October 20, 2011

Tax & Budget Brief

Illinois Pension Bonds

The other $26 billion obligation you shouldnt ignore
In just ten years, the Illinois General Assembly
pushed the burden of billions in government
spending onto Illinois future generations. Official estimates put Illinois unfunded pension liability at $85.6 billion. But that amount does not
take into account the $25.8 billion in pension obligation bond (POB) payments still outstanding,
which have a net present value of approximately
$17.2 billion1 (see Graphic 1). Adding the present value of the POB debt to the unfunded
pension liability puts the total pension burden at $102.8 billion.
The legislature accomplished this sleight of
hand by avoiding tough spending decisions
and borrowing heavily to pay the states statutory pension contributions. The state borrowed
$10 billion in fiscal year 2003 under Gov. Rod
Blagojevich, but the bad habits didnt begin and
end with his governorship. Under his successor,
Gov. Pat Quinn, Illinois borrowed an additional
$3.5 billion and $3.7 billion in fiscal years 2010
and 2011, respectively.
The fixed nature of the pension obligation
bonds limits the states flexibility to manage future costs. Whereas the cost of the future pension liabilities can be reduced through reform,
the same is not true for the bond obligations.
The past decisions of legislators to kick the can
down the road will impose significant costs on
Illinois budgets for years to come.
Graphic 2 shows how the pension bond repayments are allocated between the different
systems based on their relative size. The largest system, the Teachers Retirement System
(TRS), represents approximately 59 percent of
the states total pension obligation. The two next

Graphic 1. Pension Obligation

Bond Repayment Schedule
2012-2033
Fiscal Year

Annual Bond
Repayment

2012

$1,578,887,428

2013

$1,560,950,716

2014

$1,634,079,544

2015

$1,797,883,372

2016

$1,356,454,000

2017

$1,647,338,000

2018

$1,618,615,500

2019

$1,586,105,500

2020

$674,550,000

2021

$713,412,500

2022

$749,800,000

2023

$783,712,500

2024

$840,150,000

2025

$892,200,000

2026

$915,425,000

2027

$936,100,000

2028

$979,225,000

2029

$1,018,525,000

2030

$1,079,000,000

2031

$1,134,375,000

2032

$1,159,650,000

2033

$1,156,100,000

Total

$25,812,539,060

Source: Commission on Government Forecasting and Accountability

Amanda Griffin-Johnson is a Senior Budget and Tax Policy Analyst with the Illinois Policy Institute.

Page 2 of 5
largest systems, the State Universities Retirement
System (SURS) and the State Employees Retirement System (SERS), account for approximately
20 percent and 19 percent, respectively. The
last two systems, the Judges Retirement System
(JRS) and the General Assembly Retirement System (GARS), have relatively limited enrollment
and compose 2 percent and 0.4 percent, respectively, of the total state pension system.

Pension
obligation
bonds allowed
the state
government
to ignore
the need to
manage the
states fiscal
issues more
responsibly.

Pension obligation bonds allowed the state

government to ignore the need to manage the
states fiscal issues more responsibly. Instead of
accompanying responsible reductions in overall
state spending, borrowing for pensions led to
the expansion of other programs and the raising of taxes. Borrowing to pay the pension payment simply shifted the states current-year obligations from the pension system to long-term
bond repayments, spreading the burden of cur-

rent fiscal irresponsibility onto our children

and grandchildren.
Legislators should learn from the mistakes of
the past and refrain from pension borrowing
in the future. Rather than shirking tough decisions, legislators need to produce sensible,
sustainable state budgets every year. The pension crisis facing Illinois is a significant problem that cannot be ignored or deferred any
longer. Pension payments will continue to take
up larger and larger portions of the budget.
Real pension reform is needed now in order
for legislators to regain control of the state
budget.
Endnotes
1 The net present value of the outstanding bond debt
is calculated using appropriate bond yields for varying
maturity dates.

Graphic 2. Pension Obligation Bond

Repayment Schedule by State Pension System

Source: Commission on Government Forecasting and Accountability and Illinois Policy Institute calculations

Page 3 of 5

Appendix 1. Fiscal Year 2003 $10 Billion Pension Obligation Bond Repayment
Schedule by Retirement Fund (in Millions)
Fiscal
Year

TRS

SERS

JRS

GARS

SURS

TOTAL

2004

$284.7

$91.1

$9.3

$1.8

$94.2

$481.0

2005

$293.6

$94.0

$9.6

$1.8

$97.1

$496.2

2006

$293.6

$94.0

$9.6

$1.8

$97.1

$496.2

2007

$293.6

$94.0

$9.6

$1.8

$97.1

$496.2

2008

$323.2

$103.5

$10.6

$2.0

$106.9

$546.2

2009

$322.5

$103.2

$10.6

$2.0

$106.7

$545.0

2010

$321.7

$103.0

$10.5

$2.0

$106.4

$543.6

2011

$320.7

$102.6

$10.5

$2.0

$106.1

$541.9

2012

$349.2

$111.8

$11.4

$2.2

$115.5

$590.1

2013

$347.0

$111.1

$11.4

$2.2

$114.8

$586.4

2014

$344.7

$110.3

$11.3

$2.1

$114.0

$582.5

2015

$342.4

$109.6

$11.2

$2.1

$113.3

$578.6

2016

$340.0

$108.8

$11.1

$2.1

$112.5

$574.5

2017

$352.2

$112.7

$11.5

$2.2

$116.5

$595.2

2018

$363.8

$116.4

$11.9

$2.3

$120.3

$614.7

2019

$374.7

$119.9

$12.3

$2.3

$124.0

$633.2

2020

$399.2

$127.8

$13.1

$2.5

$132.1

$674.6

2021

$422.2

$135.1

$13.8

$2.6

$139.7

$713.4

2022

$443.7

$142.0

$14.5

$2.8

$146.8

$749.8

2023

$463.8

$148.4

$15.2

$2.9

$153.4

$783.7

2024

$497.2

$159.1

$16.3

$3.1

$164.5

$840.2

2025

$528.0

$169.0

$17.3

$3.3

$174.7

$892.2

2026

$541.7

$173.4

$17.8

$3.4

$179.2

$915.4

2027

$553.9

$177.3

$18.2

$3.4

$183.3

$936.1

2028

$579.5

$185.5

$19.0

$3.6

$191.7

$979.2

2029

$602.7

$192.9

$19.7

$3.7

$199.4

$1,018.5

2030

$638.5

$204.4

$20.9

$4.0

$211.2

$1,079.0

2031

$671.3

$214.9

$22.0

$4.2

$222.1

$1,134.4

2032

$686.2

$219.6

$22.5

$4.3

$227.0

$1,159.7

2033

$684.1

$219.0

$22.4

$4.2

$226.3

$1,156.1

TOTAL

$12,979.5

$4,154.5

$425.3

$80.5

$4,294.0

$21,933.7

Source: Commission on Government Forecasting and Accountability and Illinois Policy Institute calculations

Page 4 of 5

Appendix 2. Fiscal Year 2010 $3.466 Billion Pension Obligation Note Repayment
Schedule by Retirement Fund (in Millions)
Fiscal
Year

TRS

SERS

JRS

GARS

SURS

TOTAL

2011

$474.9

$152.0

$15.6

$2.9

$157.1

$802.5

2012

$470.0

$150.4

$15.4

$2.9

$155.5

$794.3

2013

$458.7

$146.8

$15.0

$2.8

$151.7

$775.1

2014

$445.0

$142.4

$14.6

$2.8

$147.2

$752.1

2015

$428.3

$137.1

$14.0

$2.7

$141.7

$723.8

TOTAL

$2,276.9

$728.8

$74.6

$14.1

$753.3

$3,847.7

Source: Commission on Government Forecasting and Accountability and Illinois Policy Institute calculations

Appendix 3. Fiscal Year 2011 $3.7 Billion Pension Obligation Bond Repayment
Schedule by Retirement Fund (in Millions)
Fiscal
Year

TRS

SERS

JRS

GARS

SURS

TOTAL

2012

$115.1

$36.8

$3.8

$0.7

$38.1

$194.5

2013

$118.0

$37.8

$3.9

$0.7

$39.1

$199.5

2014

$177.2

$56.7

$5.8

$1.1

$58.6

$299.5

2015

$293.2

$93.8

$9.6

$1.8

$97.0

$495.5

2016

$462.7

$148.1

$15.2

$2.9

$153.1

$781.9

2017

$622.6

$199.3

$20.4

$3.9

$206.0

$1,052.2

2018

$594.1

$190.1

$19.5

$3.7

$196.5

$1,003.9

2019

$563.9

$180.5

$18.5

$3.5

$186.5

$952.9

TOTAL

$2,946.8

$943.2

$96.6

$18.3

$974.9

$4,979.8

Source: Commission on Government Forecasting and Accountability and Illinois Policy Institute calculations

Page 5 of 5

Appendix 4. Combined Total Pension Obligation Bond Repayment Schedule by

Retirement Fund (in Millions)
Fiscal
Year

TRS

SERS

JRS

GARS

SURS

TOTAL

2004

$284.7

$91.1

$9.3

$1.8

$94.2

$481.0

2005

$293.6

$94.0

$9.6

$1.8

$97.1

$496.2

2006

$293.6

$94.0

$9.6

$1.8

$97.1

$496.2

2007

$293.6

$94.0

$9.6

$1.8

$97.1

$496.2

2008

$323.2

$103.5

$10.6

$2.0

$106.9

$546.2

2009

$322.5

$103.2

$10.6

$2.0

$106.7

$545.0

2010

$321.7

$103.0

$10.5

$2.0

$106.4

$543.6

2011

$795.5

$254.6

$26.1

$4.9

$263.2

$1,344.4

2012

$934.3

$299.1

$30.6

$5.8

$309.1

$1,578.9

2013

$923.7

$295.7

$30.3

$5.7

$305.6

$1,561.0

2014

$967.0

$309.5

$31.7

$6.0

$319.9

$1,634.1

2015

$1,063.9

$340.5

$34.9

$6.6

$352.0

$1,797.9

2016

$802.7

$256.9

$26.3

$5.0

$265.6

$1,356.5

2017

$974.8

$312.0

$31.9

$6.0

$322.5

$1,647.3

2018

$957.8

$306.6

$31.4

$5.9

$316.9

$1,618.6

2019

$938.6

$300.4

$30.8

$5.8

$310.5

$1,586.1

2020

$399.2

$127.8

$13.1

$2.5

$132.1

$674.6

2021

$422.2

$135.1

$13.8

$2.6

$139.7

$713.4

2022

$443.7

$142.0

$14.5

$2.8

$146.8

$749.8

2023

$463.8

$148.4

$15.2

$2.9

$153.4

$783.7

2024

$497.2

$159.1

$16.3

$3.1

$164.5

$840.2

2025

$528.0

$169.0

$17.3

$3.3

$174.7

$892.2

2026

$541.7

$173.4

$17.8

$3.4

$179.2

$915.4

2027

$553.9

$177.3

$18.2

$3.4

$183.3

$936.1

2028

$579.5

$185.5

$19.0

$3.6

$191.7

$979.2

2029

$602.7

$192.9

$19.7

$3.7

$199.4

$1,018.5

2030

$638.5

$204.4

$20.9

$4.0

$211.2

$1,079.0

2031

$671.3

$214.9

$22.0

$4.2

$222.1

$1,134.4

2032

$686.2

$219.6

$22.5

$4.3

$227.0

$1,159.7

2033

$684.1

$219.0

$22.4

$4.2

$226.3

$1,156.1

TOTAL

$18,203.3

$5,826.5

$596.5

$112.9

$6,022.1

$30,761.3

Source: Commission on Government Forecasting and Accountability and Illinois Policy Institute calculations