Opinion: Pensions, Pols and Pay-to-Play

Isn’t it ironic that when it comes to pensions, two of the state’s most powerful politicians—Rahm Emanuel and Bruce Rauner—are claiming to be reformers even as they continue to rake in campaign contributions from the very firms currently making millions by managing the public’s money in the first place?

No? Well, I didn't think so either.

What is surprising, however, is the size and audacity of the apparent conflicts of interest and campaign finance violations in which both political figures currently find themselves embroiled.

Let’s start with Mayor Emanuel. Recently, David Sirota at the International Business Times reported the mayor has collected more than $600,000 in campaign donations since 2011 from executives at investment firms that manage Chicago pension funds. These donations “appear to flout federal rules banning companies that manage pension funds from financing the campaigns of officials with authority over pensions systems.”

More specifically, the contributions appear to be in clear violation of the Security and Exchange Commission’s “pay-to-play” rule, designed to create clear divisions between investment advisory forms and public officials. They also appear to skirt a 2011 executive order Emanuel signed prohibiting city contractors from making campaign donations.

As Sirota reports:

"The management of municipal pensions should be totally transparent and free of political influence,” former SEC chairman Arthur Levitt told IBTimes after the Chicago contributions were described to him. “The acceptance of contributions by city officials from advisers managing city funds, in my book, smells like bribery.”

For his part, Illinois Governor-elect Bruce Rauner accepted more than $140,000 worth of campaign donations from executives affiliated with firms in which Illinois pension systems have investments, IBTimes reports.

The campaign donations flowed to Rauner despite state and federal rules designed to prevent pension investment managers from donating to candidates for public offices that oversee state pension systems. As governor, Rauner will now appoint the trustees who oversee Illinois’ pension investment decisions.

In both cases, what we have are powerful political figures who are the very definition of walking conflicts of interest when it comes to public pension dollars. Emanuel campaigned for office in 2011 promising to make the tough decisions needed to dig Chicago out of $37.3 billion in underfunded pension liabilities.

From the very beginning, however, he has focused on plans that call for cutting benefits and making retirees pay more, even as he raked in millions of dollars in campaign contributions from the very financial services firms currently charged with managing the city’s pension plans.

Further, in both 2012 testimony before Springfield lawmakers and a subsequent editorial in the Springfield State Journal-Register, Emanuel made it clear that he favored introducing an “element of choice” into the public pension system. Emanuel’s references to choice involve establishing a 401(k)-style system, where public pension dollars are converted to private accounts, managed by investment firms likely to make millions or even billions in profit over the long term.

If possible, in Rauner’s case the interests in question are even more conflicted. As co-founder of Chicago’s second-largest private equity firm, GTCR, Rauner presided over a company that had $10 billion in assets under management, most of it from public pensions nationwide. Still, Rauner won the governorship, in part, by campaigning on a promise to fix Illinois’s pension system, which he called “fundamentally corrupt and broken.”

Yet, make no mistake. When it comes to pension reform, Rauner’s plan has only one goal in mind: handing over the state’s pension dollars directly to private financial firms to manage. He has said so publicly time and time and time again. Further, not only does Rauner want to create “defined contribution” plans for future state workers who are yet to join the system, he wants to cut off promised benefits for current retirees and let them take their own chances for the future.

So, to sum up: Emanuel came into office promising to make the tough choices necessary to reform a broken pension system, yet breaks the law by financing his re-election campaign with contributions from firms already or hoping to do business with the city in managing those funds.

Rauner made millions in profit by managing public pension dollars, yet rode into office saying public pension plans don't work and need to be fixed. And the only solution lies in turning over the dollars in the state’s funds to investment managers just like he was, as soon as possible, to make even more millions in profit.

I don’t know. Maybe the ironic part is that we elected both of these people into office expecting something was going to be different.

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