Friday, February 18, 2011

The Illinois Pension Nightmare

The state of Illinois hopes to issue $3.7 billion in bonds, next week. The funds will be used to pay this year's pension payments.

Writes NYT, which is starting to get the picture of the serious problems in the muni market:

That short-term thinking is not unlike Americans taking out home equity loans to pay for cars and vacations before the housing bust...In his budget address, [Illinois Governor] Quinn praised what he called “the most far-reaching public pension reform in our nation’s history,” a law passed last year sharply reducing the pensions of state workers to be hired in the future and cutting the state’s yearly pension contributions for the next few years. Some actuaries who have studied the documents have expressed strong reservations, saying the new contribution schedule is not based on any accepted actuarial methodology and puts the pension system at risk.

...“When I read this [the bond prospectus], quite frankly, it made me ill to my stomach, because that pension plan has been consistently abused now for at least the last 16 or 17 years,” said Brad M. Smith, president-elect of the Society of Actuaries, which is based in Illinois.

Mr. Smith, who was speaking on his own behalf, is also chairman of Milliman, a large actuarial firm. He called the state’s schedule of pension contributions for the coming years “incredibly dangerous,” adding: “There’s a reasonable chance that these plans will run out of money.”
I hasten to add that people in the know don't think the state of Illinois can survive fiscally more than a couple of years, let alone its doling out funds to the state pension. The crises are coming be prepared and be out of muni bonds, regardless of what Charlie Gasparino says.

1 comment:

  1. What's the problem? Can't the Fed buys the bonds?