By: Ted Dabrowski and John Klingner
A number of cities and governments in Illinois have fooled taxpayers into allowing them to issue pension obligation bonds, or POBs, over the last few years. Now with bill HB 4677, Illinois lawmakers want the Chicago-area Metropolitan Water Reclamation District (MWRD) to issue $600 million in POBs.
POBs are bad for a slew of reasons, but the biggest one is that they help shove Illinois’ decades-long overpromised pension mess entirely on to taxpayers. Pensioners get protected and taxpayers get left holding the bag.
Illinois’ local pension plans and their pension members would be in deep trouble if there were a fiscal meltdown in Illinois today. With nearly a third of Illinois’ 650 local pension funds less than 50 percent funded, many retirees would have to endure benefit cuts under a real stress scenario (See Central Falls, RI, Detroit, Jefferson County, AL). Taxpayers, too, would suffer everything that comes with a meltdown.
But with POBs, politicians can, in one fell swoop, protect pensioners from the possibility of cuts all the while burdening taxpayers with even more debt. It’s another way government officials prioritize public sector workers over ordinary Illinoisans. Such borrowings should be banned.
The practice of using POBs is distressingly widespread. Skokie, Herrin, Sterling, the Wauconda Fire Protection District, Winnebago County and many other governments have issued POBs since 2018. The state of Illinois has also issued more than $15 billion in POBs since 2003. Gov. Rod Blagojevich led a $10 billion borrowing in 2003 and Gov. Pat Quinn borrowed a total of more than $6 billion in 2009 and 2010.
Politicians and lawmakers who have supported POBs are all playing the same game, borrowing hundreds of millions to paper over their financial problems.
Take, for example, the city of Skokie, which recently borrowed $176 million to fund its local police and fire systems. The city’s pensions are happy because they’re now far healthier – their funding ratio improved to 90 percent from 50 percent. Local government workers and retirees can sleep better knowing their retirement security is greatly improved. They don’t need to worry about pension cuts if Illinois or Skokie’s finances worsen significantly. Skokie taxpayers, on the other hand, are now fully on the hook for repaying that $176 million.
You’ll never hear that from the lawmakers and local officials who continue to push POBs. Instead, they keep pushing bonds as a cost-saving measure, quietly leaving out the harm it does to taxpayers.
Sticking taxpayers with Illinois’ entire pension bill is unfair. The current retirement crisis is the result of politicians overpromising benefits to appease public unions, not a lack of taxpayer funding. Retirement ages in the 50s, 3 percent cost-of-living adjustments that double annual benefits in 25 years, pension-boosting sick leave, pension spiking, free retiree health insurance and more all come together to provide government workers with some of the nation’s most generous and unaffordable retirement benefits. For more details, see Wirepoints’ Illinois Pensions – Overpromised & Overgenerous.
The latest attempt to stick taxpayers with another POB comes courtesy of Illinois state lawmakers’ HB 4677, which is awaiting the governor’s signature. They want the MWRD to issue a $600 million bond that will lift the pension system’s funded ratio to 83 percent from 57 percent. Pensioners protected, taxpayers on the hook.
More reasons to reject POBs
There are plenty of other reasons why POBs are bad. We’ve laid them out over the last few years when reviewing Chicago, Wheaton, and the Quad-cities’ proposed POBs. Here is the short version:
POBs are risky. POBs are all about borrowing money and placing the money in the pension funds, where it can be invested in the financial markets. The hope over the long term is that the fund’s investment returns beat out the costs of the loan. If that sounds like a gamble to you, you’re right. Government officials use POBs to borrow millions and see if they can beat the stock market. And if politicians get the bets wrong, they come after taxpayers to pay off the gambling losses
That’s why national organizations such as the Government Finance Officers Association recommend that governments don’t issue POBs. The GFOA knows most governments don’t have the expertise to make good investment decisions and can’t be trusted with the responsibility.
POBs deflate any pressure for reforms. POBs remove any pressure to reform pensions because they immediately make the pension plans look better. Politicians can brag they’ve made things better even though all they did was shove debt directly onto taxpayers.
The unintended consequence of POBs: unions may demand even bigger benefits. With a city’s pension crisis “solved,” local unions can demand even more pay and benefits from local officials. After all, if the pension plans are better funded, there is no pension crisis, right? Or so the union argument goes.
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Illinois politicians have created two classes of workers. The first is a public sector class with long-term contracts, guaranteed job security, multi-year salary increases and perks and constitutionally-protected lifetime pensions. The second class is the private sector workers who are forced to pay for those public sector benefits, no matter the cost.
Pension obligation bonds are just another way for politicians to enforce that two-class structure.
Read more from Wirepoints:
- Pension obligation bonds: Some Illinois city leaders want to gamble with taxpayer funds
- Politicians’ next pension “fix”: Gambling with your money
- Mass incarceration: a weaponized myth
- Lawmakers vote to subsidize Illinois’ border communities. It’s a failed strategy.
- The Latest, Brazen Whoppers From Gov. J.B. Pritzker And His Party
- As the folly of Illinois’ new energy law becomes evident, a ray of hope breaks through
- 2021 Census numbers are horrible for Illinois: Population decline second worst in country, behind only New York
Audio and summary 
A largely unasked question is becoming glaring: Is Illinois doing all it should to use artificial intelligence to make government cost less and work better? So far, the evidence says no.
Audio and summary
The issue is now even more complex. The Covid money is running out and the Feds can’t afford more bailouts with inflation rocking and rolling, a nonstop train at this point. If they tighten to curb inflation (they’ll increase it a bit more, then ease, but rates will naturally go higher) then the debt for Chicago and Munis/State get hit even harder. Welcome to the death spiral, it’s finally here. What’s funniest about is that the US and NATO just caused it, so they could have a slush fund/proxy war against Russia (see Biden/Pelosi/Romney/Kerry families Burisma et all transfer payments).… Read more »
Many think (as I often do) that negotiation with public unions and those they elect is essentially hopeless. Moving away or hoping for a crisis-caused collapse may not be a goal but the most likely result. Those with the time and inclination might be interested in the following article describing a program at the Northwestern of the East: Talking across the aisle – Harvard Law Today
Some problems have no solution because our systems of government and law don’t provide workable solutions. As a consequence, most of us humans seem to revert to the less evolved states of tribalism, or other ages or stages explored by Darwin or Freud or Jung or Marx. It’s all-’round hair on fire all the time. There are simply not enough marriage counselors or divorce lawyers or personal coaches to do enough interventions. The great majority of us will turn out losers in the intermediate or long term. Nobody seems willing to make the first move. An initial first step might… Read more »
Great article. For many years Illinois municipalities spent money they didn’t know they didn’t have when they used flawed actuarial factors that assumed generous investment returns and shorter life expectancies. But the reckoning is coming and those who don’t leave Illinois will be left to pay.
I am moving out of state as soon as I can sell my home. This just disgusts me that J.B. Pritzker and the Democratic-controlled legislature is mortgaging Illinois’ future for generations to come. Excellent Ted and John.
Call the form of paying pensions anything you want, as taxpayers we’re on the hook for paying it. Government always rigs the system, our taxes go up, services get cut, it really doesn’t make any difference how it’s done we still pay. We’ve never been given a choice how much we pay or how we pay, we just pay. Because there are no politicians with enough guts to tackle this problem the amount we owe is limitless. Vote against changing the Constitution and the Illinois Right to Collective Bargaining Act in November 22 or the current debt will be chump… Read more »
You’re only on the hook to pay off the bonds/debt if you remain in Illinois. This doesn’t have to be your problem. Stop procrastinating. Illinois is a cancer that only gets worse.
I suspect this is true for a while. Those who move from Illinois won’t be hit for increased Illinois taxes and reduced state and municipal services as shrinking revenues are diverted to pay pensions. They won’t be exposed to riots in Chicago and its suburbs. But how sure are you that these issues will be confined to Illinois? We’re already seeing the federal bailouts. We can hope for bankruptcies here but (as with Puerto Rico) the federal government is likely to step in to spread the pain. Assume conservatives retake the federal legislature and take back the Presidency. Presumably they… Read more »
JimBob, change will not come to Illinois unless many more people leave. Elections in that state, at best, only slow the death spiral.
Realistically what the pols are banking on in the near future is some sort of federal bailout. With the current administration spending trillions for Covid whats $200B or $300B more. The pols think why fix a problem that will eventually be fixed for them. This could change with a different administration starting with the upcoming mid terms. It’s like all those who paid off their student loans just to find out that many are getting or will get loan forgiveness. Similar to those underwater in their mortgage and along comes some program like mortgage forgiveness or something like HARP. I… Read more »
Outrageous that Ill (#1-2 in overall tax burden; #1-2 in political corruption; and #51, behind Puerto Rico, in fiscal condition) politicians will not place a constitutional amendment to reform pensions and medical benefits to public employees, on the ballot for a vote. If legislators do not address pensions/medical and public corruption, they have done nothing of consequence, and all incumbents, rep or dem, should be voted out until that changes. The upcoming ILL consitutional amendment on the Nov ballot, designed to give public unions even more power, is of course, outrageoulsy a big step toward more of the same, but… Read more »
Between Illinois’ five state pensions, the nine Chicago and Cook County pension systems and 650 downstate police and fire pensions, the unfunded liabilities for these systems total nearly $200 billion by their actuarial reports and their unfunded liability keeps increasing. Illinois pension laws require permit amortization of the unfunded liabilities over thirty years at 2% per year when the fund is projected to earn 6-6.5%. This means the fund sponsors make the State mandated contribution, but the unfunded liability continues to increase. If a private entity did this there would be criminal charges filed by the pension benefit guaranty fund… Read more »
I believe Wirepoints wrote a couple of years ago that Illinois’ state retiree health benefits was unfunded to the tune of $73 billion. I can’t imagine that’s gotten any better since then.
Great article. Thanks for saying it.
An equally big issue for me is federal bailouts of failed defined benefit plans across the board. These bailouts include the multi-employer plan relief to preserve unfunded benefits in Teamster (etc) plans and the “COVID relief” which frees up state funds to rescue underfunded public plans. Nobody is considering closure of the bankrupt PBGC. The burden of these bailouts and subsidies is simultaneously spread across the entire economy via inflation and also to future generations of federal taxpayers. All of this is justified to voters as “promise keeping” and voted in with total cynicism by Democrats and Republicans alike Some… Read more »
Regular readers of Wirepoints benefit by being informed. That information is worthless unless you also have the wisdom to act, something Wirepoints can’t give you. Each day that passes, Wirepoints gives you another reason to leave Illinois. Don’t be one of the many examples found throughout history where someone waited too long to act. To put it another way, don’t be the one left holding the bag.
Ultimately this will be the final nail in the coffin for any person who has the ability to leave Illinois. It will require taxes to increase to such a level that it simply won’t be worth it to stay. The required bond payments will likely require the taxation of retirement income, potentially driving tens of thousands out of the state very quickly. Make your plans now. Send your children to out of state universities so they leave before you. It will make it easier.
It’s all just a game to the Dem liberals in Springfield. They find more ways to keep the union base content by misleading and confusing the taxpayers. The saddest part is that the taxpayers have already lost the game but still keep playing.
Debts that cannot be repaid will not be repaid.
They have no intention of paying it back. It’s the classic kick the can down the road game. It’s really insidious because they pit the pensioner, of which the pols who make the policy are part of, and pit them against the taxpayers, who in most cases make less than those who pay most of the taxes. FDR himself said that public employees should not be allowed to unionize. There are plenty of tough guy conservatives who want their pension money and won’t vote to diminish it any way. They say they were promised it, they worked for it, and… Read more »
“Even your hero DJT” “Democrats are so terrible that a mope like Trump can pit o a hard hat and pretend to be for workers.”
Seriously, only a whackadoole could somehow transform a comment about pensioners grifting pensions off taxpayers into a tirade about Trump.
IL pensions have nothing to do with Trump.