Illinois is issuing over $1 billion in bonds this week, and the state disclosed to potential buyers that it may not make its 2017 pension payments on time.
Lawmakers have not passed a complete budget, so money for the payments comes from the general fund. But that fund might be running low on cash, and the payments may be put off, said the state.
It’s happened before, in 2015; it took the state about 7 months to pay back the missed payment.
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“A failure by the state to meet its payment obligations may result in increased investment risk for bondholders,” the state said in a supplement to its bond sale prospectus released late on Tuesday.
Illinois already has the lowest credit ratings among the 50 states. A budget impasse, along with a $111 billion unfunded pension liability and a growing pile of unpaid bills, have pounded Illinois’ ratings into the low investment-grade level of triple-B.
The supplement said that without full and timely payments, the pension funds may have to sell assets to raise money to cover retirement benefits. That in turn reduces investment returns, driving up the unfunded liability. Illinois owes the pension funds $7.826 billion in fiscal 2017, which ends June 30.
“(State Comptroller Leslie Munger) is doing everything she can to make all the November pension payments,” said Rich Carter, her spokesman, adding that October payments will go out on time.
A cash crunch forced Munger, who pays the state’s bills, to skip a $560 million pension payment in November 2015. It was made up before the end of fiscal 2016.