The Illinois Senate passed a bill that would use bond proceeds to help cover unfunded liabilities from the state’s five retirement systems – closing the projected $4.8-billion shortfall by nearly $2 billion, according to a report by Washington-based legal publisher BNA. The Senate approved the measure last week, following the lead of the House of Representatives, which approved the bill March 20.
The Blagojevich plan authorizes the state to issue $10 billion in low-interest general obligation bonds, to invest the proceeds, and then funnel the funds into the retirement plans. Part of the proceeds also would be used to make the required state contributions to the retirement systems during fiscal years 2003 and 2004.
Contributions to Illinois’s pension funds are currently paid with general revenue funds coming to the state. By using the bond proceeds to pay these obligations, the state would free up approximately $2 billion in general funds and reduce the impact of the current budget crisis.
The Illinois state plans have been on life support perhaps more so than any other public pension system in the country. The plans’ unfunded liability has ballooned to $31.7 billion as of June 30, 2002 leaving a huge fiscal morass with which lawmakers had to contend (See Illinois Public Pensions Face Huge Sinkhole). A regular survey by Wilshire Associates of public pension funds for the fiscal year ending June 2001 showed the Illinois’ unfunded liability was three times that of the state with the next-largest shortfall – Oklahoma.
However, pension administrators have long complained that such statistics do not take into account that retirement funds are designed to be funded over the long term, which means that the plans do not have to meet all their liabilities right away.