If Gov. Pat Quinn and the Illinois General Assembly are serious about saving money by changing the pension benefits of current state workers, they will probably need to pick a nasty and costly court fight with labor.

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The seeds of today’s Illinois public pension crisis were sowed nearly 40 years ago during a more financially benevolent time when retirement and health care benefits were considered a manageable, even minor, cost of doing the state’s business.

Indeed, delegates to the 1970 Illinois State Constitutional Convention didn’t flinch when they approved a provision that is basically interpreted by lawmakers as guaranteeing Illinois taxpayers will make good on state employee pension benefits.

The Illinois Constitution’s Pension Clause
“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.”

“Back in 1970 when we adopted that provision in the constitution this was not that big an issue,” said Dawn Clark Netsch, who was a convention delegate and went on to higher state offices including comptroller. But times have dramatically changed.

The state’s five biggest public pension funds are in trouble and grossly underfunded by $80 billion or more, meaning they cannot meet their obligations without billions of dollars in taxpayer support. And that once-innocuous constitutional mandate is now a topic of super-hot debate—vilified by those seeking to dramatically cut Illinois worker pensions and strongly supported by state retirees, employees and unions fighting to maintain the status quo.

As disclosed in the BGA’s investigation of the General Assembly Retirement System (GARS), the beleaguered taxpayer is on the hook for billions in pension payouts to former state office-holders and lawmakers that far exceed anything the private sector currently enjoys. And the recently passed pension reform law only applies to new employees hired after Jan.1, 2011, not workers or retirees in place before that time.

While GARS is the smallest of the major state pension funds, it is characteristic of the crisis dogging the entire Illinois public pension system—problems that must be solved without demonizing public employees or destroying what they have honestly worked to achieve.

Fixing public pensions goes beyond GARS. Here are some proposed changes the BGA would want discussed as part of a broad reform package:

Limiting public pension payouts for retirees. This would include former members of the General Assembly and statewide office-holders. No matter what job, or how many positions someone has held while in the state’s employ, pensions payouts should be capped at a fair annual rate as they often are in the private sector.

Suspending or limiting cost of living adjustments. To immediately lighten the taxpayers’ financial burden, stop or greatly decrease the annual cost of living adjustments (COLAs) for state retirees for a few years or until the pension fund regains significant financial health.

Prohibit so-called “back loading” or “spiking.” End the suspicious practice of state employees getting last-minute promotions with higher salaries shortly before retiring, which then translates into bigger pension payouts when they leave the government workforce. Also, pay for accrued vacation, sick days and personal days upon retirement but do not factor that time into determining pension benefits.

Consider capping current workers defined benefit pension plans. A defined plan (which is financed mostly by the state) could be phased out and replaced with a defined contribution plan, like a 401k plan, which is primarily financed by employees with a match state-employer contribution.

Increase the employee contributions. To lighten the state’s load, have workers pay a little more for their pension and other benefits.

Obviously, such reforms are only one element of the huge issue that must still be resolved—namely whether the state can tamper with current workers benefits or begin to replace the present guaranteed pension plans with defined contribution plans.

In an ideal world, such reforms would be attained through negotiating and collective bargaining with employee unions.

While that’s not out of the question, it looks increasingly likely a court battle will have to take place to determine if the state can change existing pension benefits without violating the Illinois Constitution.

State Treasurer Dan Rutherford recently said the courts should determine if current employee pension benefits could be altered.

Echoing that sentiment is former comptroller Netsch, who also contends the time may be ripe for the General Assembly and Gov. Quinn to test that now-controversial Illinois constitutional provision that was voted into law way back when.

To achieve legal clarity, Illinois could pass a pension reform law that would likely end up being a test case in courts, she says.

“One of the things the legislature and governor could do is to take something that is not absolutely punitive—but recognizes the issues—and enact legislation,” Netsch says. “Then see what the court decisions are.”

Robert Reed is BGA’s Director of Programming and Investigations.

It’s the General Assembly Retirement System and it’s virtually broke—a sorry situation shared by other major state-backed employee pension plans, which must increasingly rely on taxpayer-supported  financing and accounting gimmicks to shore them up.

The General Assembly Retirement System (GARS) is the smallest of the five state pension plans but that doesn’t diminish the size of its growing financial problems.

Presently, GARS provides retirement benefits to 286 retirees, 118 survivors (mostly spouses) and 182 active non-retired members, who are paying into the system. Benefits are guaranteed for life and state pension reforms, passed last year, only affect new entrants. (See Part 1)

The pension fund’s board of trustees, who broadly oversee GARS’ investment strategies, consists of six current legislators and a lone retiree. Michael Madigan, speaker of the Illinois House of Representatives, and Illinois Senate President John Cullerton, appoints the trustees while the lone retired trustee is voted in by the system’s retirees.

GARS trustees monitor the fund’s investment strategy, although the Illinois State Board of Investments manages the fund’s daily investment portfolio of stocks and bonds, along with those of the state’s four other major public pension funds.

The GARS board oversees a pension plan that’s in sorry shape.
GARS, is only 26 percent funded, because over the last decade lawmakers did not allocate enough state money to properly fund their retirement plan. The fund had assets of $66.2 million and liabilities of $251.8 million as of June 30, 2010.

In the private sector, any pension fund that’s below 65 percent funded is considered in trouble, according to federal pension law. In addition, GARS’ current investment returns are not picking up the slack.

Since 1996, GARS actuaries assumed an 8 percent annual return—a prediction that held up for a while but tanked since the 2008 global stock market meltdown and credit crunch that sparked the biggest U.S. recession since the economic depression of the 1930s.

GARS lost more than $19 million on investments in 2008 and 2009, wiping out a $13 million gain in 2007. Last year, the plan earned $4.8 million.

As a result, the 8 percent assumed return is going to be reviewed by the plan’s actuaries this summer and a recommendation to the trustees is expected by fall, says Timothy Blair, GARS executive secretary.

Eight percent is an overly ambitious prediction for any pension fund these days and such assumptions will have to come down, says William Even, a business professor and economist, who studies pensions at Miami University in Oxford, Ohio.
Brett Chase is a Chicago-based freelance reporter and BGA investigator.

EDITOR’S NOTE: The Jon Burge torture scandal is a saga, now nearly 40 years old, of city, county, and federal government failure. BGA senior investigator John Conroy, who was instrumental in exposing the torture, reflects on the law enforcement officials who exceeded their authority, the prosecutors who did nothing about it, the elected officials who turned a deaf ear, and the costs incurred when our leaders aren’t held accountable.

By John Conroy

U.S. District Court Judge Joan Lefkow began her sentencing of former Chicago police commander Jon Burge last Friday by asking the commander to stand directly in front of her. From a distance of about ten feet, the slightly-built judge faced the massive commander, whose attorney had just praised him as “a man’s man,” so tough that even at 63 and in ill health he’d be a formidable foe in a fight.

Lefkow told Burge she thought he had lied in her witness box, that he had defiled the system of justice, and that he had undermined its administration irreparably.

She said she had received letters from people who described treatment at his hands that was more horrible than what she’d heard in court (considering that she’d heard men describe being shocked in the genitals and suffocated until they thought they would die, she probably did many in the courtroom a favor by not describing the content of those letters in detail).

The judge cited a “mountain of evidence” against Burge, indicated her displeasure that he’d refused to acknowledge what he’d done (his only remorse, in his brief speech before her, was for any damage done to the police department’s reputation), and then sentenced him to 54 months, double the sentence suggested by federal sentencing guidelines.

Burge’s acts of torture were beyond the reach of prosecutors, the statute of limitations having expired long before U.S. Attorney Patrick Fitzgerald took up the case. Lefkow’s sentence was for perjury and obstruction of justice, offenses committed in response to questions about torture in a civil suit filed by Madison Hobley. (Hobley had been convicted of the 1987 arson murders of seven people, including his wife and infant son. He walked off death row in January 2003, after being pardoned by Governor George Ryan.)

More than 100 men have complained of torture, beatings, and other forms of coercion and abuse at the hands of Burge and detectives who served under his command. To date, settlements, judgments, and fees paid to defend the police and the city have resulted in legal bills of more than $30 million. That figure will rise in years to come as cases now in the pipeline work their way toward verdicts or settlements. In addition, the human cost of the torture cases is impossible to measure. More than 20 men remain in prison on the basis of suspect confessions taken by detectives under Burge’s command. Other African-American men spent decades in prison for crimes they did not commit. Families have been torn apart. And it is impossible to total the number of felonies committed by the “right” man while the wrong man was in prison.

In leaving perpetrators on the loose, the Hobley case is instructive. Years after Hobley’s pardon, his civil attorneys discovered 20 intentionally-set fires in a one mile radius of the 82nd Street apartment building in which Hobley had taken up residence. Hobley was a stranger to the neighborhood, having moved into the unit with his wife and son a few weeks before he was arrested. The 20 fires the attorneys identified spanned a 20-month period, 5 of them set before the Hobley fire, 15 afterward. Documents from the police investigation of the Hobley fire indicate that officers made no attempt to connect that blaze to any before or after. While Hobley was still sitting on death row, police reports surfaced revealing that a witness against him had been a suspect in two fires, set after Hobley’s arrest, within a block of Hobley’s building. Other police documents indicated that Commander Burge had interceded with his fellow officers on that witness’s behalf.

In her sentencing remarks, Judge Lefkow lamented the lack of supervision in the police department (the department allowed the torture gang to operate for decades). She pointed out that successive Cook County State’s Attorneys and federal prosecutors failed to do anything about the torture, thereby prolonging the suffering. (State’s Attorneys Richard Daley, Jack O’Malley, and Dick Devine have had successful careers in the law and politics without being held to account by any authority for the fact that they had ample evidence that torture had occurred and nonetheless chose to do nothing, even as innocent men awaited a date with the executioner.) And Lefkow decried the pattern of perjury by police officers that she sees on a regular basis in her courtroom: “…too many times I have seen officers sit in the witness box to my right and give implausible testimony to defend themselves or a fellow officer against accusations of wrongdoing. Each time I see it, I feel pain because the office they hold has been diminished.”

So what lessons can be learned here? Much of it comes down to the question posed by Plato and Juvenal: Who will guard the guards? Though the state’s attorney’s office’s role in the torture cases has been denounced for years, the Attorney Registration and Disciplinary Commission has not sanctioned a single prosecutor or former prosecutor for looking the other way, for putting on perjured testimony, for seeking convictions instead of justice in the Burge cases. (Indeed, defense lawyers were mildly impressed when the agency recently brought a single Cook County prosecutor up on charges for courtroom offenses—a very rare event, but in this case, an event completely unconnected to the Burge cases.)

The Independent Police Review Authority (formerly known as the Office of Professional Standards) is charged with investigating a wide variety of police misconduct – excessive force, coercion, police shootings, verbal abuse, domestic violence, tasering, and “extraordinary occurrences.” IPRA received 5,541 complaints of excessive force and 11 complaints of coercion between September 1, 2007 and August 31, 2010. They referred 202 cases to the Cook County State’s Attorney’s office for possible prosecution between July 1, 2007 and June 30, 2010, and though it is difficult to know how many of those involved brutality and coercion (the office could not provide a tally when contacted on Monday), it seems safe to assume that many did, as excessive force alone accounts for a majority of complaints filed. In response to a BGA inquiry last fall, the State’s Attorney’s office reported that of those 202 cases, 9 had resulted in prosecutions and 32 cases were pending “excluding police shootings and death in custodies.”

Of the nine prosecutions, four had been aided (perhaps dictated would be a better word) by videotape (the Anthony Abbate attack on bartender Karolina Obrycka in February 2007 and the December, 2006 brawl in the Jefferson Tap involving three officers). Two prosecutions were of inebriated officers (one had allegedly fired his weapon into the air outside a bowling alley where he moonlighted as a security guard, and the other officer had inexplicably attacked a 61-year-old man and 50-year-old woman in a Niles restaurant). Two other prosecutions involved domestic situations – one officer attacking a spouse, the other attacking his ex-wife and her boyfriend. The ninth prosecution was of an officer who was alleged to have broken the jaw of a teenager who had quarreled with the officer’s son.

None of the cases prosecuted involved excessive force in the context of a suspect or witness being brutalized.

In policing the police, the U.S. Attorney seems to be on the job, but only somewhat. At Friday’s post-sentencing press conference, U.S. Attorney Patrick Fitzgerald said that the investigation of Burge’s comrades continues. A good number, testifying under oath in civil suits, denied the torture took place. But the alumni of the Burge gang are not the only officers telling tall tales under oath. If Lefkow is seeing implausible police testimony in federal court, surely other judges in the building are seeing the same, and one would expect that judges in state court see it much more often, given the volume of cases they handle involving Chicago and suburban police officers. Federal prosecutors might be expected to leave perjury by police officers in Cook County courts to county prosecutors, but if there are people in the watchtowers there, it would seem they’ve been asleep for decades.

Asked to set the Burge sentence in context, Charles Hoffman, an attorney with the State Appellate Defender’s office, suggested looking back at Justice Louis Brandeis’s dissent in a 1928 Supreme Court decision, Olmstead v. United States.

“In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, the omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy. To declare that in the administration of the criminal law the end justifies the means—to declare that the government may commit crimes in order to secure the conviction of a private criminal—would bring terrible retribution. Against that pernicious doctrine this court should resolutely set its face.”

>> If you’re new to this story

From the pattern of accusations against Jon Burge, it would appear that he began using electric shock to interrogate suspects in May, 1973. In the decades that followed, more than 100 men and one woman complained of shock, suffocation, mock executions, hangings by handcuffs, and other forms of torture and abuse administered by Burge and detectives under his command. The last accusations surfaced in the wake of arrests made in 1991.

Although the Cook County State’s Attorney’s office was aware that there was a pattern of accusations and convincing medical evidence, successive county prosecutors, including current Mayor Richard Daley, declined to investigate, even though leaving those stones unturned might mean that innocent men would be executed by the state. Federal prosecutors also declined to indict when approached in 1990.

Because of that prosecutorial reluctance, the statute of limitations on the acts of torture lapsed. Burge’s 2008 indictment by U.S. Attorney Patrick Fitzgerald was something of a fluke. Burge had made broad denials of the torture in two documents in a 2003 civil suit, and on the basis of less than 60 words, Fitzgerald found a way to indict him for perjury and obstruction of justice. He was convicted last June and sentenced on Friday, January 18, 2011. To learn more, visit this special section on the Reader‘s website.

>> Audio & Video

AUGUST, 2010: John Conroy and Michael Miner talk

Burge on 98.7WFMT Chicago’s “Critical Thinking with Andrew Patner”

Listen to Part 1

Listen to Part 2

JULY, 2010: John Conroy on Chicago Newsroom with Ken Davis

[youtube=http://www.youtube.com/watch?v=jtR8jYIE6OY]

By Andy Shaw, BGA President & CEO

My favorite holiday missive in a season of oddball snail mail offerings comes in the form of a letter from the powerful speaker of the Illinois House, Michael J. Madigan, with whom I’ve had a rocky relationship over the years due to the often-conflicting demands and priorities of our respective vocations—me as a TV news political reporter and now a good government watchdog and MJM as a controversial political leader and tax attorney.

Oil and water, some might say, although I’ve always had a private appreciation for his wry sense of humor and offbeat charm and an oft-stated respect for his intelligence, work ethic, political skill and organizational expertise. We’ve also shared some quality time away from our respective pressure cookers, and that leads me to think that under different circumstances we could have been friends.

That may help you understand why I reacted with bemusement and curiosity to this week’s letter from the speaker in response to an erroneous solicitation for a year-end contribution to the BGA. We don’t accept money from politicians, PACs, candidates or office holders, so he shouldn’t have been on our mailing list, and his name’s been removed.

But he apparently found the solicitation letter provocative enough to send this reply:

Dear Andy: Concerning the enclosed solicitation where you state “we’re watching.” Andy, who is watching you. With kindest personal regards, I remain, sincerely, Mike.

He signs it “Mike” in the neat and methodical style that characterizes his persona.

I appreciate his endorsement of a transparent process that encourages a vast audience of Illinois residents to watch all of us—that’s the civic engagement we so desperately need to clean up the mess we call Illinois government. So I invite Mr. Speaker and everyone in Illinois to watch what we’re doing at the BGA, as we attack waste, fraud, patronage, cronyism, nepotism, pay-to-play and inside deals with every tool at our disposal—media partners, TV, radio, website and social media

I also encourage the speaker to mobilize his considerable power and expertise in concert with other political, business, labor and civic leaders to forge longterm solutions to the state’s budget and pension crises. The BGA is eager to join the discussion, and we hope that Illinois residents will be watching this process closely because no government challenge is more important as we turn the calendar on another year.

Finally, let me take this opportunity to wish Michael J. Madigan and all of you a Merry Christmas, a Happy New Year and a healthy 2011 characterized by better government. It’s our right and our responsibility—we can no longer tolerate public officials who treat our hard-earned tax dollars like it’s their money. If we’re smart, aggressive, creative and, most importantly, if we walk the walk together, better government can become a reality.

So enjoy the holiday season—I’ll be back with more of “What I’m Watching” and the rest of the Shaw Blog on Jan. 3.

If the federal government bails out the nation’s debt-ridden states, Illinois will be among the first to grab a lifeline, according to one financial expert.

“If there’s even a hint of a bailout, you’re gonna have Illinois, New York, several other states right behind California,” said Christopher Whalen, bank analyst and managing director of Institutional Risk Analytics.

Whalen told the Business Insiders website that California, which is running a $25 billion deficit, is close to defaulting on its bills. Should that occur, the federal government would be compelled to come to California’s aid by crafting some type of financial restructuring plan or rescue effort.

Whalen notes that California has a number of governance problems that are adding to its crush of financial woes. They include: A huge deficit, an inability to quickly pass a state budget and massive public pension obligations.

If that litany of woes sounds familiar it’s because Illinois has similar difficulties: A budget deficit of $15 billion; a woefully under-funded state budget; and staggering public employee pension obligations of around $80 billion or more.

Some lawmakers are suggesting the federal government refrain from bailing out any state that goes broke.

However, the feds may not have a choice because any sovereign state default, especially a biggie like California or Illinois, would inevitably damage the U.S credit rating, cripple investor demand for its bonds and deeply hinder the economy.

State defaults are rare and Arkansas was the last to go bust during the Great Depression.

Nevertheless, Whalen is one of a small but growing chorus of financial experts who are openly concerned about the states’ debt loads and potential impact on the economy.

Respected financial analyst Meredith Whitney is also sounding the alarm about the dire fiscal condition of the nation’s 15 largest states. She says Illinois ranks as the second worse, right behind California.

By Robert Reed, director of investigations. Do you have concerns or information about the State’s deficit or finances? Contact the BGA at 312.427.8330.