Illinois’s Mounting Pension Debt Looms Over Pritzker’s Plans

(Bloomberg) -- Illinois Governor J.B. Pritzker, whose state faces a mountain of pension debt and unpaid bills, may give some clues during his “State of the State” speech Wednesday to how he will deal with those challenges during his second year in office.

• The billionaire Democrat, whose command of a political majority in the legislature has put an end to the political gridlock over the budget that dominated the state under his predecessor and nearly caused Illinois’s bonds to be downgraded to junk, will deliver his speech at noon in the state capital of Springfield.
• Pritzker is expected to discuss his bipartisan efforts, balancing the budget, infrastructure investments and consolidation of suburban and downstate first responder pension funds, according to the governor’s office. He may also address the need to build on investments in education and comprehensive ethics reform.
• He will give his more detailed budget address on Feb. 19.

Key Insights

• Illinois bondholders and analysts following the state said it’s crucial for the government to make adequate annual pension payments to compensate for years of shortchanging the retirement plans under previous administrations. They’re also looking for signs of how the governor will balance the fiscal 2021 budget, given that his plan for implementing a progressive income tax won’t go before voters until November.
• The state has more than $6 billion of unpaid bills, $137 billion of unfunded pension liabilities and the lowest credit rating of any U.S. state. Still, some recent steps by the state have been lauded by investors, who are demanding sharply lower yield penalties on Illinois bonds than they have in the past.
• During Pritzker’s first year in office, Illinois passed a budget on time, raised gas taxes to fund the first capital plan in a decade and legalized recreational marijuana.

Market Reaction

• “What people are looking for is an outline of a multiyear game plan to solidify the state’s finances,” Chris Mier, managing director for Loop Capital, a Chicago-based investment bank, said in a telephone interview.
  • Areas of interest include pension, education, transportation, economic development, budgetary efficiencies and new revenue sources such as the proposed progressive income tax, he said.
• “Illinois has a checkered history when it comes to passing budgets that rely on uncertain revenues,” Ty Schoback, senior municipal credit analyst at Columbia Threadneedle Investments, said in an email. “So, investors want to know that there is a viable plan B if the fair tax is not passed by voters.”
  • “We also hope that last year’s shelved proposal to extend the pension payment ramp stays on the shelf,” he said.

Get More

• Illinois Comptroller’s unpaid bill tally
• Additional coverage

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, William Selway

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