Illinois to Postpone $3.7 Billion Taxable Pension Bond Issue

(February 16, 2011) — The state of Illinois has delayed a sale of nearly $4 billion of bonds to pay its yearly pension contribution.

Illinois had originally scheduled the bond sale for Thursday to cover payments to state employee pension funds. However, a spokeswoman for the Illinois budget office confirmed with Bloomberg that the new deal had been delayed until next week, as officials wanted to give potential buyers time to analyze a budget plan Illinois Governor Pat Quinn.

Last month, in order to help close Illinois’ $15 billion budget hole, legislators raised corporate and personal income taxes. Yet, the state still faces the worst-funded pension system among US states, according to a recent report issued by the Pew Center on the States. In an act of desperation, Illinois is attempting to convince sovereign wealth funds to buy nearly $4 billion of bonds so that it can pay off its pension debt.

Borrowing from sovereign wealth funds to help fund Illinois’ pension costs is a risky and controversial move that could result in higher taxes in the future. John Sinsheimer, the state’s director of capital markets, has been targeting investors in Europe and Asia while also trying to raise money from large banks and insurance companies in the US, according to the Financial Times. The state is expected to have to pay a high interest rate as part of that $3.7 billion bond sale, the Wall Street Journal reported.

Illinois’ public statement about its unfunded pension liability of some $83 billion is now being investigated by the Securities and Exchange Commission (SEC).