Illinois Lawmakers Take Another Run at Mending Tattered Pensions

Illinois lawmakers will meet in a special session today, their second in three weeks, with leaders signaling that they can’t satisfy Governor Pat Quinn’s demand that they fix the nation’s worst-funded retirement state system before the day is done.

The session is a confrontation between the Democratic governor and members of his own party who control the legislature. While Quinn has said the pension system, saddled with almost $100 billion in unfunded liability, is a threat to the state budget and economy, lawmakers have been unable to compromise to fix the underfunded retirement system.

“The governor just does not seem to be able to get people to talk and negotiate toward a settlement, so that’s still very much a cause of concern,” said Bill Black, a senior portfolio manager in Oakbrook Terrace, Illinois, for Invesco Ltd. The company, which oversees about $22 billion in munis, bought bonds in the state’s $1.3 billion sale last month, he said.

Lawmakers have been unable to agree on a fix for the five systems, resulting in Fitch Ratings cutting Illinois on June 3 to A-, the fourth-lowest investment grade. Moody’s Investors Service on June 6 dropped it to A3, equivalent to Fitch’s rank.

Bottoming Out

Illinois, the lowest-rated U.S. state, issued $1.3 billion in bonds last month into the worst municipal-debt market since 2008. It still managed to lower yields on uninsured securities maturing in July 2023 to 4.46 percent, down from 4.56 percent in preliminary marketing.

The debt has rallied even with the likelihood of no pension fix. The 10-year uninsured portion last traded at an average yield of 4 percent, data compiled by Bloomberg show. That’s about 1.26 percentage points more than AAA munis, the narrowest spread since the sale.

Illinois and its localities pay the most to borrow relative to AAAs among 19 states tracked by Bloomberg.

The state has the worst-funded government employee retirement plans based on a Moody’s formula released last month. Its net pension liabilities represent 241 percent of governmental revenue, according to the New York-based ratings company.

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