12:54 PM
Woefully bad. That's what is said to describe the Illinois government state pension problems. The major problem is debt. The entire state budget is 59 billion dollars, so 44 billion dollars of long-tern debt to the pension systems is a big liability.
What did lawmakers do? Nothing. The Blagojevich Administration and the Senate Democrats wants another 16 billion dollar bond issue to pay down the debt. That would then free up money destined for pensions to be spent elsewhere: education, health care and the like. The idea is to put the borrowed money into the pension systems. This would cut the debt and reduce interest costs. The Governor is hoping that the bond debt interest would be 6%, compared to the pension debt of 8.5%, thus saving money.
Well and good you say? There was a catch....the Senate Democrats, and only the Democrats voted for it, but when it went to the House, Speaker Madigan didn't call it for a vote. Keep in mind that some House Republicans would have to vote for this if it's to pass the House.
So what's the problem? Well for starters, converting pension debt (which can be paid off any time) into bond debt puts the payment plan on a strict schedule. With the state financial situation on shaky ground, with help from the volatile stock market, should Illinois be obligated to such a plan? Those for it see that the required pension systems payment would be knocked down to 300 million dollars from 800 million dollars, thus giving the state an additional 500 million dollars to spend elsewhere. That's the money I mentioned in the second paragraph that would be freed up. That's not all.... the proposed FY 09 budget the Governor submitted assumed that the pension bond issue would have passed, thus leaving the 500 million hole that's part of the 2.1 billion dollar deficit total.
I would advise to cut 500 million dollars of spending out of the budget along with the matching revenue stream (the leftover). That still leaves us with 1.6 billion dollars to cut. Oh well....it's a start!
What did lawmakers do? Nothing. The Blagojevich Administration and the Senate Democrats wants another 16 billion dollar bond issue to pay down the debt. That would then free up money destined for pensions to be spent elsewhere: education, health care and the like. The idea is to put the borrowed money into the pension systems. This would cut the debt and reduce interest costs. The Governor is hoping that the bond debt interest would be 6%, compared to the pension debt of 8.5%, thus saving money.
Well and good you say? There was a catch....the Senate Democrats, and only the Democrats voted for it, but when it went to the House, Speaker Madigan didn't call it for a vote. Keep in mind that some House Republicans would have to vote for this if it's to pass the House.
So what's the problem? Well for starters, converting pension debt (which can be paid off any time) into bond debt puts the payment plan on a strict schedule. With the state financial situation on shaky ground, with help from the volatile stock market, should Illinois be obligated to such a plan? Those for it see that the required pension systems payment would be knocked down to 300 million dollars from 800 million dollars, thus giving the state an additional 500 million dollars to spend elsewhere. That's the money I mentioned in the second paragraph that would be freed up. That's not all.... the proposed FY 09 budget the Governor submitted assumed that the pension bond issue would have passed, thus leaving the 500 million hole that's part of the 2.1 billion dollar deficit total.
I would advise to cut 500 million dollars of spending out of the budget along with the matching revenue stream (the leftover). That still leaves us with 1.6 billion dollars to cut. Oh well....it's a start!