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Governor Quinn’s Job One: Ethics Summit December 15, 2008

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Off in a bit to begin traveling from Evanston to the State Capitol as we try and sort through the wreckage caused the state’s narcissistic chief executive.

In the meantime, while a combination of varied efforts to remove Rod Blagojevich from the Governor’s office intensifies by the hour, it’s not too early to begin laying out the immediate challenges that will be before Lt. Gov. Pat Quinn once he eventually assumes office as the state’s chief executive.

Setting aside resolution of the now infamous vacant U.S. Senate seat formerly held by President-elect Barack Obama, the first thing the new Governor should do is immediately  invite Cindy Canary’s Crew, a.k.a. the Illinois Campaign for Political Reform, the Better Government Association, the Civic Federation, the League of Women Voters of Illinois and every other good government group to join with lawmakers from both parties at a “Governor’s Summit on Ethics Reform” to lay out a punch list of reform measures that ought to be part of a larger strategy of reclaiming Illinois government. Convene the “Governor’s Summit on Ethics Reform” at the Governor’s Mansion, too, so that taxpayers will see further symbolism in restoring government back to the people.

Action items ought to include:

  • Campaign finance reform;
  • Greater  accountability and transparency for public pension and investment transactions;
  • Further strengthening of the state’s procurement code governing the purchase of goods and services;
  • Specific procedures for removal of a corrupt constitutional officeholders; and 
  • How to use the Web and technology as a tool for enabling more sunshine in state government.

What else should be added to this menu for reform?


Pension reform redux December 10, 2008

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Among the many other more visceral reactions I had to yesterday’s punch-in-the-gut disclosures that were contained in the complaint filed by U.S. Attorney Patrick Fitzgerald about further “pay-to-play” schemes was an immediate sense that we need to crisply refocus attention on implementing additional reforms which provide greater accountability and transparency in state government.

In an earlier post, “Building Better Mousetraps”, I laid out much of the case as to why major transactions such as pension and investment decisions are ripe for reform. So despite my public differences with Treasurer Alexi Giannoulias about his announced pension reform proposal, I met at the tail end of last week with the treasurer to air out our respective points of view. The meeting was very cordial, as it should be between two people who agree on roughly 90 percent of a far-reaching initiative. After all, the overwhelming majority of this sweeping reform package has won approval either in the House or the Senate over the passed couple of years, thanks to the deft touch of  my trusted BFF, Rep. Elaine Nekritz (D-Northbrook).

The most recent version of the sweeping accountability reforms was contained in Senate Bill 1305, which underwent numerous changes in both chambers before the strategic decision was made by the reformniks to let it simmer on the back burner a bit while devoting our primary attention to passing the “pay-to-play” ban into law. 

While I’m still not entirely sold on the upsides of consolidating all of the state’s retirement systems into a single “uberfund”, after meeting with him last week I’m now willing to give the treasurer the chance to make the case both publicly and through negotiations with the myriad of interested parties already revving up to engage in some serious political smackdown on this proposal. In my role as the Senate co-chair of the bipartisan Commission on Government Forecasting and Accountability  (“F & A” for the more risque types, “COGFA” for those more into beige), I’ve consulted with my solid House counterpart, Rep. Rich Myers (R-Macomb) and we’ve agreed to schedule hearings early in 2009 to delve into the accuracy of the purported cost-savings that would result from the proposed fund consolidation.

ssi0015245_p1Moreover, I’ve tentatively signed on to be the chief Senate sponsor of the reform plan, which makes sense since I’ve been feverishly pushing this reform boulder up the hill for the past few years. 

The ethics side of the line of scrimmage will also need some changes that place a greater premium on professionalism and a lesser degree on political clout. Some essentials here include writing into law the requirement that third parties pitching investment business be licensed     securities professionals, adding harsher penalties for willful violations of the securities industry’s existing prohibition against investment         banking firms using “independent contractors”, and requiring a broader universe of public pension fund trustees to disclose their economic       interests.

I can’t fault Treasurer Giannoulias for wanting to take on a monster issue either, as I’ve always felt that we can’t be content to nibble away at   the edges while failing to seize opportunities for meaningful change by the throat. 

More to come. Stay tuned.

Building better mousetraps December 1, 2008

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Today’s Chicago Tribune has a story about a legislative proposal by Illinois State Treasurer Alexi Giannoulias to consolidate all of the state’s pension boards into a single uber-investment board in the hope of realizing cost-efficiencies and greater transparency. While there are many laudable ethics reforms featured in his plan, most notably, the requirement of all individuals sitting on retirement system boards to file full economic interest statements and making the retirement systems subject to the state more stringent procurement code, I nonetheless have serious reservations about the consolidation issue that is the highlight of the Treasurer’s well-intended proposal.

In short, I’m skeptical that bigger always means better when it comes to governing public finance. 

“There’s an inherent danger whenever one tries to funnel so much activity into a single source because it weakens the checks and balances over these public funds,” said Sen. Jeff Schoenberg (D-Evanston), who has long worked on pension reform issues.

The downsides to consolidation include fewer opportunities for newer investment firms and those headed by women and minorities to break into public fund management in Illinois. That also means less likelihood that those firms which manage public funds in Illinois would be relinquishing their share of the pie any time soon.

Folding all the state retirement systems into one board doesn’t necessarily mean more accountability. These same reservations bubbled to the surface when early in the governor’s first term, the Blagojevich administration sought to wrap all of the state’s quasi-public bonding authorities into one massive debt-issuing agency. The legislature wisely rejected that move, and this consolidation effort is reminiscent of that earlier play.

What’s really needed here is greater focus on building better mousetraps given the billions of dollars of cheese involved in state pension and investment decisions. Requiring anyone who seeks to be involved in an investment decision with a public pension fund to be a licensed broker-dealer certified by the Financial Industry Regulatory Authority (FINRA), is a far better path to take in promoting greater accountability and transparency in state public pensions. 

Here’s the skinny on the FIRNA from it’s own Web site:

Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business—from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. It also performs market regulation under contract for The NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange.

Mandating that everyone associated with state public pension fund transactions is a licensed securities professional more effectively achieves the goal of taking political influence out of the equation. No longer would insiders be able to pass themselves off as marketing consultants for investment banking firms while pocketing huge fees for minimal work on large deals, and the protective umbrella  of securities industry’s higher standards would more likely prevent Illinois taxpayers from getting soaked. 

Most of the ethics provisions in the treasurer’s reform package have already passed the House or the Senate. Now that we’ve finally put the pay-to-play ban into effect, pension and investment reform should be the next big ethics issue that is tackled at the State Capitol. There will be plenty of challenges ahead on that front, but focusing primarily on fund consolidation shouldn’t be one of them.