Illinois Considers Borrowing Billions to Pay Pensions
By Prescott Carlson in News on May 6, 2010 9:00PM
Photo of the Illinois Capitol by Jeremy Farmer Photog.
Lawmakers are looking into issuing $4 billion in bonds to fund the state's five public employee pension plans -- lawmakers who are gun shy about raising income taxes in an election year as an alternative. The main problem, however, is that the state pulled the same move last year:
“It’s déjà vu all over again. And we can’t do this much longer. At some point we’re going to have to straighten this out,” said state Sen. Dale Risinger, R-Peoria.
And it's not just Republicans voicing concerns. State Rep. Jack Franks (D-Woodstock) was quoted as saying:
"We cannot continue to underfund the pensions. We need to acknowledge our obligations and 'pay-as-you-go.' Furthermore, borrowing here will hurt the retirement system because there will be no principle paid in. This is a death spiral, folks."
The term "death spiral" may not be hyperbole -- a Pew Center for the States study cited says that Illinois had an unfunded pension liability of $80 billion, the worst in the nation. The overall bond picture for the state isn't much better. At the end of 1998, Illinois had just under $5.3 billion in outstanding general obligation bonds. A little over a decade later, that number has ballooned to $23 billion. And it shows no signs of going down -- besides the pension borrowing, over $2.6 billion in bonds are being issued for Gov. Quinn's $12.84 billion Multi-Year Highway Improvement Program.
Thanks to Illinois' fiscal woes, that borrowing doesn't come cheap. The second-lowest bond rated state after California, the state will possibly have to pay higher interest rates on that money as a "risk premium."
The bond issuance is one of a number of different budget proposals lawmakers are considering before a tentative summer recess on Friday.