Bloomberg.com's Monday assessment of Illinois' disastrous teacher pension news being 47% funded was blamed on the federally-imprisoned former Governor Rod Blagojevich - specifically on Blagojevich's $10 billion bond plan that four Republicans helped put into effect:
One of [Blagojevich's] first initiatives was a pension-obligation bond plan. For years, Illinois had been struggling to come up with enough cash to make required payments into its pension system (even though its law stating what was “required” was more lax than what was recommended by the Governmental Accounting Standards Board). Blagojevich proposed that the state shore up its pension funds by issuing $10 billion in bonds and investing the proceeds in the pension fund.
In principle, nothing is wrong with pension-obligation bonds. They simply swap one form of indebtedness (unfunded pension obligations) for another (bond debt). But in practice, when a jurisdiction issues these bonds, it is usually up to no good, and this was no exception.
The pension funds would invest the proceeds in stocks and bonds with a target investment return of 8.5 percent a year, but the interest on the bonds was only about 5 percent. This was marketed as a free lunch, but it wasn’t one: Interest payments were fixed but Illinois taxpayers were on the hook to pay if the assets underperformed, which they did.
"Up to no good," Bloomberg's editorial writes, and that "no good" is dumping the problem on Illinois taxpayers - that's the 53% of us that pay taxes, including last year's 67% tax hike.
Only problem is Blagojevich isn't the only one to blame. The other key factor is the Democratic House Speaker and the Democratic Senate President that pushed the pay-later pension policy year after year after year.
"Up to no good" describes it well. Read Bloomberg's comments HERE.
