If Illinois borrows to make its annual contribution to state retirement systems for a second year running, the back-loaded payment plan on those bonds will cause interest costs to skyrocket, a Civic Federation analysis found.
Interest costs would total an estimated $1 billion if the state issues about $3.7 billion in bonds to make its required contribution to the state’s five pension funds in fiscal 2011, which began July 1. The bonds would be paid off over eight years.
In contrast, the state’s interest cost on $3.5 billion in pension borrowing in fiscal 2010 is estimated to be $381.7 million. Those are five-year notes.
The state would not begin paying down principal on the new bonds until after the 2010 bonds were fully repaid, in fiscal 2015. This back-loading is necessary to keep the annual debt service affordable, noted Dan Long, executive director of the General Assembly’s Commission on Government Forecasting and Accountability.
The Civic Federation, a non-profit research organization, observed in an online posting Thursday that “by not paying principal in the early years of the [fiscal 2011 bonds], the interest cost charged for the new debt will be dramatically higher.”
Gov. Pat Quinn’s push for the pension borrowing has been stalled in Springfield since the spring. The measure was approved by the House May 25 but was not called for a vote in the Senate because Democrats could not get the full support of their ranks needed for a three-fifths majority, and the Republicans were not willing to step in. That same dynamic remained in place at a session on Nov. 4.
But the issue could come up again in the veto session, which convenes Tuesday. Republicans want to see deeper budget cuts before approving pension borrowing.
Senate President John Cullerton (D-Chicago), doesn’t think $3.7 billion in cuts can be found right away but is willing to try to work out a compromise, said spokesman John Patterson.
The Civic Federation says selling the new bonds would keep the financially hobbled state’s average annual debt service on pension bonds above $1.5 billion until fiscal 2020. It also would bring the state’s total pension-related borrowing to $17.2 billion in the last decade.
The annual pension debt service would more than eat up any growth in state revenue, which in a good economy increases by $800 million to $1 billion a year, according to Long. “You can’t keep borrowing every year to make the payment. It won’t work, especially when there’s no natural revenue growth.”
The Civic Federation said, “by continuing to borrow to make its pension payments, the state will exacerbate its financial problems and make it harder to balance future budgets.”
If the state does not make its pension contribution this year, the Quinn administration has said, actuaries say it could boost the state’s obligation by another $25 billion over the next 35 years.
“If we don’t make the payments, over time we’ve lost investment income,” Kelly Kraft, the governor’s budget spokeswoman, said recently.
So Illinois residents should get ready to pull out their checkbooks to pay for the inflated and underfunded pensions of government workers. Many of which got bumped up in pay grade their last few years to make their pensions even bigger. Ain’t it cool what long term Democrat control of the state and city governments can accomplish?
Sorry, Civic Federation, but you are speaking in a foreign tongue when you tell our General Assembly NOT to borrow money.
The legislature is full of addicts – spending addicts. You can’t stop an addict as long as they have access to their drug of choice. For our GA, borrowing is fun. It’s easy, and it gives them money to spend. They don’t have to wait for revenues to arrive – where’s the fun in that?
At what point does the fiscal wrecklessness of our politicians and brazen abuse of the taxpayers/citizens become CRIMINAL?
Heck, lets just raise the state income tax up to an even 10%. these govt. workers earn every penny and deserve to retire at 50 with their full salary and health insurance with no deductibles. the rest of us private workers would not be able to survive without these great govt workers. We should work till we die so the illinois govt workers can relax. Yeah, that’s the ticket………
Your private sector boss has to pay more for your social security than the state is paying for my pension. The legislature all should be in jail for failure to pay what is required by law. Your boss would be jail for doing the same to you.
Claim Bankrupt Put the money in the federals hands It worked for United
than give the employees a 401K so they can lose their own money in the stock market it worked for corp America it can work for Government after all Promises were made to be broken not to broke the companies Or just sell the tollway it worked for Chicago with the skyway and parking meters
Or set up Parking meters next parking meters one for the Cities and One for the State want to Park in Illinois you got to pay both
We can all complain, but this state is corrupt and everyone chose to look the other way previously. Now it is too late and the costs associated with all the state government/empolyees are out of control people are finally waking up. All of this entitlement is a joke, you can look at almost everyone around you and remember they kept their mouth shut while it went on. Just like Enron and what is funny is that no one in power can give you a real truhful reason why. Numbers don’t lie, just the tools in power. Now in response what we hear is entitlement still.
Take that entitlement and shove it you lazy, lying corrupt polititicans/state employees. Might as well mention the small towns that you never hear of are in on it well.