{"id":8095,"date":"2018-01-31T08:31:49","date_gmt":"2018-01-31T14:31:49","guid":{"rendered":"http:\/\/admin.patheos.com\/blogs\/janetheactuary\/?p=8095"},"modified":"2018-02-01T10:46:39","modified_gmt":"2018-02-01T16:46:39","slug":"sell-100-billion-bonds-not-completely-crazy","status":"publish","type":"post","link":"https:\/\/www.patheos.com\/blogs\/janetheactuary\/2018\/01\/sell-100-billion-bonds-not-completely-crazy.html","title":{"rendered":"Sell $100 billion in bonds? Not completely crazy"},"content":{"rendered":"\n<\/head>

\"Illinois<\/p>\n

That\u2019s the proposal in front of the Illinois legislature<\/a>:\u00a0 the state pension is underfunded to the tune of $129 billion dollars (that\u2019s almost double what the state spends<\/a>, in total, in a year), so the State Universities Annuitants Association has proposed borrowing $107 in bonds, and hoping that there is no major market correction and that asset returns will exceed the interest rate at which the government is able to issue the bonds \u2014 an interest rate which, to be sure, will be higher than it otherwise would be due to the state\u2019s poor credit rating, just barely investment-grade<\/a>, and the risks of nonpayment that such bonds pose for investors.<\/p>\n

Have you ever borrowed money, in order to invest it in the stock market?\u00a0 It\u2019s only marginally better than borrowing money to take to the casino, not because the stock market is the equivalent of gambling, but because the core reason why stocks pay better returns than bonds is because of the risk inherent in those investments.\u00a0 And, yes, over the long term, one expects the stock market to reward one for taking that risk from year to year, but in the short-term, well, no.\u00a0 Just no.<\/p>\n

And this isn\u2019t the first time Illinois would\u00a0be doing\u00a0this \u2014 in 2003 Illinois made a similar deal<\/a>, but with an order of magnitude less, only $10 billion, and at a time when our credit rating was far more favorable.<\/p>\n

So why do I say this is \u201cnot completely crazy\u201d?<\/p>\n

In the first place, because it treats our pension obligations as what they are, true debt.\u00a0 \u00a0In making pension promises to state employees in lieu of paying them competitive salaries, we have incurred debts that have to be paid, even though the nature of pension funding and accounting requirements gives legislators the ability to imagine that pension obligations are something different, just a \u201cthing that will be paid in the future.\u201d\u00a0 (See my New Year\u2019s blog post<\/a>.)\u00a0 In a perfect world, the bond issuance would be structured in such a way as to force the state to pay for benefits as they are accrued, but if staring down a big fat debt in the form of bonds coming due is what it takes for legislators to recognize that public pension provision is in urgent need of reform, than this would be a benefit of what\u2019s otherwise a massively foolish idea.<\/p>\n

And in the second place \u2014 well, Illinoisians, look around you.\u00a0 We\u2019ve got two billionaires vying for our votes in the fall.\u00a0 Rauner wants to rein in the unions but has failed to succeed in his ventures due to his inability to negotiate with Madigan.\u00a0 His Democratic opponents (Pritzker<\/a>, Biss<\/a>, and Kennedy) are in a bidding war for how much additional state spending they promise, with Biss taking the cake as the Bernie of the race, promising single-payer healthcare and free tuition, among other goodies, and all three have promised that they will \u201csupport\u201d the unions, which, based on past Democrats\u2019 track record, I take to mean readily meeting the state unions\u2019 demands at contract-negotiating time.\u00a0 Our government doesn\u2019t show any signs of getting its act together.\u00a0 Perhaps massive levels of debt would be what it takes for our elected officials to finally realize the seriousness of the situation.<\/p>\n

And, third, well, yes, I\u2019d hate to move at any point in the near future (kids in school, husband started a new job without the ability to move to another location elsewhere), but that\u2019s not out of the question eventually, and, after all, we need neither exit visas nor residency permits to pack up and find a better-governed state in which to live.<\/p>\n

\u00a0<\/p>\n

Image:\u00a0Illinois state capitol; https:\/\/commons.wikimedia.org\/wiki\/File:Illinoiscapitol2.jpg<\/p>\n<\/body><\/html>\n","protected":false},"excerpt":{"rendered":"

That\u2019s the proposal in front of the Illinois legislature:\u00a0 the state pension is underfunded to the tune of $129 billion dollars (that\u2019s almost double what the state spends, in total, in a year), so the State Universities Annuitants Association has proposed borrowing $107 in bonds, and hoping that there is no major market correction and […]<\/p>\n","protected":false},"author":2209,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[11,791],"class_list":["post-8095","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-illinois","tag-public-pensions"],"yoast_head":"\nSell $100 billion in bonds? 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