January 24, 2010
The Institute for Illinois’ Fiscal Sustainability at the Civic Federation recently described how some State of Illinois pension bond proceeds could be transferred to the State’s General Funds and used for other operating purposes.
The final legislation authorizing the state to borrow money in order to make its FY2011 pension contribution may open the door for the state to transfer some of the loan proceeds from the pension funds into the State’s General Funds. The transfer would be made if the required pension contribution is ultimately less than the total bond issuance after the required contribution amount is recertified, as explained in the IIFS blog post.
The Civic Federation opposes such a transfer. All pension obligation bond proceeds should be dedicated to and remain in the pension funds. The State should not sell more bonds than needed. It would be fiscally irresponsible on two counts: 1) borrowing for one purpose but diverting some proceeds to another; and 2) using borrowed funds to pay for regular General Funds expenditures. If the State wishes to make only the minimum required pension contribution for FY2011, it should wait to sell the bonds until the FY2011 contribution has been recertified.