An under-reported part of the State of Illinois’ most recent bond sale is noteworthy. State pensions will get $186 million of the borrowed money. That’s important because it’s really no different than moving debt from one credit card to another. The state’s unfunded pension liability will drop, thanks to the new money, but the state’s bonded debt will increase by the same principal amount.
In other words, the $186 million is really just a pension obligation bond (POB) wrapped inside a bond that was otherwise for something different — funding capital projects. We and many others have heavily criticized POBs in the past when they’ve been used by the state and some municipalities.
Politicians use the results of POBs to claim reductions in their pension problems, but they usually don’t mention that they run up bonded debt to pay for it. Either way, taxpayers remain on the hook for the principal amount.
It also means the state will be rolling the dice on the interest cost of the debt. Whether the shift reduces interest costs is unpredictable because that depends on how markets perform. The debt on the new, taxable bonds, issued September 1, bears interest at a true cost of 4.55%, according to The Bond Buyer. The borrowed money will be invested by the pensions in stocks and other investments, which may or may not earn more than that. The net result with past POBs therefore has sometimes been positive and sometimes not.
The $186 million at issue isn’t huge in comparison to of the staggering total of the state’s unfunded pension liability, which is now $144 billion, according to the state.
Still, $186 million is a lot of money, and this chapter is another illustration of the games that can be played with public pensions. As we’ve said since we began writing about defined benefit public pensions, they are inherently nontransparent and how they are reported is hopelessly subject to manipulation.
-Mark Glennon
Earlier articles on pension obligation bonds:
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If this bill passes, say goodbye to local control over all Illinois parks and expect to see open drug and alcohol use, needles, no sanitation and fire hazards, but no ordinary park users.
That’s a sharp and cynical take, but it’s probably not far from reality. The cycle of fees, losses, and misplaced trust in shaky bonds seems endless.Game https://bizzocasino-au.net/ developers use advanced engines to create realistic graphics. In the end, it’s often the ordinary pensioners who pay the real price for others’ recklessness.
Luckily a big percentage will go off the top to lawyers and consultants and underwriters. Then a bunch of bond fund investors will lose money when the defaults occur. Perhaps Detroit pension funds will buy these bonds with loose cash that otherwise would pay for pension trustees’ winter seminars in Hawaii golf resorts.
Robbing Peter to pay Paul. Illinois is run by liars, cheats and thieves. The public pensions are unsustainable at current levels. There is no hope for Illinois or Chicago of ever coming back till the eliminate all pensions. When you run the pension underfunding numbers they do not even come close to adding up. The federal government will not bail Illinois out, forget about that. Death by public sector greed. If you have the price of a tank of gasoline, get out of state.
“Hiding” money inside the pension system(s) in preparation for bankruptcy! Hoping to get a step-up in priority over bondholders. Or, perhaps, getting ready to offer pension buyouts to pension millionaires whose windfalls are jeopardized. The handwriting on the wall reflects desperation.
Maybe the state’s pension program needs to be re done. What they’re doing is unsustainable.