“Would Cinda Klickna and her teachers’ union like their pension investment in Bruce Rauner’s firm rescinded, profits disgorged, and their vote for it annulled, since they think it’s so tainted? Fat chance.”
February 16, 2014 By: Mark Glennon
Bruce Rauner is a sleazy profiteer who squeezed public pensions to make his fortune — that’s what the public unions are telling us in their $2 million media campaign underway now. In one case they often cite, GTCR, Rauner’s old firm that made him rich, got a big investment from the Illinois teachers’ pension thanks, they say, to a now-notorious criminal who was on the board of that pension at the time. Rauner put the money to work in evil projects like shoddy nursing homes, they say, and Rauner is double crossing the pensions because he wants to replace them with a 401(k)-style plan after getting rich off them.
Before getting to the deceit and hypocrisy in those claims, some background on pensions and the ad campaign is needed.
Pensions invest chunks of their money in funds set up by many firms like GTCR. A pension’s board of trustees decides which funds to invest in. Managers of firms like GTCR typically share in 20% of the up-side winnings they make for the pensions, so they can get rich if they help make the pensions rich.
Last week the Illinois Education Association (IEA), the Illinois Federation of Teachers, and Service Employees International Union joined in the union-funded ad campaign against Rauner, giving $1.25 million to one of the PACs paying for the anti-Rauner media blitz, and the IEA endorsed Kirk Dillard in the Republican primary.
Here’s what the public unions aren’t telling voters:
– The trustee of the teachers’ pension who made the motion to invest that $50 million in GTCR was none other than Cinda Klickna, President of the IEA. Trustees have a high standard of duty and diligence, being fiduciaries for their pension, making it her deal, along with those who voted with her.
– The trustee of the teachers pension who seconded that motion was Sharon Leggett, another IEA representative on the teachers’ pension board.
– In fact, the board was effectively controlled by union representatives (more on that later) and the motion passed unanimously.
– Illinois pensions made a killing off Bruce Rauner and GTCR, especially the teachers’ pension. William Atwood, who heads the Illinois State Board of Investment, says its investments with GTCR have generated annual returns of 17.2% since 1984. That’s an extraordinary feat in the financial world. It means that if the rest of the pensions’ investments performed as well as GTCR, pension assets would be doubling about ever four years! Instead of debating a pension crisis we’d be debating what to do with massive surpluses in the pensions. The particular fund in which the teachers’ pension invested $50 million has done even better than that, with an IRR of 24%, over twice the average return of funds started that year.
– Public pensions repeatedly chose to hire Rauners’s firm — by investing in new funds as GTCR formed them — exactly for that reason: It outperformed. That’s how Rauner made his fortune — sharing in that 20% profits interest GTCR got on the pensions’ winnings, but the biggest winners by far have been the pensions themselves.
– The pension reform advocated by Rauner won’t be good for his old industry, and Rauner should be commended for that, not smeared as a pension double-crosser. Firms like GTCR get most of their money for pensions. If pensions are switched to 401(k) style plans, as Rauner wants, that funding will dry up.
Hardball tactics like their current media campaign aren’t new for teachers’ unions. Last year the American Federation of Teachers tried to clout Illinois officials into firing fund managers who advocated pension and school reform — an appalling story that’s been ignored in Illinois.
Would Ms. Klickna and the IEA like their pension investment in GTCR rescinded, profits disgorged and their vote for it annulled, since they think the process was so tainted? Fat chance. Their vote to invest in GTCR was probably the single best thing they’ve ever done for Illinois teachers.
For them, it was dumb luck, which leads to some interesting history that’s part of the story, and includes Kirk Dillard.
James Thompson and Jim Edgar were successful Republican governors who held that office in Democratic Illinois from 1977 to 1999. Public unions then held an even stronger death grip over Illinois than now. Thompson and Edgar had no choice, as they saw it, but to submit to the unions. One way they did it was to give them effective control over Illinois pensions. The teachers’ pension, for example, is run by a board of 13 trustees. Six are elected by active or retired members of Teachers’ Retirement System — union representatives, in other words — and six are appointed by the governor. The board’s president is the state superintendent for education. Since Thompson’s day, majority power for public unions over their pensions like that has been kept in place when necessary by leaving the appointed seats unfilled or appointing more union-friendlies. That deal kept the unions happy.
Union appointees typically have no financial background, which is part of our pension problem in Illinois. In the case of the teachers’ pension, union appointees are usually teachers, like Ms. Klickna. One illustration of her level of financial skill: Her solution for the state’s problems is a tax cut for the bottom 90%, letting the top ten percent pay for that tax cut and all our other problems, which is how she would structure the progressive income tax she favors.
Thompson and Edgar were excellent governors in most respects but both of them, in retrospect, had the same flaw. Thompson’s ambitions for national office were killed by GOP kingmakers’ conclusion that he was too union-friendly. Edgar authored the “Edgar ramp,” a can-kicking schedule for pension funding that’s been a disaster. Both of them knew or should have known that public pensions were a time bomb waiting to explode, but they did nothing about it, a major blemish on their records.
Given that history it’s no surprise that Kirk Dillard picked up the IEA’s endorsement last week. He was part of both the Thompson and Edgar administrations, and he knows all about the deal that turned the pensions over to the unions. He remains a sincere believer that crossing the unions is political suicide — I’ve heard him say that in public as recently as last month.
That’s all further reason why so much is at stake in this election. Rauner is challenging what many are calling the ‘old school’ view that public unions cannot be crossed.
I’m with Rauner. The death grip public unions hold over Illinois government can be smashed and must be smashed, and the appalling tactics public unions are using in their media campaign against Rauner cannot be allowed to work.