Illinois is currently embroiled in a bit of financial trickery involving its seemingly-evergreen pension crisis. Prairie State politicos have invented a solution to skyrocketing debt worthy of Wodehouse farce.
“At the request of state retirees, a University of Illinois math professor performed a crack analysis showing how the state could use interest-rate arbitrage to shave its pension costs,” according to The Wall Street Journal on Monday.
Under the professor’s math, the paper explained, the state could sell 27-year, fixed-rate taxable bonds and invest the proceeds into its pension funds. It would “supposedly stabilize the state’s pension payments at $8.5 billion annually, save taxpayers $103 billion over three decades and increase the state retirement system’s funding level to 90 percent from 40 percent.”
The plan is not without precedent, the paper added, mentioning Detroit and Stockton, California (!) as having tried something similar.
We all know the eventual outcome for both municipalities, which may be the point. Bankruptcy (or a similarly creative restructuring, since states can’t chapter file) is already baked in; Springfield is simply delaying as long as possible.
We’ve seen such “creative” solutions to state pension issues before, all with an equal amount of forethought. Rhode Island and its alternative investment scheme (read hedge fund) comes to mind. Anything to avoid the eventual retirement benefit reckoning and its ballot box implications.
Which brings us to Oregon and its opt-out rates. Behavioral economics typically point to auto-enrollment success, but not this time (or at least not yet). Given decades of distressing headlines involving politicians and other people’s money, why would workers voluntarily hand over hard-earned retirement savings to a similar style of financial mismanagement?
The answer is playing out in Portland.