Pension bonds prioritize public sector workers and stiff taxpayers – Wirepoints


By: Ted Dabrowski and John Klingner

A number of Illinois cities and governments have tricked taxpayers into allowing them to issue pension bonds, or POBs, in recent years. Now with invoice HB 4677Illinois lawmakers want the Chicago area Metropolitan Water Reclamation District (MWRD) to issue $600 million in POB.

POBs are bad for a multitude of reasons, but the most important is that they help push Illinois’ decades-over-promised pension mess entirely onto the taxpayers. Pensioners are protected and taxpayers end up with the bag.

Illinois local pension plans and their members would be in big trouble if there were a fiscal meltdown in Illinois today. With almost a third of Illinois’ 650 local pension funds less than 50% funded, many retirees would have to endure reductions in benefits in a real stress scenario (see Central fallsIR, Detroit, Jefferson County, AL). Taxpayers, too, would suffer all that accompanies a meltdown.

But with POBs, politicians can, in one fell swoop, protect retirees from the possibility of cuts while burdening taxpayers with even more debt. It’s another way government officials are prioritizing public sector workers over regular Illinois. Such borrowings should be banned.

The practice of using POBs is terribly widespread. SkokieHerrin, Sterling, Wauconda Fire Protection District, Winnebago County and many other governments have issued POBs since 2018. The state of Illinois has also issued over $15 billion in POBs since 2003. Gov. Rod Blagojevich led a $10 billion loan in 2003 and Governor Pat Quinn borrowed a total of more than $6 billion in 2009 and 2010.

The politicians and lawmakers who backed the POBs are all playing the same game, borrowing hundreds of millions to cover up their financial troubles.

Take, for example, the town of Skokie, which recently borrowed $176 million to fund its local police and fire systems. City pensions are happy because they are now much healthier – their funding ratio has increased from 50% to 90%. Local government employees and retirees can sleep better knowing their retirement security is greatly improved. They don’t have to worry about pension cuts if Illinois or Skokie finances get much worse. Skokie’s taxpayers, on the other hand, are now fully responsible for reimbursing that $176 million.

You will never hear that from lawmakers and local officials who keep pushing POBs. Instead, they continue to push bonds as a cost-cutting measure, quietly ignoring the harm it does to taxpayers.

Making taxpayers foot the entire Illinois retirement bill is unfair. The current pension crisis is the result of politicians promising benefits to appease public unions, not a lack of taxpayer funding. Retirement age in the 1950s, 3% cost of living adjustments that double annual benefits in 25 years, sick leave increasing pensions, pension spikes, free health insurance for retirees and more come together to provide government employees with some of the most generous and unaffordable retirement benefits. For more details, see Wirepoints’ Illinois Pensions – Overpromised and Overly Generous.

The latest attempt to stick taxpayers with another POB comes courtesy of Illinois state lawmakers HB 4677, awaiting the Governor’s signature. They want the MWRD to issue $600 million obligation which will bring the capitalization ratio of the pension system to 83% against 57%. Pensioners protected, taxpayers on the hook.

More reasons to reject POBs

There are many other reasons why POBs are bad. We have presented them over the past few years during the review Chicago, Wheatonand the Quad-cities’ POBs offered. Here is the short version:

POBs are risky. POBs involve borrowing money and putting the money into pension funds, where it can be invested in the financial markets. The long-term hope is that the returns from the fund’s investments will outweigh the costs of the loan. If that sounds like a gamble to you, you’re right. Government officials use POBs to borrow millions and see if they can beat the stock market. And if the politicians are wrong, they go after the taxpayers to reimburse the gambling losses

This is why national organizations such as the Government Finance Officers Association recommend that governments not issue POBs. The GFOA knows that most governments lack the expertise to make sound investment decisions and cannot be trusted with responsibility.

The POBs deflate any pressure for reform. POBs remove any pressure to reform pensions as they immediately improve the appearance of pension schemes. Politicians can boast of having made things better even if they have only pushed the debt directly onto the taxpayers.

The unintended consequence of POBs: Unions can demand even greater benefits. Once a city’s pension crisis is “resolved,” local unions can demand even more wages and benefits from local officials. After all, if pension plans are better funded, there is no pension crisis, is there? Or so the union argument goes.


Illinois politicians created two categories of workers. The first is a public sector class with long-term contracts, guaranteed job security, multi-year wage increases and benefits, and constitutionally protected lifetime pensions. The second class is that of private sector workers who are obliged to pay for these public sector benefits, whatever the cost.

Pension bonds are just another way for politicians to enforce this two-class structure.

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