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Do they want failure?

Wednesday, Aug 28, 2013

* One of the components of the possible pension reform compromise that’s under discussion would be to use money currently appropriated for pension bonds to make pension payments once those bonds are paid off. The Tribune editorial board doesn’t like the idea

The state sold a total of $17.2 billion in bonds to make payments into the pension funds in 2003, 2010 and 2011. The state will be done paying off some of the bonds by 2015. One huge bond sale — the $10 billion borrowed under Rod Blagojevich — will be retired in 2033, freeing up more money to pay down the pension system’s liability.

That component — one of the linchpins of the draft proposal — worries us.

First, future money that would be set aside after the bonds are paid off is money that might better be spent elsewhere on education, Medicaid and services for the state’s most vulnerable. Or — get this — tax relief. Instead, under this plan it would be spent propping up a system that will perpetuate overly generous benefits that taxpayers simply cannot afford.

* OK, but the Tribune has repeatedly and forcefully editorialized in favor of House Speaker Michael Michael Madigan’s pension reform proposal, including this May 8th diatribe entitled “Knock yourselves out, Senators - But know that the fate of Madigan’s bill will define you”

Madigan’s plan makes it easier to project savings because it is based on more predictable outcomes.

* From an April 30th SJ-R story about Speaker Madigan’s pension plan

Madigan’s plan also calls for the state to use $1 billion a year now allocated to repaying pension bonds to paying down pension debt once the bonds are retired.

So, the Trib is now attempting to slay a proposal that it has long supported. Why? I dunno. But I think it’s fair to suggest the same answer that the Tribune itself discussed on June 12th

And there’s plenty of suspicion that good buddies Madigan and Cullerton aren’t really at impasse, they’re just gaming everybody; failure, for some reason, suits them.

* Now, let’s go back to the more recent editorial blasting the possible compromise plan

Money from the state’s main checking account that now pays down pension borrowing debts would be redirected once the debts are paid off. The money would be invested and, assuming an 8 percent return, eventually get pumped back into the pension system to reduce the liability.

Any investment adviser will tell you that expecting an 8 percent return is, um, an arguably fanciful projection. Yet the plan would work only if those steady returns materialize.

* From the Tribune Company’s 2012 financial statement

Effective Dec. 30, 2012, the Company began utilizing the Aon Hewitt AA-Only Bond Universe Yield Curve for discounting future benefit obligations and calculating interest cost. The Aon Hewitt yield curves represent yields on high quality (AA and above) corporate bonds that closely match the cash flows of the estimated payouts for the Company’s benefit obligations. Prior to Dec. 30, 2012, the Company had utilized the Citigroup Pension Discount Curve for discounting future benefit obligations and calculating interest cost.

The Company used a building block approach to determine its current 7.5% assumption for the long-term expected rate of return on pension plan assets. This approach included a review of actual historical returns achieved and anticipated long-term performance of each asset class.

Emphasis added for obvious reasons.

- Posted by Rich Miller        

37 Comments
  1. - Nearly Normal - Wednesday, Aug 28, 13 @ 10:01 am:

    How dare you look behind the curtain, Rich! The Tribbie Wizards trick the Munchkins of the Land of Oz (er, Illinois) with their editorials about pension funding. Meanwhile, look how they are handling their own pension obligations–bonds!


  2. - 47th Ward - Wednesday, Aug 28, 13 @ 10:03 am:

    Is the Tribune under the illusion that the rest of the pension reform package won’t be draconian enough for them? Putting the future revenue aside, I suspect the committee will come up with ways that make the pensions less generous. Sure, they won’t go as far as the Tribune would prefer, but unlike the Tribune, members of the committee are sworn to uphold the Constitution.

    I think the Tribune is wetting its pants a bit prematurely on this. Let’s see what the committee comes up with before assuming they are simply “propping up a system that will perpetuate overly generous benefits.”


  3. - JC - Wednesday, Aug 28, 13 @ 10:11 am:

    Overly generous benefits.

    http://quincyjournal.com/judges-left-out-of-illinois-pension-reform-plan1338379968.html

    Why no concern about judges being left out by tribbies?


  4. - Downstater - Wednesday, Aug 28, 13 @ 10:15 am:

    There were 11 pages of footnotes pertaining to the Tribune’s pension obligations. The paragraph above is simplistic in trying to state the assumptions used by the Tribune’s pension plan actuaries. The Tribune is under bankruptcy requiring approval for its pension obligations.
    Reducing future costs is the one way to bring about a long-term reduction in overall pension costs.


  5. - Keep Calm and Carry On - Wednesday, Aug 28, 13 @ 10:20 am:

    We certainly have a lot of bills to pay.

    Fortunately for us, the Constitution is clear on the order of payment for those bills: pensions take priority at the top of the list.

    Nearly everything else, including education, Medicaid, tax relief? Secondary.


  6. - langhorne - Wednesday, Aug 28, 13 @ 10:24 am:

    two points. one, i think the tribbies want the situation to worsen until their draconian cuts seem a necessity. this would be fulfilling their prophecy. two, i really dont care what their opinion is any more, and hope no one else gives it any credence, beyond ty and his merry band.


  7. - Joe M - Wednesday, Aug 28, 13 @ 10:25 am:

    For a while I thought that the Tribune has been coming up with such whacky editorials in order to posture themselves for a buyout by the Koch Brothers. But the Koch Brothers announced on August 23rd that they weren’t going to buy the Tribune - and this Tribune editorial came out on the 25th. Perhaps they are still trying to impress some other right-wing potential buyers.


  8. - facts are stubborn things - Wednesday, Aug 28, 13 @ 10:32 am:

    I am amazed at how little some (Trib)view the importance of the rule of law and the sanctaty of contracts and of the IL constitution. They go on and on as if these things don’t matter. Once you no longer honor the rule of law you don’t have much left.


  9. - Nicshh - Wednesday, Aug 28, 13 @ 10:53 am:

    Well played Rich.


  10. - Grandson of Man - Wednesday, Aug 28, 13 @ 11:02 am:

    Awwww. The Trib editorial board is concern-trolling about being able to pay for Medicaid, public education and helping “most vulnerable.”

    There are ideas that should ease the Trib’s teary-eyed concern for public services, like a progressive income tax and closing a few tax loopholes.

    Note to Trib: Many of the people who support safety-net programs also support public workers. Trying to drive a wedge between them will be yet another exercise in futility.


  11. - Been There - Wednesday, Aug 28, 13 @ 11:07 am:

    ===is money that might better be spent elsewhere on education, Medicaid and services for the state’s most vulnerable===
    Huh? Are these not programs that the Trib has in the past condemned as wasteful? And, at least with education, almost all the expense goes to pay the salaries of teachers. Those same teachers that are 3/4th of the participants in the current pension system and gives them “overly generous benefits”.


  12. - wordslinger - Wednesday, Aug 28, 13 @ 11:18 am:

    –Any investment adviser will tell you that expecting an 8 percent return is, um, an arguably fanciful projection. Yet the plan would work only if those steady returns materialize.–

    Not only do they not read their own stuff before editorializing, they apparently don’t read anything.

    Ten seconds on the google would reveal the stock market has averaged an annual return of 9.6% over the last 100 years, and 12.5% over the last 25.

    The endgame for Ty and the Tribbies is to get the state out of the pension game altogether and move everyone into a 401K.

    The motive is anti-union ideological and makes no fiscal sense whatsoever as it would be enormously expensive.

    Plus, once you’re out of the pension game — presto — you’re in the Social Security game. And those guys don’t let you short your contributions year-in-and-year out.


  13. - kerfuffle - Wednesday, Aug 28, 13 @ 11:29 am:

    Who really cares what the Trib’s editors think? I think their impact on anything in the political arena is marginal at best.


  14. - Frenchie Mendoza - Wednesday, Aug 28, 13 @ 11:31 am:


    The endgame for Ty and the Tribbies is to get the state out of the pension game altogether and move everyone into a 401K.

    Actually, the endgame (IMHO) is to destroy the unions. Period. That’s what’s driving everybody bonkers — unions. And it’s why Rauner is positioning himself to be the person that does this.

    The GOP knows that if the pensions go, the unions go. And the only way to gain leverage over the unions is to weaken and diminish the pensions.

    This seems crystal clear to me — and it’s exactly why Rauner is doing what he’s doing (and, apparently, polling high whenever he talks about union busting.)

    I suspect folks are especially emboldened by Wisconsin — and doubly-so because the union bashing going on there survived a recall.


  15. - reformer - Wednesday, Aug 28, 13 @ 11:35 am:

    I bet Trib editors hate it when their own words are quoted taking a position they now oppose. I guess it’s an editor’s prerogative to change his mind, without ever admitting they did so.

    I’m sure they also hate it when it’s revealed that their own company makes long-term assumptions that are too risky when the state makes them. This reveals a hypocritical double standard.


  16. - illinifan - Wednesday, Aug 28, 13 @ 11:44 am:

    Thanks for exposing the hypocrisy and gamesmanship of the Trib……with what I read I keep wondering if the Koch brothers secretly purchased the paper, or at least the editorial board


  17. - PublicServant - Wednesday, Aug 28, 13 @ 11:49 am:

    The Trib’s position is totally understandable. Compromise is in the air, and the Tribbys want to stake out an extreme position so that when people meet in the middle, the middle is stretched as far as possible to the right.

    So, just know that and ignore the babble.


  18. - one for all - Wednesday, Aug 28, 13 @ 11:49 am:

    Hmm, so the Tribune has skin in the game. Oh yea did Ty and pals call the rating agencies to decrease the bond rating concerning the Tribune bonds now that the Tribune is in Chapter 11 bankrupcy?


  19. - equivocator - Wednesday, Aug 28, 13 @ 12:01 pm:

    Frenchie, I think you are right on. The broader issue is that unions serve as an inconvenient obstacle from keeping governing officials from running over public employees. Alternatively unions have become the convenient scapegoats for explaining how their greed has undermined the state’s fiscal solvency. If you look at Wisconsin, Indiana, and New Jersey, these states have been successful in reducing pension benefits and also diminishing the influence of unions. While not exactly the same, what is happening in Illinois is eerily similar.


  20. - wordslinger - Wednesday, Aug 28, 13 @ 12:17 pm:

    –now that the Tribune is in Chapter 11 bankrupcy?–

    Tribbies are out of bankruptcy. As part of the settlement, Trib employees got $32 million back out of the $250 million Zell raided their ESOP for to take the company private.

    That’s about 13 cents on the dollar.

    Hmmm, maybe the Tribbies really do know what they want on this pension issue…..


  21. - walkinfool - Wednesday, Aug 28, 13 @ 12:24 pm:

    The Trib latest editorial clearly expresses their view that any support for the long-term viability of pensions would undermine achieving their real goal of lower taxes, regardless of the damage. To claim interest in education, Medicaid or the less fortunate, is either stupid or fraudulent on their part.


  22. - Central Illinois Uion Member - Wednesday, Aug 28, 13 @ 12:32 pm:

    Off topic but…where does the Union purge stand? Aren’t 1900 supposed to be removed?


  23. - RNUG - Wednesday, Aug 28, 13 @ 12:34 pm:

    Keep Calm and Carry On @ 10:20 am:

    Actually, because of the continuing appropriation resolutions for bond repayment, bonds are ahead of pension fund payments. But if a case that actaully hinged on who gets paid first, bonds or pensions, ever gets to the ISC, the bond holders may get a surprise. But Illinois will have to get a whole bunch worse fiscally before something like that might occur.

    I could be all wet, but I think the real end game is reducing the pension fund payments enough to be sure the General Obligation bond holders will always get paid … because right now, if you take the ISC’s previous statements that “the pensions must be paid when due” at face value, if the pension funds were broke, then the State has to pay the pension checks from GRF and stiff everybody else … and it would be a lot easier, short term, to stiff the bond holders than it would be education, welfare, public safety, etc.


  24. - Cod - Wednesday, Aug 28, 13 @ 12:34 pm:

    A perceptive connection of the dots here, but such criticism of the Trib seems like beating the proverbial dead horse. Their op-eds have little or no credibility, so it seems pointless to point out their lies and utter lack of logic.


  25. - one for all - Wednesday, Aug 28, 13 @ 12:44 pm:

    - RNUG - Wednesday, Aug 28, 13 @ 12:34 pm
    I think your post is right on. But if it really came to paying bond holders, then we would probably have a tax increase.


  26. - one for all - Wednesday, Aug 28, 13 @ 12:46 pm:

    - Cod - Wednesday, Aug 28, 13 @ 12:34 pm:
    Cod, I enjoy your insightful posts, but disagree with this one. I think we need to continuously remind everyone of the fallacies perpetuated.


  27. - one for all - Wednesday, Aug 28, 13 @ 12:48 pm:

    Er, I should have included with fallacies, lies, inaccuracies, etc.


  28. - thechampaignlife - Wednesday, Aug 28, 13 @ 12:57 pm:

    ===maybe the Tribbies really do know what they want on this pension issue===

    Maybe that’s how to get them on board - the Trib gets a cut of the POB funds once the bonds are retired.


  29. - Harry - Wednesday, Aug 28, 13 @ 1:36 pm:

    The consistent thread at the Tribune has been that public employees and retirees have to suffer because of some collective sin committed many years ago. Don’t try to interject facts (like that IL pension benefits were always in line with national norms and far less than in places like California and NY–leaving corrupt but financially insignificant special deals like GARS and union officers out of it–and Tier 2 is positively stingy).

    That’s really all they have been about, but they and the Civic Committee have played a huge role in preventing any political compromise that could actually get done.


  30. - Keep Calm and Carry On - Wednesday, Aug 28, 13 @ 1:44 pm:

    RNUG @12:34

    This is why I added the caveat, “Nearly everything else” is secondary. I read your comments, among other sources. Thanks for your consistently solid posts on the issue.


  31. - titan - Wednesday, Aug 28, 13 @ 1:50 pm:

    RNUG - “it would be a lot easier, short term, to stiff the bond holders than it would be education, welfare, public safety, etc.”

    It would be a rather quick suicide…not instant, but fairly quick. If the state stiffed bondholders, the state would be hard pressed to sell another bond issue (at least, to do so at less than loanshark rates).


  32. - JC - Wednesday, Aug 28, 13 @ 2:10 pm:

    Always wondered why the Trib considers itself some sort of expert on the pension issue. Given that it gets facts wrong and/ or misrepresents them it is far from anything close to a leader on the issue. Rather, their goal seems to be to whip their readers up into a frenzy of resentment and rage against anyone in the pension systems. We all know who they speak for. That I’m even talking about them keeps them in the game and having dropped my subscription long ago, I sure wish others would keep their money in their pockets rather than give it to them. After all, they’re doing their darnedest to make sure you get less to spend, so why spend it on them?


  33. - Realist - Wednesday, Aug 28, 13 @ 3:08 pm:

    The Trib editorials do seem to be becoming more and more desperate and illogical, which I find more and more reassuring.


  34. - RNUG - Wednesday, Aug 28, 13 @ 4:26 pm:

    titan @ 1:50 pm:

    That’s why I said short term …


  35. - Obamas Puppy - Wednesday, Aug 28, 13 @ 8:10 pm:

    Well done Rich,. These investment assumptions are for 30 years, something team Tribune can’t figure out. That along with investment smoothing decreases volatility in rate making. It is funny to see that now pub employees need to cut their pension benefits so the state can decrease taxes. Not properly taxing in the past is what lead to underfunding in the first place. Finally I am taking from their editorial that they think this can be solved with less money being devoted to this debt. Now we can see why they are in bankruptcy. They are a joke.


  36. - no sense - Wednesday, Aug 28, 13 @ 10:43 pm:

    Remember the Constitution is for the people.


  37. - Tin man - Thursday, Aug 29, 13 @ 8:58 am:

    The Tribune loss all integrity years ago,it’s now all about trying to impress monied people on the north shore.


Sorry, comments for this post are now closed.


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