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Illinois is broke...
Topic Started: Feb 15 2010, 03:41 PM (254 Views)
LTC8K6
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Assistant to The Devil Himself
Well, they can join the club, I guess.

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Illinois politicians are at it again. They're borrowing from the future to make state pension contributions today. Illinois has one of the most underfunded public pension plans in the nation.

When boomers start retiring, there won't be enough money to pay those pension promises. Both political parties are still trying to hide the magnitude of the problem.

In early January, while everyone was busy watching the nasty campaign commercials, the State of Illinois pulled an end-run on the budget process. On Jan. 7 the state sold $3.5 billion of "pension obligation notes." In simple English, the state borrowed money to finance the state's contribution to its five retirement systems.

These five-year debt securities carry an interest rate of 3.84 percent, tax free to bondholders. It's a much higher yield than you could get in the bank because of the risk involved. Moody's and Standard and Poors rated them at least 6 notches below the top AAA rating. In fact, all the rating agencies characterized the outlook for Illinois finances as "negative."

The money raised will go to shore up the Teachers Retirement System, which is scheduled to receive $2.08 billion of the proceeds, and the Illinois State Universities Retirement System, which will get $702.5 million from the bond offering. The Illinois State Board of Investment gets nearly $813 million for funds, including the Illinois State Employees' Retirement System, and the Judges Retirement System, and -- big surprise -- the Illinois General Assembly Retirement System.

But what happens in five years when those bonds must be repaid? Where will the state find $3.4 billion -- plus the interest that must be paid along the way? Will investors be willing to lend to them at any yield? Will the next governor return to Blagojevich's plan to lease out the state lottery and sell the toll roads? Or will this "Ponzi scheme" finally be exposed?

On that day, the war between the taxpayers and the public pensions will officially begin.

Public pensions vs. taxpayers

This is a nasty story I've followed for years. I wrote about the "accounting legerdemain" in 2003, when under Gov. Blagojevich the state borrowed $10 billion to make required pension contributions, with some of the borrowings to be invested in the stock market. The belief was that stock market investment returns would beat the 5 percent cost of interest on the bonds, helping to fill the gap between promises and reality. Unfortunately, the stock market didn't cooperate.

Then in January 2009, this column highlighted the growing budget deficits and late payments to state providers, such as nursing homes, pharmacies, day care centers and other providers. We called it the "Coming Pension Wars" -- as the state and municipalities are forced to raise taxes or cut services to pay the promised pensions, along with current bills. In just the last year, the situation has become even more dire.

In November 2009, the state's Pension Modernization Task Force sent its recommendations to Gov. Quinn. The Task Force concluded that Illinois' unfunded pension liability exceeds $61 BILLION! And that number is growing exponentially.

The report points out the "deadly combination of nearly 30 years of systematic state underfunding of its employer contributions to the pension systems" as the main cause of the gap between promises and reality. It's also exacerbated by longer life expectancies and payout periods, not to mention the second-worst decade ever for investment returns.

The report lays out the problem clearly:

"Not wanting to implement dramatic cuts in spending on essential services, the legislature and various governors elected to instead divert revenue from making the required employer pension contribution to maintaining services like education, health care, public safety and caring for disadvantaged populations. Effectively, the state used the pension systems as a credit card to fund ongoing service operations."

Several pension reform proposals have been presented to the Illinois Legislature. Even the most gentle reforms would require the state to make additional annual pension contributions of more than $12 billion every year. Simply cutting benefits for current or future retirees comes nowhere near to solving the problem. And the prospect of a longer-lasting recession wreaks havoc on the state budget, aside from pension contributions.

Illinois now has public debt of more than $130 BILLION. Unlike the federal government, our state cannot simply create new money to pay its bills. At some point -- and that point is very near -- investors will no longer be willing to lend money that cannot be repaid.

If you would like to see more facts and figures, check out the Web site www.IllinoisIsBroke.com, created by the nonpartisan Civic Committee of the Commercial Club of Chicago. A visit to the site shows a few pictures that are worth a thousand words -- and billions of dollars.

Perversely, the problem is so huge that our politicians won't acknowledge this true "elephant in the room." So let me say it loud and clear: The Emperor Has No Clothes. Illinois is Broke. And there's no way public pensions will be paid -- unless huge changes are made. And that's The Savage Truth.


http://www.suntimes.com/business/savage/2048376,CST-NWS-savage15.savagearticle
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wingedwheel
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This is a nasty story I've followed for years. I wrote about the "accounting legerdemain" in 2003, when under Gov. Blagojevich the state borrowed $10 billion to make required pension contributions, with some of the borrowings to be invested in the stock market. The belief was that stock market investment returns would beat the 5 percent cost of interest on the bonds, helping to fill the gap between promises and reality. Unfortunately, the stock market didn't cooperate.


Was there some hopey changey community agitator, turned state senator in Illinois back then? Did he ever say anything about that back then?
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Mason
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Congess and the Media is staying silent on this, but the states are quietly waiting for a huge bailout. If they came forward now, what would that do to Obama's spending programs?

So they are quiet and Obama will say he has no choice is bailing out states - and his spending will already be passed.
It's all about timing.

I think the states have been reassured if they play ball with Obama, they'll get Federal Dollars.

.
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If the states are hoping for Federal Dollars they are hopelessly out of touch with reality. If somebody doesn't put the kabash on BHO, there won't BE enough dollars to bail anybody out. What do they want? China to own Illinois?
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Mason
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Maryland is getting $$$ for a snow storm!

Federal Disaster Aid. I'm sure they're not the only ones, but Maryland is crying because they are already broke.

.
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LTC8K6
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Mason
Feb 15 2010, 07:39 PM
Maryland is getting $$$ for a snow storm!

Federal Disaster Aid. I'm sure they're not the only ones, but Maryland is crying because they are already broke.

.
A dollar says the money doesn't go to anything related to the snow...
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