Rauner rips pensions while profiting off them

Rauner blames public pensions for state funding woes, even as his former firm made huge profits off them

Gov. Rauner has used public unions and their pensions as a political whipping boy, but that didn’t stop his former private equity firm from profiting off them. (One Illinois/Ted Cox)

By Ted Cox

Bruce Rauner profited off public pensions while using them to create political divisions and attack unions, according to a new online news story.

The story, by former Chicago Reader writer Gary Rivlin, labels Rauner “The Private Equity Governor,” and says that as a “sworn foe of pensions” he “made a fortune charging high fees to public pensions.”

Published this week, it was the third and final part of a series Rivlin wrote looking at pensions nationwide for the online news site The Intercept.

Rivlin charges that “Rauner’s former firm GTCR is one of the thousands of private equity partnerships in the United States that collectively manage hundreds of billions of dollars,” much of it amassed in pension funds.

Because many Illinois public pensions went on “holidays” backed by politicians of both parties over the last few decades, who also borrowed public money from those funds when possible, those pensions are trying to make up what’s been estimated as a $130 billion shortfall to make them solvent. As such, they’re more likely to invest in riskier private equity funds and hedge funds, but those funds also tend to charge higher management fees.

According to Rivlin, while GTCR reportedly charges a more modest 1.5 percent management fee, compared with the standard 2 percent, that still means $75 million on a $5 billion fund. It also pockets much of the profits when the funds are sold off and distributed.

The first story in the series focused in part on Jay Rehak, a teacher at Chicago’s Whitney Young High School who recently served as head of the Chicago Teachers’ Pension Fund. Rehak said he’d helped institute reforms that got the teachers’ pension out of hedge funds and cut the use of private equity managers to 3 percent of the total $10 billion account. Rehak also recently joined in the One Illinois podcast “In the Milkweeds” on the topic of education.

Calling it “a manufactured crisis,” Rivlin’s final story in the series points out that conservative groups like the Illinois Policy Institute decry pensions — and the pension shortfall — as a bottomless well for public funds in their fight against taxes of all kinds. It charges that Rauner “has been a leading champion of the pensions-in-crisis narrative.”

Saying that he’s “exploiting a crisis,” much as Rauner said he intended to do as a candidate for governor, it cites how he uses public pensions as an argument against taxes, while attempting to undercut public unions through tactics like the Janus suit, in which the U.S. Supreme Court ruled earlier this summer against so-called fair-share union fees.

But Rauner lost an earlier suit in his battle against pensions when he tried to cut pension benefits for state workers early in his term. The Illinois Supreme Court voted unanimously against that, and the Republican judge who wrote the opinion declared: “Crisis is not an excuse to abandon the rule of law. It is a summons to defend it.”

The story charges that Rauner continues to rail against pensions and public unions because he’s made it politically expedient to do so. It quotes Ralph Martire of the Chicago-based Center for Tax and Budget Accountability as stating: “He doesn’t want to solve the problem because the pension is the battering ram he’s using to try and break the public unions. He needs to keep spinning the pension problem because he needs the unfunded pension liability to make the case that it’s the public unions that are destroying things in every state.”

Rauner did not respond to requests for comment on the Rivlin article and did not respond to an additional request from One Illinois.

Rivlin has written the definitive book on Chicago Mayor Harold Washington, “Fire on the Prairie,” and has gone on to write about poverty in America in “Broke, USA,” and on the 2005 hurricane that flooded New Orleans and created another sort of crisis politics in “Katrina.”