Funds News

Illinois pension mega-bond sale idea gets legislative airing

CHICAGO, Jan 30 (Reuters) - Illinois lawmakers on Tuesday expressed interest and skepticism in an idea that the U.S. state should sell $107 billion of bonds to address its huge unfunded pension liability.

At a hearing before the Illinois House Personnel and Pensions Committee, Runhuan Feng, an associate professor of mathematics at the University of Illinois, laid out a plan for selling taxable 27-year, fixed-rate bonds to get the state’s five retirement systems to a 90-percent-funded level.

The bond plan, which was offered by a group representing workers and retirees in the Illinois State Universities Retirement System, would result in a $103 billion reduction in the state’s pension costs by 2045, according to Feng.

Committee Chairman Robert Martwick filed a bill for the bond sale, emphasizing that it was in early in the process and promising to bring in bond market and other experts to testify.

In order to become law, the bill would need to pass both Democrat-controlled chambers and be signed into law by the state governor, currently a Republican.

Illinois pension systems’ funded ratio was just under 40 percent in fiscal 2017, while the unfunded liability totaled $129 billion, according to a legislative commission. The state’s annual pension payment is projected to grow from $8.5 billion in fiscal 2019 to $19.6 billion in 2045 under the current funding system.

Some lawmakers questioned what the plan would do to Illinois’ credit ratings, which are already the lowest among the U.S. states, and if the huge borrowing would make future bond sales for capital projects impossible.

“Are we going to be tapped out completely?” asked Democratic State Representative Scott Drury.

Some lawmakers expressed interest if the bond sale came with additional ways to lower costs that would not violate public pension protections in the Illinois Constitution.

The state has already been a prolific issuer of taxable pension bonds, selling $3.7 billion in 2011, $3.5 billion in 2010, and $10 billion in 2003. The 2003 deal included $7.7 billion of bonds that will not mature until 2033 and $1.4 billion maturing in 2023.

The U.S. and Canadian Government Finance Officers Association has advised its state and local government members not to issue pension bonds, citing several risks that could arise from investing bond proceeds and increasing debt burdens. (Reporting By Karen Pierog, Editing by Rosalba O’Brien)