Shorting pensions — again

February 26, 2019

When it comes to Illinois public pensions, nothing is simple.

Facing pension payments of $7.1 billion this year, $8.2 billion next year and $9 billion by 2022, the J. B. Pritzker administration has a different pension funding plan.

The idea is to short the state payment $800 million per year. Then, take several of those $800 millions and roll them into a bond issue. Three years’ worth of payments, say $2.4 billion, become a much, much higher number when you pile 20 years of interest on them.

The Pritzker administration admits it would mean stretching out payments to reach 90 percent pension funding (the goal) by seven years. That would be in the year 2052. We don’t know what Illinois, taxes or the pension program will be in 2052. Here’s what we know for sure — those folks voting for it today won’t be around to make the payments in 33 years.

Ironically, a version of this sleight of hand was performed under Gov. Rod Blagojevich. He skipped $10 billion worth of payments — borrowing the money instead. Taxpayers will be making those bond payments until 2033.

The irony is that the current pension problem is being papered over — in part — by the tremendous rise in stock equities. The Dow is up roughly 8,000 points since the Trump election. A serious decline would put further pressure on pension funds.

The scheme is akin to taking your credit card payment and rolling it into your mortgage. You’ll feel better this month. Whether you will feel better in 10 years is unknown.