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Quad Cities looking at pension obligation bond for police and fire

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Illinois

Taxpayers in the Illinois Quad-Cities may soon be borrowing some of the nearly $330 million they owe to retirement funds for public workers.

Moline taxpayers’ liability on pension promises to retired police officers and firefighters is about 10 times more than what they pay to current emergency responders.

Last year’s wages for the Moline police and fire departments were just shy of $11 million. But Moline’s unfunded obligation to police and fire retirees is more than $120 million.

And East Moline and Rock Island are in similar straits.

All three cities on the Illinois side of the river are considering borrowing money to get caught up on what they owe to public-employee retirement funds, mostly for police and firefighters.

So, the idea is they borrow money, invest it and use the returns to make the payments. The state did the same thing during Rod Blagojevich’s tenure, but they irresponsibly front-loaded the savings to “balance” the budget and it didn’t work nearly as well as advertised (although it wasn’t the disaster some predicted).

There’s a lot more to this story, of course, so click here to read it.

posted by Rich Miller
Monday, Aug 30, 21 @ 8:55 am

Comments

I’m generally against this strategy given the political class is looking at the next election only but if one was to do this in theory it would be better to do today than when Blago did it given how low interest rates are. I imagine they would be able to borrow in the 2% at most 3% range on long term debt. Even if performance was “low” they should be able to hurdle.

Comment by 1st Ward Monday, Aug 30, 21 @ 10:05 am
The CTA did that per P.A. 95-708 and it worked for them. It can work for others too.

Comment by Just Me 2 Monday, Aug 30, 21 @ 10:36 am
The time to borrow and invest was 18 months ago.

When you try and time these things it never seems to work out.

But if they have a reasonable rate of return and low buy rate then go ahead a try out.

Comment by Cool Papa Bell Monday, Aug 30, 21 @ 10:37 am
When I read the headline, I checked the Government Finance Officers Association (GFOA) website. There’s a big yellow advisory banner there that says, “State and local governments should not issue POBs.” The advisory goes on to list the five reasons why that were mentioned in the article.

I am against using debt instruments to play catch-up but do think positive results are possible by lowering the investment return assumption. A big reason for the growth of unfunded liabilities is the insistence on staying with a target of 7.5% or 8% that these conservative pension portfolios rarely hit. It’s kept annual required contributions lower in the shorter term but also meant the ARCs were lies, and the piper has arrived.

https://www.gfoa.org/materials/pension-obligation-bonds

Comment by yinn Monday, Aug 30, 21 @ 11:22 am
If only the general assembly would require municipal employers to make full payments to article 3 and 4 funds, like IMRF…

How many cities will be 90 percent funded by 2040 as state statute requires?

Comment by 62468 Monday, Aug 30, 21 @ 12:52 pm
Are municipal bonds still federally tax-exempt?

Comment by DuPage Monday, Aug 30, 21 @ 2:12 pm
These bonds would have to be taxable.
As for the over 7% these folks are mentioning, the firm hired by the Police Board (Virus) presented the police board with investment projections in a range of high 4% to 5.74% on page 29 of the report they presented to that Board at a public meeting on 8/13/21.
Morningstar, Blackrock, Vanguard and JPMorgan also have 10 year numbers in the 4 or 5% range.
Taking a wild guess here that those firms and the Police Board firm have a better handle on things than the folks going for this Bond pitch.
If I die I hope I come back as a bond sales person to these folks.

Comment by Back to the Future Monday, Aug 30, 21 @ 2:33 pm

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