Saturday, January 26, 2013

Illinois bond rating sinks to worst in the nation - Chicago Sun-Times

Illinois bond rating sinks to worst in the nation - Chicago Sun-Times:
"Citing inaction on pensions, a prominent Wall Street bond-rating agency downgraded Illinois’ bond rating Friday, making the state the nation’s worst credit risk."
I love this use of the word "inaction."  What inaction?  Standard & Poors and the rest of the financial elite think the state legislature should have violated the state constitution by cutting state employee pensions.  But the real inaction occurred over the last 40 years or so.  State employees (like me) put 8% of their gross pay into the pension fund. It gets taken right off the top before we get our paychecks. The state is supposed to contribute 9.6%, but for the last four decades the state legislature has consistently and intentionally refused to do that, even though it is in fact a modest contribution when compared with other pension plans.  But, in any event, it is the deal they made, and they make us comply with it while refusing to pay their share.  Instead, the state has in essence been borrowing from the state employees pension fund to pay its bills, giving itself one "pension holiday" after another.

We, the employees, have lost not only the principal of those contributions, but all the investment income we would have realized during that time when the stock market was booming. Now the pension fund is seriously underfunded. It is a defined benefit plan, meaning that ultimately the state owes us a certain benefit payment, so the state might someday find itself having to dig very deep to pay us, which would wreak havoc with the rest of the state budget.

So, what is the solution to this problem?  New employees are already getting a reduced pension plan, which is fine because that's what they agreed to when they were hired. But what about currently retired people, and those of us who were hired long ago and haven't retired?  We are the target. According to the investment class and their party, the Republicans, and their newspaper, the Chicago Tribune, the way forward is for the state legislature to cut our pension benefits.  There are several ideas, but all of them come down to cutting the payments that are mandated by the contract.   It is an indication of just how morally bankrupt the financial sector has become that the shocking injustice of such a proposal is utterly irrelevant to them.  Moreover, it is unconstitutional.  The Illinois constitution provides as follows, at Article 13, Section 5:

    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."

Any literate human can see that this provision precludes the elite-sponsored effort to cut our pensions in order to solve the problem the state created by welching on its obligations to us for the last four decades. But, having ignored the immorality of their position, ignoring its illegality is child's play.  The advocates of "pension reform," as they call it ("pension theft" would be the accurate term) think they should pass the law and let public employee unions challenge it in court, where the advocates think maybe the Illinois Supreme Court can be persuaded to ignore the state constitution and go along with it. Basically, it is the legally and morally vapid argument of a hostage taker:  the state legislature has created a financial crisis that threatens to wreck the state financially, and the only way out, they say, is to screw the employees--the only party to the contract that has always honored it. The state wants to cheat the employees out of billions of dollars, on the grounds that they have been cheating us for so long that now there is no other course open except to cheat us again. The "inaction" of the previous legislative session means only that the issue is carried forward.

As for the rating agencies, where were they all these years when the state was setting up this situation by underfunding the pension funds? Where was the ratings downgrade thirty years ago in response to "pension holidays," when forcing the state legislature to act responsibly would have prevented the current crisis?  Oh, wait, I remember.  S&P and the others were enthusiastically giving AAA ratings to residential mortgage backed securities that eventually cratered and wrecked the world's economy, contributing further to the budget crisis that faces states like Illinois.

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