talking Rod Blagojevich here.   Read the following press release from the United State Securities Exchange Commission and write your own in the comment section:

SEC Charges Illinois for Misleading Pension Disclosures

Washington, D.C., March 11, 2013 — The Securities and Exchange Commission today charged the State of Illinois with securities fraud for misleading municipal bond investors about the state’s approach to funding its pension obligations.

[You can read the SEC order here.]

An SEC investigation revealed that Illinois failed to inform investors about the impact of problems with its pension funding schedule as the state offered and sold more than $2.2 billion worth of municipal bonds from 2005 to early 2009.

Illinois failed to disclose that its statutory plan significantly underfunded the state’s pension obligations and increased the risk to its overall financial condition.

The state also misled investors about the effect of changes to its statutory plan.

Illinois, which implemented a number of remedial actions and issued corrective disclosures beginning in 2009, agreed to settle the SEC’s charges.

“Municipal investors are no less entitled to truthful risk disclosures than other investors,” said George S. Canellos, Acting Director of the SEC’s Division of Enforcement.

“Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system.” [Emphasis added.]

Elaine Greenberg, Chief of the SEC’s Municipal Securities and Public Pensions Unit, added, “Regardless of the funding methodology they choose, municipal issuers must provide accurate and complete pension disclosures including the effects of material changes to their pension plans. Public pension disclosure by municipal issuers continues to be a top priority of the unit.”

According to the SEC’s order instituting settled administrative proceedings against Illinois, the state established a 50-year pension contribution schedule in the Illinois Pension Funding Act that was enacted in 1994.

The schedule proved insufficient to cover both the cost of benefits accrued in a current year and a payment to amortize the plans’ unfunded actuarial liability.

The statutory plan structurally underfunded the state’s pension obligations and backloaded the majority of pension contributions far into the future.  [This was passed while Jim Edgar was Governor.]

This structure imposed significant stress on the pension systems and the state’s ability to meet its competing obligations – a condition that worsened over time.

The SEC’s order finds that Illinois misled investors about the effect of changes to its funding plan, particularly pension holidays enacted in 2005.

Although the state disclosed the pension holidays and other legislative amendments to the plan, Illinois did not disclose the effect of those changes on the contribution schedule and its ability to meet its pension obligations. [Emphasis added.]

The state’s misleading disclosures resulted from various institutional failures.

As a result, Illinois lacked proper mechanisms to identify and evaluate relevant information about its pension systems into its disclosures.

For example, Illinois had not adopted or implemented sufficient

• controls
• policies or
• procedures

to ensure that material information about the state’s pension plan was assembled and communicated to individuals responsible for bond disclosures.

The state also did not adequately train personnel involved in the disclosure process or retain disclosure counsel.

According to the SEC’s order, Illinois took multiple steps beginning in 2009 to correct process deficiencies and enhance its pension disclosures.

The state issued significantly improved disclosures in the pension section of its bond offering documents, retained disclosure counsel, and instituted written policies and procedures as well as implemented disclosure controls and training programs.

The state designated a disclosure committee to assemble and evaluate pension disclosures.

In reaching a settlement, the Commission considered these and other remedial acts by Illinois and its cooperation with SEC staff during the investigation.

Without admitting or denying the findings, Illinois consented to the SEC’s order to cease and desist from committing or causing any violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933.

The SEC’s investigation was conducted by Peter K. M. Chan along with Paul M. G. Helms in the Chicago Regional Office and Eric A. Celauro and Sally J. Hewitt in the Municipal Securities and Public Pensions Unit. They were assisted by other specialists in the unit including Joseph O. Chimienti, Creighton Papier, and Jonathan Wilcox.

This enforcement action marks the second time that the SEC has charged a state with violating federal securities laws in their public pension disclosures.

The SEC charged New Jersey in 2010 with misleading municipal bond investors about its underfunding of the state’s two largest pension plans.

Additional information about the SEC’s initiatives in the area of municipal securities can be found in its Report on the Municipal Securities Market released last year.

A press release from State Senator Karen McConnaughay:

Eligible for on Government Pension, McConnaughay Turns Down Chance for a Second

State Senator Karen McConnaughay (R-St. Charles) has voluntarily turned down the legislative pension offered to members of the General Assembly.

“As someone who is already eligible for a pension after twenty years of service in county government I do not believe it is appropriate to receive two pensions.

“Pension reform is one of my top priorities in this legislative session.

“We must find solutions that preserve the retirement systems for our retired teachers and other public employees who have paid into the system throughout their years of service.”

Senator McConnaughay went on to say,

“I believe that as leaders in our government we must lead by example. I hope this trend continues within the General Assembly if we are going to begin to make headway on Illinois’ massive pension deficit.

“Without comprehensive reform Illinois’ pension obligations pose a legitimate long- term threat to our state’s already faltering economy.”