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This just in… Judge rules against Quinn on salaries - Quinn will appeal decision - Behind the scenes race - Topinka orders staff to process pay checks - Quinn wants direct appeal to ILSCt - Radogno: Appeal a “waste” of money, distraction - Bill Brady calls appeal “waste of money” - Topinka: Pay arriving tomorrow morning

Thursday, Sep 26, 2013 - Posted by Rich Miller

* 2:32 pm - Wow…


*** UPDATE *** * 2:45 pm - The ruling can be downloaded by clicking here.

* The judge rejected the plaintiffs’ contention that by not vetoing the “total” lines in the appropriations bill he hadn’t really vetoed the money. The judge said it was “abundantly clear” that everybody knew the governor’s intent.

* The judge relied on the Jorgensen case, which involved cost of living increases for judges, to rule that the comptroller must “immediately” pay salaries, plus interest.

* More Judge Cohen…

Governor Quinn invites this court to consider statements made during the 1970 Constitutional Convention in construing the word “changes.” This court declines to do so. It would only be proper to consider the debates… if there was doubt as to the common meaning of “changes.”

That means the judge ruled legislative salaries cannot be raised or lowered during a term of office. The governor had argued that Con-Con delegates only referred to stopping legislators from increasing their pay during their terms.

* 3:17 pm - Cullerton react…

Senate President John J. Cullerton released the following statement on Judge Cohen’s order in Cullerton v. Quinn:

“Today the circuit court vindicated the Illinois Constitution as Judge Cohen ruled to protect and preserve the separation of powers. Now that the governor’s actions have been answered by a court, I trust that we can put aside all distractions and focus on the goal of pension reform.

“Pension reform remains our top priority. Even while this case was pending, the legislature never stopped working on this issue. I applaud the progress of the pension conference committee as its members shape a pension plan that maximizes our savings and upholds a fundamental standard of fairness.”

Any bets on whether Quinn will file an appeal?

*** UPDATE *** * 3:20 pm - I got the answer to my own question. I’m told that Quinn will appeal.

Quinn can ask the judge to stay his ruling during the appeal, which would hold up the checks, but Cohen doesn’t have to comply.

* 3:26 pm - Bruce Rauner react…

Republican candidate for governor Bruce Rauner issued the following statement regarding Judge Neil Cohen’s ruling that Illinois must pay lawmakers:

“When Pat Quinn suspended legislators pay I called it ‘just another political stunt.’ More than two months later, the pension system is still broken.

We don’t need any more political stunts. We need a leader who is willing to take on the government union bosses and special interests that control Springfield, and the crowd in charge now refuses to do it. I’ll get the job done.”

*** UPDATE *** * 3:41 pm - I’m told that Quinn may ask for a stay this afternoon. So, there’s kind of a behind the scenes race going on right now between the comptroller’s office, which is quickly processing the checks, and Quinn’s attorneys, who want an immediate stay.

* 3:45 pm - Quinn statement on his appeal and request for a stay…

Governor Pat Quinn Statement on Judge Ruling Against Suspension of Legislative Pay

CHICAGO – Governor Pat Quinn issued the below statement regarding today’s ruling by Judge Neil Cohen to allow legislators to receive their paychecks:

“I respectfully disagree with the judge’s decision.

“On behalf of Illinois taxpayers, I intend to appeal the decision and seek a court stay that would prevent any legislative paychecks from being issued until this case is considered by a higher court.

“However, this case is about far more than just the Governor’s constitutional authority to suspend the appropriations for legislative paychecks.

“The reason I suspended legislative paychecks in the first place – and refused to accept my own – is because Illinois taxpayers can’t afford an endless cycle of promises, excuses, delays and inertia on the most critical challenge of our time.

“Illinois’ pension crisis is costing taxpayers millions of dollars a day; robbing our children of the education and public safety services they desperately need; and holding our economy back from real recovery.

“I will not accept a paycheck until a comprehensive pension reform bill is on my desk, and neither should legislators.

“Nobody in Springfield should get paid until the pension reform job gets done.”

*** UPDATE *** JBT…

TOPINKA: COURT HAS RULED, PAYCHECK PROCESSING TO BEGIN

Comptroller instructs staff to process payments for lawmakers

CHICAGO - Illinois Comptroller Judy Baar Topinka made the following statement Thursday in response to the Court’s ruling to restore compensation for lawmakers:

“In light of today’s Court ruling, I have instructed my staff to begin processing salary payments for Illinois lawmakers. I have consistently said action was required by the General Assembly or the Court to authorize restoration of those payments. That has now occurred, and the Comptroller’s Office will comply. Processing of paychecks for August, September and October begins today.”

* 4:10 pm - From Speaker Madigan’s spokesman…

At this point we will defer comment until issues such as a stay are resolved

*** UPDATE *** * 4:14 pm - Topinka just told Roe Conn of WLS that paychecks will be issued by Monday.

* 4:17 pm - Twitters…


*** UPDATE *** * 4:19 pm - Senate Republican Leader Christine Radogno…

“It will be unfortunate if the decision is appealed and a further waste of taxpayer dollars. Pension reform discussions are moving along with committed legislators meeting regularly, negotiating and working toward a compromise. Illinois desperately needs pension reform. Yet another legal maneuver is a distraction we don’t need.”

* 4:22 pm - Sun-Times…

Republican gubernatorial hopeful Bill Brady described the governor’s original move to withhold legislative pay as “dirty politics” and said any appeal of Thursday’s ruling by Quinn would be “a waste of money.”

“Clearly, when he did this, his own party, particularly the majority party, the Democrats, were very upset, and it didn’t help us move forward on pension reform,” Brady said in an interview with the Sun-Times. “Hopefully, we can set this aside now, get down to brass tacks and come up with a meaningful pension package that will protect the interests of the people who paid into the system and will give us a financial platform to move forward on.”

The state senator from Bloomington also urged Quinn not to appeal.

“The decision has been made. The judge has looked at it. It would just be a waste of money and further erode any chance we have of a meaningful pension package,” Brady said.

“It’s not something I would have done, although I understand in the public eye the governor may have hit a grand slam. But it’s really kind of dirty politics, and he certainly didn’t help himself,” Brady said.

*** UPDATE *** * 6:33 pm - Comptroller Topinka talked to the media today and compared Quinn’s veto to “blackmail.” She also said legislators signed up for direct deposit would likely get their pay tomorrow morning. Listen…

  124 Comments      


Gaming the pension systems then using the money to destroy benefits

Thursday, Sep 26, 2013 - Posted by Rich Miller

* Rhode Island has been held up as a national model for pension reform. But within Matt Taibbi’s fascinating account of how some businesses and groups are taking money they’ve made from pension fund management and using it to lobby for reductions in pension benefits is this astounding segment…

Hedge funds have good reason to want to keep their fees hidden: They’re insanely expensive. The typical fee structure for private hedge-fund management is a formula called “two and twenty,” meaning the hedge fund collects a two percent fee just for showing up, then gets 20 percent of any profits it earns with your money. Some hedge funds also charge a mysterious third fee, called “fund expenses,” that can run as high as half a percent – Loeb’s Third Point, for instance, charged Rhode Island just more than half a percent for “fund expenses” last year, or about $350,000. Hedge funds will also pass on their trading costs to their clients, a huge additional line item that can come to an extra percent or more and is seldom disclosed. There are even fees states pay for withdrawing from certain hedge funds.

In public finance, hedge funds will sometimes give slight discounts, but the numbers are still enormous. In Rhode Island, over the course of 20 years, [Edward Siedle, a former SEC lawyer] projects that the state will pay $2.1 billion in fees to hedge funds, private-equity funds and venture-capital funds. Why is that number interesting? Because it very nearly matches the savings the state will be taking from workers by freezing their Cost of Living Adjustments – $2.3 billion over 20 years.

“That’s some ‘reform,’” says Siedle.

“They pretty much took the COLA and gave it to a bunch of billionaires,” hisses Day, Providence’s retired firefighter union chief. [Emphasis added.]

* And this…

On Wall Street, people are beginning to clue in to the fact – spikes notwithstanding – that over time, hedge funds basically suck. In 2008, Warren Buffett famously placed a million-dollar bet with the heads of a New York hedge fund called Protégé Partners that the S&P 500 index fund – a neutral bet on the entire stock market, in other words – would outperform a portfolio of five hedge funds hand-picked by the geniuses at Protégé.

Five years later, Buffett’s zero-effort, pin-the-tail-on-the-stock-market portfolio is up 8.69 percent total. Protégé’s numbers are comical in comparison; all those superminds came up with a 0.13 percent increase over five long years, meaning Buffett is beating the hedgies by nearly nine points without lifting a finger.

* The Illinois Teachers Retirement System started pumping huge amounts into hedge funds a couple of years ago. From a 2011 Crain’s article…

Springfield-based TRS, the state’s largest pension provider, plans to allocate about a third of its $37.8-billion portfolio to alternative investments such as private-equity and hedge funds, a four-month Crain’s investigation of TRS holdings and practices finds. These unconventional assets typically dangle the potential for higher returns, but only because they also carry greater risks and fees. TRS is shifting its portfolio while it’s still developing an in-house risk-management system.

Gunning for bigger returns exposes the plan to the possibility of bigger losses, further jeopardizing the pensions of 362,121 former and current teachers. The system, which has just 46.5% of the assets it needs to cover promised payments to retirees, is counting on an 8.5% annual return, which many portfolio managers and investors, including Berkshire Hathaway Inc.’s Warren Buffett, say is unrealistically high. If TRS banked on a 7.75% return — the rate that two other Illinois public pensions lowered their forecasts to this year — its assets would equal only 43% of obligations. That would swell its shortfall to $50.1 billion from $43.5 billion.

* And Bruce Rauner’s former investment firm GTCR also takes a 20 percent fee, plus extras…

GTCR has managed money for years for the Illinois Teachers’ Retirement System and the Illinois State Board of Investment, the largest and third-largest, respectively, in Illinois, as well as state and municipal pension plans from the San Francisco City and County Employees’ Retirement System to the Massachusetts Pension Reserves Investment Management Board. Its funds have delivered above-average returns for Illinois, according to Preqin Ltd., a London-based investment data provider.

For its work, GTCR takes a slice of returns it reaps from business sales, typically about 20 percent, and charges management fees, up to 1.5 percent. The Illinois State Board of Investment, for instance, reports it paid $280,000 in fees last year on $85 million it has in two GTCR funds.

Combined, TRS and the ISBI have committed $252 million with GTCR since 1993.

Some folks were understandably upset with the Dixon lawyers’ big cut of the Rita Crundwell settlement yesterday, but we need to talk more - a lot more - about these insanely high fund fees. They’re essentially robbing the pension funds of needed dollars and pushing to use benefit cuts to make up the difference.

Ridiculous.

…Adding… From Bruce Rauner’s campaign spokesman…

Rich - saw your post on fees and returns provided by alternative investment vehicles.

There a few important clarifications that would provide context for your readers:

1. GTCR performance for Illinois has far exceeded the pension funds’ returns: “William Atwood, who leads the Illinois State Board of Investment and has invested the state employee pension fund’s money with GTCR…. says the board’s investments with GTCR have generated annual returns of 17.2% since 1984.” Pension fund over that same time period has been closer to 7-8%. Those are annualized returns, so GTCR has made the pension funds a lot of money.

2. Hedge funds and firms like GTCR are different types of businesses. Hedge funds are typically sophisticated (and leveraged) trading entities. GTCR invests directly in private companies and builds them for the long term.

3. The 20 percent fee is only received if/after they sell a company for profit.

Bottom line is comparing GTCR’s performance for Illinois to that of hedge funds in other states is like comparing apples and oranges.

Also, worth pointing out, as one of your commenters did, that the rate of return for pensions is after fees.

Thanks,

Mike

  78 Comments      


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