The Illinois Senate, facing the state?s worst fiscal crisis, cleared the way for the state to borrow $3.7 billion for this fiscal year?s payment into underfunded employee pensions.
The bond measure was approved 42-16 in the final hours of the legislative session, moments after the Senate gave final approval to a 67 percent increase in the income-tax rate. Governor Pat Quinn, a Democrat, has said he will sign the bill, which passed the state House of Representatives in May.
Illinois had $64 billion in pension assets to pay estimated liabilities of $126.4 billion to 723,000 retirees and beneficiaries, according to bond documents in June. Senate President John Cullerton said the higher income tax will eliminate the need to borrow for next year?s pension payments.
The bond and tax measures were intended to help close a $13 billion budget deficit. Business leaders warned that a failure to adequately fund pensions would leave the retirement plans out of money to pay promised benefits before 2020.
A year ago, the state sold $3.47 billion of taxable pension bonds, paying more than some comparably ranked U.S. companies, according to data compiled by Bloomberg. Illinois borrowed at as much as 4.421 percent on notes maturing in one to five years. That was 1.82 percentage points higher than five-year U.S. Treasuries.
The House defeated two other parts of the budget-balancing package, rejecting a $1 per-pack cigarette-tax increase and a plan to borrow $8.5 billion to cover the unpaid bills.
The state sold $1.5 billion of bonds backed by tobacco- settlement payments in November to reduce the backlog of bills from vendors.
New York-based Moody Investor?s Service in September forecast possible ?further financial deterioration? in the state?s outlook.
To contact the reporter on this story: Tim Jones in Chicago at tjones58@bloomberg.net
To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net
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