There’s an argument going around about Illinois’ pension crisis that goes something like this:
The world is coming to an end, and the only way to fix it is to give our pension money to Wall Street.
It’s an argument currently being crowed the loudest by Republican gubernatorial candidate Bruce Rauner, backed up by the Chicago Tribune and at least one of the state’s wealthiest citizens. It’s also an argument that's been floated before, in Illinois and elsewhere, only to be found wanting and rejected by voters and taxpayers alike.
But that hasn't stopped Rauner and others from using the latest proposed pension fix as a platform to cry wolf once again.
News that Illinois legislative leaders have struck a deal they say will save $160 billion over 30 years and fully fund the systems by 2044 has sent those wanting radical restructuring of the state’s pension system into overdrive.
Their argument says any attempt to meet Illinois’ pension obligations is guaranteed to bankrupt the state. Therefore, the state shouldn’t even be in the pension business at all, and the billions of dollars collected from state workers for their retirement should be given to private Wall Street firms, who would clearly know how to handle the money better.
Period. End of story. No other information needed.
Oh, sure. Those advancing this argument are couching it in terms designed to tug on the heartstrings of taxpayers across the state.
For example, candidate Rauner likes to blame unnamed “union bosses” for the current problems, who he says are basically stealing money from average citizens like you and me.
For its part, the Tribune argues pension obligations simply cost too much and crowd out “essential state services,” forgetting that taking care of citizens who’ve spent their life working for the public is seen by many as "essential."
Further, a recent Tribune op-ed by the wealthiest person in Illinois, hedge fund manager Kenneth Griffin, paints the situation in even starker terms:
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The proposed legislation provides for modest reforms of our broken pension system coupled with guarantees that payments to government employee pensions will come before paying for schools, hospitals, parks, police or fire protection. This isn't a reform, but rather a fiscal death sentence.
The solution, Griffin says, is to give pension funds to Wall Street money managers. “If cities and counties want to provide more generous pension benefits, so be it, but they would have to fund those benefits directly into personally owned 401(k)-style plans,” he wrote.
Rauner has said over and over and over again that the only way to fix the situation is to move everybody in the pension system to 401(k)-style private investments.
What’s left out of the conversation, of course, is that everybody here has a vested or ideological interest in seeing the pension system in Illinois dismantled, or in advocating for resources to be diverted away from one group and given to another.
Hedge fund manager Griffin, who has donated $250,000 to Rauner’s campaign, also serves on the Republican’s campaign finance committee. Rauner, who has made pension reform a center peice of his campaign, has himself made money from managing public pension dollars.
Earlier this year, Crain’s Chicago Business reported Rauner’s old venture capital firm, GTCR, had “more than $10 billion under management largely from public pensions nationwide, including the biggest in Illinois.”
For decades the Tribune has advocated “free-market reforms” and come out against union interests whenever it got a chance.
No one, however—Rauner included—has said why a 401(k) style plan would work, how it would be structured, or how it would benefit retirees better than the current system. No one has said exactly how giving money to private companies changes the state’s pension costs, either. Just that we really have no other choice.
There’s little doubt that a state that spends nearly 25 cents of every tax dollar it collects on pensions, as Illinois does, has a problem. And an argument can certainly be made that politicians have curried favor over the years with critical voting blocs—such as unions—by using pension benefits as a tool.
But until someone can articulate how handing over the state’s pension funds—made up of contributions taken directly from public employee paychecks—to private money managers will do anything other than line the pockets of hedge fund owners and venture capitalists like Rauner and Griffin, I’m not sure anyone should take them seriously.
Not that it will stop them from trying anyway.
