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* Wirepoints…
One credit card to another: Illinois converted $186 million of pension debt into bonded debt – Wirepoints Quickpoint
An under-reported part of the State of Illinois’ most recent bond sale is noteworthy. State pensions will get $186 million of the borrowed money. That’s important because it’s really no different than moving debt from one credit card to another. The state’s unfunded pension liability will drop, thanks to the new money, but the state’s bonded debt will increase by the same principal amount.
In other words, the $186 million is really just a pension obligation bond (POB) wrapped inside a bond that was otherwise for something different — funding capital projects. We and many others have heavily criticized POBs in the past when they’ve been used by the state and some municipalities.
Politicians use the results of POBs to claim reductions in their pension problems, but they usually don’t mention that they run up bonded debt to pay for it. Either way, taxpayers remain on the hook for the principal amount.
It also means the state will be rolling the dice on the interest cost of the debt. Whether the shift reduces interest costs is unpredictable because that depends on how markets perform. The debt on the new, taxable bonds, issued September 1, bears interest at a true cost of 4.55%, according to The Bond Buyer. The borrowed money will be invested by the pensions in stocks and other investments, which may or may not earn more than that. The net result with past POBs therefore has sometimes been positive and sometimes not.
Um, this goes well beyond replacing high-cost soft pension debt with lower-cost hard bonding debt. It’s not a Blagojevich-style POB (which was a scam because they drew down the savings all at once). Not mentioned anywhere in the piece is that this bonding will fund another round of pension buy-outs.
As we discussed last month, the buy-out program has knocked off a chunk of the state’s unfunded liability ($2.5 billion) by convincing people to give up their annual compounded automatic annual retirement increase in exchange for a lump-sum payment at retirement. It’s basically the only avenue anyone has found so far to devise a constitutional voluntary system to reduce state pension costs.
* The governor’s office confirmed last week that this borrowed money is, indeed, the pension buy-out funding…
Yes, part of the $1.775 billion General Obligation Bonds, Series of September 2025, will fund the State’s pension buyout program. About $186 million from the Series 2025A Bonds is deposited into the State Pension Obligation Acceleration Bond Fund, which pays buyouts when participants choose one of the two options.
* The “father” of the state’s pension buy-out plan, former Republican Rep. Mark Batinick, told me this last year…
On the broader pension issue, Batinick had this to say: “When it comes to state pensions, both Republicans and Democrats need to look in the mirror and admit a hard truth. Republicans need to realize that while pensions are still a big line item in the budget, the problem is getting better, not worse. Pension costs are declining as a percentage of the budget. We are healing. Democrats need to realize that much of the money that has been available for new spending the last few years has come from that healing, not budget magic.”
Maybe a phone call could’ve cleared it up before they wrote that. /s
posted by Rich Miller
Monday, Sep 29, 25 @ 10:57 am
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Yet another example of the stellar and balanced analytical writing of the Bunker Buddies.
Comment by Morty Monday, Sep 29, 25 @ 11:09 am
As with TIFs, very few people know what they are talking about when they talk about bonds. This reporter obviously missed the mark.
Thank you for the clarification, Rich.
Comment by low level Monday, Sep 29, 25 @ 11:14 am
Pension costs are declining as a percentage of the budget.
Isn’t his just a function of the overall tax/fee fueled total budget spending…?
Like raising taxes/fees to say…. Spending $75 billion in the state budget …..would then lower the % amount of the pension costs in the budget….?
Comment by It's always Sunny in Illinois Monday, Sep 29, 25 @ 11:20 am
It’s Wirepoints, Jake.
Comment by West Side the Best Side Monday, Sep 29, 25 @ 11:21 am
Buyouts require the person to give up 30%-40% of the value of their benefit in exchange for one-time cash payment. Can’t find a rate of return anywhere that good on the market. The unfunded liability drops by more than the interest rate on the bonds, resulting in net savings for the state. Buyouts were a good fiscal move.
Comment by Blazzzer Monday, Sep 29, 25 @ 11:29 am
===Isn’t his just a function of the overall tax/fee fueled total budget spending===
And natural growth, yes. Either way, the revenue is there.
Comment by Rich Miller Monday, Sep 29, 25 @ 11:34 am
Somewhat tricky to look at pension costs as a percentage of the budget. If there is a recession and revenues decrease, pension costs look higher. If revenues increase, pension costs look lower. It’s getting better, but payments will increase each year between now and FY 2045. Hopefully, state revenues will keep up.
Comment by Pumpsss Monday, Sep 29, 25 @ 11:36 am
This astute analysis of complex financial proceedings really helps me understand the current state of Wirepoints’ own books.
Comment by Roadrager Monday, Sep 29, 25 @ 11:36 am
$186 million in bonds does not get issued and placed for free. There is a million dollars in fees involved. That is the purpose.
Comment by Kevin Carhill Monday, Sep 29, 25 @ 11:40 am
Why is it always “former” Republicans calling out their party’s shenanigans? I mean, I know it’s because current ones need the political football, but my God. Just imagine how much better the state, nation, and world would be if the GOP were more like post-retirement Batinick. We might actually all be able to agree on a common reality, at a minimum.
Comment by Irreverent Monday, Sep 29, 25 @ 11:40 am
=Isn’t his just a function of the overall tax/fee fueled total budget spending…?=
In a word, no.
Tier 2 is responsible for significantly lower annual costs and the buyout lowers the long-term legacy cost.
Rich and Batnick explain it nicely.
Comment by JS Mill Monday, Sep 29, 25 @ 11:43 am
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Upton Sinclair
Comment by Moe Berg Monday, Sep 29, 25 @ 12:14 pm
Wasn’t it just last week we learned that Wirepoints was being ran the same way Bost ran his father’s trucking company?
You know, before his family stepped in and took it away from him.
Comment by Flyin' Elvis'-Utah Chapter Monday, Sep 29, 25 @ 12:16 pm