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Special Report: The man behind the fiscal fiasco in Illinois
February 8, 2017 / 1:15 PM / 9 months ago

Special Report: The man behind the fiscal fiasco in Illinois

SPRINGFIELD, Illinois (Reuters) - As speaker of the Illinois House of Representatives, Michael Madigan has outlasted five governors and is now on his sixth. This year, the Chicago Democrat will become longest-serving state or federal House speaker in the United States since at least the early 1800s.

Illinois State Representative Michael Madigan, left, addresses state representatives after he was re-elected as Speaker of the House at the University of Illinois campus in Springfield, Illinois, U.S., January 11, 2017. Madigan won his 17th term as Speaker by a vote of 66-51. REUTERS/Joshua Lott

Madigan is to Illinois what his late mentor, Mayor Richard J. Daley, was to Chicago, the state’s great metropolis - a city the political boss once controlled down to the last garbage truck. As speaker for all but two years since 1983, Madigan has directed the fate of key pension, labor and tax laws. As state Democratic Party chairman since 1998, he has shaped the fortunes of his allies and stymied opponents.

But if Daley’s Chicago was “the city that works,” a nickname coined during his tenure, Madigan’s Illinois is the state that doesn’t work. The speaker is one of America’s most powerful politicians, presiding over arguably its most dysfunctional state capital.

Illinois is beyond broke. It is the first state in at least eight decades to go without an annual budget, according to the National Conference of State Legislatures. Its bond ratings, the lowest of any state, are near junk status. It is projected to have a budget deficit this fiscal year of $5.3 billion and owes vendors about $10.8 billion in unpaid bills.

Its pension system, serving more than 815,000 public employees and retirees, was tied with Kentucky’s system for the lowest funding ratio among states, at 37.6 percent, according to a 2014 ranking by Pew Charitable Trusts. Unfunded liabilities stood at $129.8 billion last June, up from $2.5 billion in 1971, the year Madigan joined the legislature.

Pension obligations are now projected to consume about a quarter of state operating revenues every year through 2044, raising the specter of steep tax hikes or deep cuts to public services. The state’s unpaid bills could reach $47 billion by 2022, Republican Governor Bruce Rauner’s administration has predicted.

Hundreds of Illinois politicians share a measure of blame for the fiscal fiasco. Still, as speaker, Madigan has sponsored or voted for every major state law affecting pensions over his three decades in the job and is a leader in budget deliberations every year.

No one in modern Illinois politics wields as much legislative power, said David Axelrod, the Chicago-based Democratic political consultant who helped put Barack Obama in the White House.

“In his domain - in terms of the art of keeping and exercising power within that building - he’s incomparable,” Axelrod said, referring to the state capitol in Springfield. “Whatever his complicity in helping to create the problem, he’s also going to be essential to its solution.”

Madigan declined to be interviewed for this report. In the fall of 2015, he shrugged off criticism during rare public comments about his role in the fiscal crisis.

“If you wish to be a critic of me, then you would blame everything that’s happened in the state for the last several years on me. Some do that,” he told reporters. “I don’t choose to be so negative.”

Madigan’s spokesman, Steve Brown, said past governors, fellow House members and state senators, often from both parties, all signed off on the same laws and budgets that Madigan supported or sponsored.

“There is shared responsibility for all,” Brown said.

As the latest governor to tangle with Madigan, Rauner has said the speaker needs to own up to his outsized role in the state’s crisis, given Madigan’s long tenure and unique clout.

“He controls the government of Illinois. That’s a fact,” Rauner said in May 2015, after the legislature failed to pass a budget and shot down key Rauner proposals. “We’ve been driven into a ditch.”

Rauner declined requests for an interview about Madigan.

Madigan emerged relatively unscathed from an epic battle for power with Rauner and the Republican Party in the 2016 elections, amid record campaign spending. Between January and November, the governor, his wife and his campaign fund gave at least $37.5 million to candidates and groups, many of which targeted Madigan in a torrent of television attack ads, state records show.

The speaker’s Democratic majority lost four of its 71 House seats in the 118-member chamber. But Madigan scored a victory by helping engineer the defeat of the governor’s choice for comptroller, the office that disburses state funds.

In 2013, Madigan took credit for passing a landmark fix to the pension system. But the state Supreme Court invalidated the law two years later, citing a clause in the Illinois constitution that prohibits existing state pension benefits from being “diminished or impaired.”

Before it was overturned, Madigan’s attempted pension overhaul angered his union-heavy base. Now, Madigan is appeasing those longtime allies by fighting off Rauner’s efforts to weaken collective bargaining rights for public-sector unions and workers’ compensation protections.

Two weeks before the Illinois legislature adjourned without passing a budget last May, Madigan spoke to a crowd estimated at 10,000 supporters outside the state capitol.

“Governor Rauner wants to change collective bargaining!” he yelled. “How do you feel?”

“Noooo!” came the rowdy response.

BREAKFAST IN CHICAGO

Soon after Rauner’s 2014 election, Madigan met the governor-elect for breakfast at the Chicago Club, an old private institution catering to the city’s business elite. As they talked, the speaker handed Rauner an index card listing the seven governors with whom Madigan had served, according to three people with direct knowledge of the meeting.

The message was clear, these people said. Madigan aimed to outlast Rauner, too.

Brown, Madigan’s spokesman, said he was not aware of the episode with the index card.

In the two years since that breakfast, Rauner has yet to enact a single piece of his “Turnaround Agenda.”

Madigan has blocked the governor’s proposals to weaken collective bargaining and workers’ compensation rights, portraying Rauner as an enemy of the middle class. The speaker also has stopped the governor’s attempt to impose term limits for legislative leaders and to change how legislative district boundaries are redrawn every 10 years, a process Madigan has used to help elect Democratic allies.

Rauner’s predecessors can relate. It is difficult to point to any major state law that has passed without Speaker Madigan’s blessing.

In 1989, Republican Governor James R. Thompson had tried and failed for two years to pass a 20 percent increase in individual and business income taxes, along with a new sales tax on services, through Madigan’s House.

Madigan undermined the governor by passing a substitute plan in less than six hours. His top aides called the maneuver “Operation Cobra,” because Madigan had kept it secret even from close allies. It raised rates 18 percent, but only temporarily.

Desperate for revenue, Thompson signed Madigan’s package into law.

“Mike is one smart guy,” Thompson told Reuters, admiring Madigan’s legislative acumen decades later.

UNDERSTUDY TO “THE BOSS”

Early in his career, Madigan’s political connections got him a job on the back of a garbage truck, the speaker said in a 2009 interview for a University of Illinois at Chicago oral history project documenting the life of Mayor Richard J. Daley, who served as mayor from 1955 to 1976.

He got the patronage job because Madigan’s father worked as a ward superintendent, an unelected position dedicated to monitoring neighborhood garbage pickup and street-cleaning. Later, when Madigan was a law student at Chicago’s Loyola University between 1964 and 1967, the mayor got Madigan a job in the city’s law department as a clerk.

By 1969, Madigan was giving out jobs himself as a ward committeeman under Daley, rewarding people who helped hustle Democratic votes, the speaker told historians. He quickly learned about party discipline. After Madigan ran against a Daley-backed candidate for a higher party post, Daley refused to speak with him for nine months.

“He was a boss. He should be,” Madigan said in the interview with historians. “Everywhere in life, everywhere in the world, there has to be bosses.”

Daley ultimately backed Madigan’s first run for the state legislature.

Madigan said he keeps a mass card from the 2003 funeral of Daley’s wife on his office desks in Springfield and in Chicago. The card shows the mayor and Eleanor “Sis” Daley at their 35th wedding anniversary.

“When I’m sitting there and trying to make a tough decision, I’ll look over at him and just ask myself, ‘What would he do?’” Madigan said.

MODERN MACHINE POLITICS

Madigan has continued to apply Daley’s lessons in patronage.

FILE PHOTO -- Michael Madigan, speaker of the Illinois Representatives, listens to the State of the State address in the House Chambers of the Illinois State Capitol in Springfield, Illinois February 1, 2012. REUTERS/Sarah Conard/File Photo

People with connections to Madigan, for instance, regularly have landed jobs at two transportation agencies serving the Chicago area, according to a task force appointed in 2013 by then-Governor Patrick Quinn to investigate political influence on such hires.

In 2011, the Regional Transportation Authority hired Madigan’s son-in-law, Jordan Matyas, as a $130,000-a-year lobbyist. The agency denied at the time that the family connection played any role. Matyas declined a request for comment.

Alex Clifford - the head of Chicago’s commuter rail agency, Metra - alleged in a 2013 memo to the agency’s board that, in 2012, Madigan used an emissary to lean on the agency to give a pay raise to a Madigan campaign worker and donor and to hire another unidentified staffer.

Madigan acknowledged in a 2013 statement that he tried to get his campaign worker a raise, but he said he backed off when Clifford balked.

Clifford contended his job was threatened by two board members aligned with Madigan. He ultimately agreed to leave the agency when the board gave him a controversial $718,000 severance package.

Quinn, a Democrat, created the task force in 2013 to “restore trust” at Metra. Its final report detailed an additional 26 alleged instances in which Madigan or a lawyer acting on his behalf recommended people for public-transit jobs.

“In some cases he did not recommend people to be hired – he in effect decided they were hired,” the report said about Madigan’s influence.

The additional 26 hires came between 1983 and 1991. The task force discovered them in records the agency kept to track the hiring recommendations of politicians. Such political hires were common and considered legal in Illinois until 1990, when the U.S. Supreme Court ruled that patronage hiring by Illinois Republicans violated the constitutional free speech rights of public workers who did not support the party in power.

The task force did not investigate the hiring of Madigan’s son-in-law as an RTA lobbyist, but noted that it created a “perception” problem.

Brown, the Madigan spokesman, said of the task force report: “Most of the claims made concerning Metra were unsubstantiated and the speaker disputed the claims.”

Clifford, now a transit executive in Santa Clara, California, described Madigan as a throwback.

“He’s built a machine,” he told Reuters. “Some of us thought those kinds of political godfathers went away in the ’30s and ’40s. Obviously, not in Illinois.”

‘ILLINOIS MATH’

Public jobs, salaries and benefits have been central to the mounting fiscal crisis. Laws and budgets passed on Madigan’s watch have added tens of billions of dollars to the state’s pension underfunding.

Slideshow (9 Images)

In 1989, Madigan supported a law that permanently awarded compounding 3 percent annual increases in pension payments, which can make a retiree’s yearly payout double over 25 years.

Some retirees praise Madigan for his hand in the pension perk.

“Certainly, anybody who voted ‘yes’ did a great thing for us,” said Dave Davison, a 78-year-old retired teacher and school administrator who heads the Illinois Retired Teachers Association. “I do not feel bad, or feel like we’re abusing the situation.”

In 2002, Madigan sponsored legislation that allowed thousands of state workers to retire as early as age 50 with full pensions. Initially, the state projected that about 7,400 workers would take advantage of the one-time offer. But more than 11,000 workers signed up, at a projected cost to the state of $2.3 billion through 2045.

The state has made efforts in the Madigan era to control unfunded pension liabilities. But some of these merely shifted billions of dollars to the state’s general obligation debt, which skyrocketed from $7.62 billion in 2002 to $27.8 billion in 2016. The state borrowed a total of nearly $17 billion to make pension contributions between 2003 and 2011 under legislation sponsored or supported by Madigan.

In 2010, Madigan teamed with Quinn, the Democratic governor, to pass a law that cut pension benefits for employees hired after 2011. That will save the system substantial money once those workers retire.

But for decades to come, the state will continue to shoulder higher costs of pensions for workers hired before 2011. And a little-known provision of the law allowed the state to slash pension contributions immediately, using the projected long-term savings as the rationale.

The law was cited as a textbook example of the legislature’s habit of pushing urgent obligations far into the future in a 2015 analysis commissioned by the Teachers Retirement System, or TRS, the state teachers’ pension.

“The state has systematically underfunded TRS using Illinois Math,” the report stated.

In an interview, Quinn said the law would eventually save billions of dollars and that Madigan played a key role in passing it.

A DOWNHILL RAMP

Pension legislation Madigan helped draft decades ago continues to haunt Illinois. An example is the 1994 overhaul known as the “Edgar Ramp,” after Governor Jim Edgar.

The politics of the law were unique. As the 1994 election approached, Edgar faced a reelection challenge from Democratic Comptroller Dawn Clark Netsch.

Madigan had backed a rival to Netsch in the Democratic primary race. Netsch was planning to use the pension crisis against Edgar. Madigan came to the Republican governor’s rescue by helping him pass a pension change in an election year.

Madigan was trying to shore up his own power, Edgar said later. The speaker needed to protect the reelection prospects of his Democratic allies in the House from public employee unions angry about their underfunded pensions.

“Madigan was always looking out for his members,” Edgar said in an interview with Reuters.

The surprising alliance helped keep Edgar in office. It didn’t work so well for Madigan, who lost his Democratic majority - and his speakership for the only term since 1983 - as Republicans made sweeping gains nationwide.

The resulting law contributed to a meteoric rise in unfunded obligations.

The “ramp” promised bigger pension contributions – but phased them in slowly until 2011. In the intervening years, unfunded liabilities shot up by $57 billion. Those phased-in increases were the “primary driver” of the added liabilities, according to the U.S. Securities and Exchange Commission.

In 2013, the SEC accused Illinois of understating the risk of pension shortfalls and misleading the holders of $2.2 billion in state bonds between 2005 and 2009. The 1994 Edgar Ramp law “enabled the state to shift the burden associated with its pension costs to the future,” the SEC wrote in its complaint.

The state settled by agreeing to better disclosure but admitted no wrongdoing.

Edgar, in an interview, praised Madigan for working with him. He faulted his successors for passing laws that weakened pensions and for failing to recalibrate contributions during economic downturns.

“Nobody foresaw the recession we saw or the fall of the market or the lack of fiscal discipline we saw in state government, discipline that we had in the ’90s but that disappeared in the 2000s,” he said in an interview with Reuters.

BRONZE-PLATED LEGACY

In a hallway near Madigan’s statehouse office, four bronze wall plaques list the 59 House speakers who have served since Illinois gained statehood in 1818. Madigan’s entry takes up far more space than that of anyone else.

By August, Madigan will have outlasted the longest-serving house speaker in modern U.S. politics, the late Solomon Blatt, who ran the South Carolina chamber for 32 non-consecutive years between 1937 and 1973.

Last month, Madigan celebrated his tenure by giving each of the members of his Democratic majority a crystal clock that retails for $150.

Omitted from the gift list was Scott Drury, the only Democrat who did not vote for Madigan’s reelection as speaker. Instead of a gift, Drury said, he got stripped of his committee leadership position in retaliation for stepping out of the party line.

Brown, Madigan’s spokesman, said Drury had become “a difficult person to work with.”

The 65 Democrats loyal to Madigan now have clocks bearing the inscription: “The Honorable Michael J. Madigan. Longest-serving speaker of a state House of Representatives in United States history. 2017.”

Edited by David Greising and Brian Thevenot

Our Standards:The Thomson Reuters Trust Principles.
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