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Can the state arbitrage its debt away?

Thomas Clatterbuck

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Members of the House Personnel and Pensions Committee have the difficult task of confronting the pensions crisis. But there is a bold proposal coming from the State Universities Annuitants Association (SUAA) to resolve the issue. Their plan is conceptually very simple: the state borrows money at a low interest rate, and reinvests it at a higher rate. By pocketing the difference, the state can fund its pensions with a substantially lower investment than would otherwise be necessary.

Illinois is no stranger to arbitrage schemes. Arbitrage, or buying low and selling high, has already helped the state’s backlog of bills. In October 2017, the state sold $6 billion worth of bonds, and paid off high-interest bills. By turning 12% interest loans into 3% interest loans, the state will save hundreds of millions in interest payments.

The SUAA scheme is similar, but on a much larger scale. Their plan, presented by Dr. Runhuan Feng from the University of Illinois, calls for a bond sale of $107 billion. These bonds would be issued at 5.05%. By reinvesting the cash raised in the pension funds, the state would be able to earn 7.62%. Combined with annual contributions from the state of $8.5 billion, the state would reach its 90% funding goal by 2045. However, it would reach that goal for $103 billion less than the state’s current approach.

Mathematically, the plan is perfect. 7 is larger than 5. Although the scale of the project is daunting, if the underlying assumptions of the plan hold, it will work.

So where’s the catch?

However, representatives listening to the plan in committee were quick to point out potential pitfalls. There was bipartisan skepticism regarding the projected earnings. Both Rep. Jeanne Ives (R-42) and Rep. Scott Drury (D-58) noted that the pension funds routinely fail to perform at the 7.62% rate. If the investments fail to meet these minimum thresholds, the state will not cover the costs of the bond interest. Taxpayers would then be liable for both the pension debt and the bond debt.

But Rep. Drury and others pointed to a more immediate issue. The SUAA plan was not developed by a bond expert. It is unknown if the bond markets will purchase any new bonds from Illinois, much less $107 billion worth. If the market rejects the bond offer, the earning rates are irrelevant. There was consensus that bond experts needed to be consulted immediately, before any more time was given to discussing the specifics of this proposal. Drury said the worst thing that could happen is the House wastes the 2018 session debating a plan that the market would reject.

Given the concerns expressed by the committee, it seems unlikely that this proposal will make much headway. It would be politically very difficult to take on an additional $107 billion in bond debt, especially when the payoffs are not assured as they were for the bill backlog. Still, it is good to see new (and constitutional) proposals being put forward to confront the ever growing pension crisis.

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Senior strategist, statehouse reporter and political correspondent for Springfield Daily. Graduate of District 117 and UIS. Thomas covers stories in both Morgan and Sangamon Counties, as well as statewide politics.

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Business

Illinois launches veteran-owned small business logo program

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Finding veteran-owned local businesses will soon be easier.

The Illinois Department of Veterans’ Affairs is offering a sticker to qualifying veteran-owned businesses. Veteran-owned businesses that are registered with the state, and in good standing, can display the logo in their place of business.

The stickers will be released as part of their annual program that sets aside $300 million in state contracts that only veteran-owned businesses can bid on, Illinois Department of Veterans’ Affairs spokesman Dave MacDonna said.

“We want to raise public awareness about small businesses that are veteran-owned or large businesses that are veteran-owned,” he said.

MacDonna said that there are many small business owners across the state and this is a way for consumers to have confidence that they’re spending their money with one.

“We want the consumer to realize that they are a trusted and valuable part of the community,” he said.

The program will run in concurrence to the state’s annual Veterans’ Business program, which gives qualified veteran-owned businesses in the state access to more than $300 million in contracts.

For information about the program, visit www2.illinois.gov/cms/business.

Article by Cole Lauterbach with Illinois News Network. For more INN News visit ILnews.org

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State

Duckworth, Durbin Introduce Legislation to Improve Water Quality & End Sewage Dumping into Great Lakes

Staff Contributor

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PRESS RELEASE | U.S. Senators Tammy Duckworth (D-IL) and Dick Durbin (D-IL) introduced legislation today to end the dumping of untreated sewage waste into the Great Lakes Basin. The Senators’ Great Lakes Water Protection Act would improve water quality in the Great Lakes, which contain 95% of America’s fresh surface water and supply drinking water to more than 30 million people in North America. The bill would also create a dedicated fund to help clean up sewage in the Great Lakes and require the public be immediately notified when sewage is discharged. Representative Dan Lipinski (D-3) has introduced companion legislation in the House of Representatives.

“The Great Lakes is the source of drinking water for tens of millions of Americans and supports 1.5 million jobs,” said Senator Duckworth. “Yet, under the current rules, roughly 22 billion gallons of untreated sewage and storm water are discharged into the Great Lakes each year, threatening the health and livelihoods of millions.  Our legislation will help fix this problem by banning discharges of untreated sewage into the Great Lakes to protect local economies and ensure our water is clean for families in Illinois and throughout the Great Lakes region.” 

“The Great Lakes are precious natural resources and it’s our duty to protect them. In Illinois, we depend on Lake Michigan as a critical source of drinking water for millions of people. Lake Michigan also provides a huge economic benefit to the state, and is a place of recreation for countless residents and tourists,” Senator Durbin said. “This bill will end sewage dumping and ensure we have clean and healthy Great Lakes for future generations of Americans to enjoy.”

“My bill and the legislation Senators Duckworth and Durbin introduced in the Senate will improve water quality in the Great Lakes by ending the practice of blending and making sure that wastewater discharged into the lakes is fully-treated,” added Representative Lipinski. “We are also creating a Great Lakes Cleanup Fund that will provide federal dollars to offset the cost of infrastructure improvements needed to end wastewater blending, and make sure that an undue burden is not placed on local residents.”

An estimated 22 billion gallons of untreated sewage and storm water are discharged into the Great Lakes each year. That’s because inconsistent rules allow sewage treatment facilities in some states to divert wastewater around secondary treatment and discharge the untreated water directly into the Great Lakes when the treatment facilities are overloaded due to heavy storms, wet weather events or power failures, creating a public health hazard. The Senators’ legislation would create a uniform policy across the entire Great Lakes Basin that ends this practice. It would also authorize The Great Lakes Cleanup Fund to provide up to $250 million each year from 2020 to 2024 to support projects that lead to reductions in wastewater blending. 

The Great Lakes Water Protection Act has been endorsed by the Alliance for the Great Lakes, the National Wildlife Federation Great Lakes Regional Center, American Rivers, Environment Illinois, the Natural Resources Defense Council, and the Environmental Law and Policy Center.

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Education

Illinois educators wary of bill to require metal detectors in every school

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image from the Sentinel-Echo

A group of Illinois lawmakers are promoting legislation that would use a combination of state, local and federal funds to put metal detectors in every school in the state, but some school leaders say it’s simply not feasible.

State Rep. La Shawn Ford, D-Chicago, said students in schools should feel safe from gun violence when they’re learning. For that reason, the former teacher filed a bill that would require all public schools, K-12, have students walk through metal detectors everyday to get to class.

“Why is it that no one gets shot inside of Terminal 1 or Terminal 2 at O’Hare Airport?” he asked.

The bill would tap into federal funds made available this summer to partially pay for the walk-through detectors, which can cost thousands of dollars.

Regional Superintendent Mark Jontry, who oversees schools in DeWitt, Livingston, Logan and McLean Counties, said the idea is well-intentioned, but would result in a unfunded expenses for school districts and create logistical problems.

“Who’s going to be responsible for doing those screenings? Are districts going to be responsible for the cost of hiring additional personnel?” he said. “The concept, on the surface may seem like a good idea, but it presents a number of challenges once you dig into it.”

The detectors would have to be run by a trained professional and need regular servicing and calibration to ensure they work properly. Jontry said such costs would likely fall to local taxpayers.

Ben Schwarm, deputy director with the Illinois Association of School Boards, served on a working group with the Illinois Terrorism Task Force. The law enforcement contingent of the group had a hierarchy of actions that could be taken to “harden” schools from unwanted entry. Schwarm said metal detectors were last on that list.

“It’s just not that effective,” he said. “There’s a thousand things school districts should be doing before they get to that point.”

Article by Cole Lauterbach with Illinois News Network. For more INN News visit ILnews.org

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