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Illinois’ Pension Bonds: The Other $26 Billion Obligation You Shouldn’t Ignore

Illinois’ Pension Bonds: The Other $26 Billion Obligation You Shouldn’t Ignore

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Published by: Illinois Policy Institute on Oct 20, 2011
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10/20/2011

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In just ten years, the Illinois General Assembly pushed the burden of billions in governmentspending onto Illinois’ future generations. Of-cial estimates put Illinois’ unfunded pension li-ability at $85.6 billion. But that amount does nottake into account the $25.8 billion in pension ob-ligation bond (POB) payments still outstanding, which have a net present value of approximately $17.2 billion
1
(see Graphic 1).
 Adding the pres-ent value of the POB debt to the unfunded pension liability puts the total pension bur-den at $102.8 billion.
 The legislature accomplished this sleight of hand by avoiding tough spending decisionsand borrowing heavily to pay the state’s statu-tory pension contributions. The state borrowed$10 billion in scal year 2003 under Gov. RodBlagojevich, but the bad habits didn’t begin andend with his governorship. Under his successor,Gov. Pat Quinn, Illinois borrowed an additional$3.5 billion and $3.7 billion in scal years 2010and 2011, respectively. The xed nature of the pension obligationbonds limits the state’s exibility to manage fu-ture costs. Whereas the cost of the future pen-sion liabilities can be reduced through reform,the same is not true for the bond obligations. The past decisions of legislators to kick the candown the road will impose signicant costs onIllinois budgets for years to come.Graphic 2 shows how the pension bond re-payments are allocated between the differentsystems based on their relative size. The larg-est system, the Teachers’ Retirement System(TRS), represents approximately 59 percent of the state’s total pension obligation. The two next
 Amanda Grifn-Johnson
is a Senior Budget and Tax Policy Analyst with the Illinois Policy Institute.
Illinois’ Pension Bonds
The other $26 billion obligation you shouldn’t ignore 
   T  a  x   &    B  u   d  g  e  t
   B  r   i  e   f  
   O  c  t  o   b  e  r   2   0 ,   2   0   1   1
Graphic 1. Pension ObligationBond Repayment Schedule2012-2033
Fiscal YearAnnual BondRepayment
2012$1,578,887,4282013$1,560,950,7162014$1,634,079,5442015$1,797,883,3722016$1,356,454,0002017$1,647,338,0002018$1,618,615,5002019$1,586,105,5002020$674,550,0002021$713,412,5002022$749,800,0002023$783,712,5002024$840,150,0002025$892,200,0002026$915,425,0002027$936,100,0002028$979,225,0002029$1,018,525,0002030$1,079,000,0002031$1,134,375,0002032$1,159,650,0002033$1,156,100,000
Total$25,812,539,060
Source: Commission on Government Forecasting and Accountability 
 
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largest systems, the State Universities RetirementSystem (SURS) and the State Employees’ Retire-ment System (SERS), account for approximately 20 percent and 19 percent, respectively. Thelast two systems, the Judges’ Retirement System(JRS) and the General Assembly Retirement Sys-tem (GARS), have relatively limited enrollmentand compose 2 percent and 0.4 percent, respec-tively, of the total state pension system.Pension obligation bonds allowed the stategovernment to ignore the need to manage thestate’s scal issues more responsibly. Instead of accompanying responsible reductions in overallstate spending, borrowing for pensions led tothe expansion of other programs and the rais-ing of taxes. Borrowing to pay the pension pay-ment simply shifted the state’s current-year ob-ligations from the pension system to long-termbond repayments, spreading the burden of cur-
Pension obligation bonds allowed the state  government to ignore the need tomanage the state’s scal issues more responsibly.
rent scal irresponsibility onto our childrenand grandchildren.Legislators should learn from the mistakes of the past and refrain from pension borrowing in the future. Rather than shirking tough de-cisions, legislators need to produce sensible,sustainable state budgets every year. The pen-sion crisis facing Illinois is a signicant prob-lem that cannot be ignored or deferred any longer. Pension payments will continue to takeup larger and larger portions of the budget.Real pension reform is needed now in orderfor legislators to regain control of the statebudget.
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 BondRepayment Schedule by State Pension System
Source: Commission on Government Forecasting and Accountability and Illinois Policy Institute calculations
 
Appendix 1. Fiscal Year 2003 $10 Billion Pension Obligation Bond RepaymentSchedule by Retirement Fund (in Millions)
FiscalYearTRSSERSJRSGARSSURSTOTAL
2004$284.7 $91.1 $9.3 $1.8 $94.2 $481.02005$293.6 $94.0 $9.6 $1.8 $97.1 $496.22006$293.6 $94.0 $9.6 $1.8 $97.1 $496.22007$293.6 $94.0 $9.6 $1.8 $97.1 $496.22008$323.2 $103.5 $10.6 $2.0 $106.9 $546.22009$322.5 $103.2 $10.6 $2.0 $106.7 $545.02010$321.7 $103.0 $10.5 $2.0 $106.4 $543.62011$320.7 $102.6 $10.5 $2.0 $106.1 $541.92012$349.2 $111.8 $11.4 $2.2 $115.5 $590.12013$347.0 $111.1 $11.4 $2.2 $114.8 $586.42014$344.7 $110.3 $11.3 $2.1 $114.0 $582.52015$342.4 $109.6 $11.2 $2.1 $113.3 $578.62016$340.0 $108.8 $11.1 $2.1 $112.5 $574.52017$352.2 $112.7 $11.5 $2.2 $116.5 $595.22018$363.8 $116.4 $11.9 $2.3 $120.3 $614.72019$374.7 $119.9 $12.3 $2.3 $124.0 $633.22020$399.2 $127.8 $13.1 $2.5 $132.1 $674.62021$422.2 $135.1 $13.8 $2.6 $139.7 $713.42022$443.7 $142.0 $14.5 $2.8 $146.8 $749.82023$463.8 $148.4 $15.2 $2.9 $153.4 $783.72024$497.2 $159.1 $16.3 $3.1 $164.5 $840.22025$528.0 $169.0 $17.3 $3.3 $174.7 $892.22026$541.7 $173.4 $17.8 $3.4 $179.2 $915.42027$553.9 $177.3 $18.2 $3.4 $183.3 $936.12028$579.5 $185.5 $19.0 $3.6 $191.7 $979.22029$602.7 $192.9 $19.7 $3.7 $199.4 $1,018.52030$638.5 $204.4 $20.9 $4.0 $211.2 $1,079.02031$671.3 $214.9 $22.0 $4.2 $222.1 $1,134.42032$686.2 $219.6 $22.5 $4.3 $227.0 $1,159.72033$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
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