Illinois’ legislature approved a $423 million bond buyout Thursday, but the troubled state may not be able to rely on it as its liabilities keep growing.
Part of the state’s $38.5 billion fiscal 2019 budget, the buyout is the state’s latest effort to curb its $129 billion pension debt. Previous attempts aimed to cut retirement benefits, but that failed due to constitutional grounds. Because of those concerns, the proposals were thrown out by courts.
The buyout plan allows current employees to collect the 3% compounded cost-of-living adjustments in their benefits for 70% of the value and 1.5% less of their living adjustments. Another program could allow retirees to take 60% of their lifetime pension in one lump sum instead of continuing to collect regular payments.
Republican Gov. Bruce Rauner called the legislation “a step in the right direction.”
Analysts at Moody’s Investors Service analysts, however, warned that public service cuts are necessary for the state’s solvency. The creditor suggested that the state’s debt service, retiree health benefits, and pension contributions could eat 30% of its income.
Moody’s said that “a failure to adopt mitigating strategies soon will greatly increase the state’s risk that these rising costs will become unaffordable” without “severe” reductions.
Rep. David McSweeney, Republican and critic of the governor, agreed with Moody’s and was not fond of the bond buyout. “We need to cut the budget. Math does count. We need to do real pension reform. … We are insolvent,” he told the Chicago Tribune.
The debt’s main contributor was years of skipped state contributions or actuarially inadequate ones, reports Reuters. The contributions are currently projected at $8.43 billion in fiscal 2019 and could become just over $10 billion by 2023. Illinois is currently 36% funded.