Illinois Gov. Calls Controversial Proposal a Precautionary Move

The governor of Illinois said Friday he is not seeking a federal guarantee of his state’s pension debt, but that he included the proposal in his budget last week “as a precaution” as he struggles to fund pension obligations for public employees.

“That’s not something we’re pushing, really,” Gov. Pat Quinn (D-Ill.) said in an interview with Fox Business, after he and a dozen fellow Democratic governors met with President Obama at the White House to discuss possible moves to boost the economy.

Critics said a federal backstop would amount to a bailout of underfunded state pension programs and pronounced it dead on arrival in Washington, especially among House Republicans. Illinois faces an $80 billion pension shortfall.

Quinn’s 2012 proposed budget said "significant long-term improvements will come only from additional pension reforms, refinancing the liability and seeking a federal guarantee of the debt, or increasing the required state contributions."

A federal guarantee would allow Illinois to sell its pension bonds at much lower interest rates. Quinn said he had not discussed the idea with any Administration officials.

“We don’t need that,” he said. “It was put in (the budget) just a precaution, really.”

Asked whether he could rule out pursuing it in the future, he said, “I don’t see that happening.”

But to handle his state’s pension problems, Quinn said, “We probably have to do more…There has to be shared sacrifice.”

Illinois sold $3.7 billion in bonds this week to make its pension fund payment for this year.  It will pay bondholders an average rate of about 5.5%, about a percentage point higher than a similar sale of state pension bonds last year.

“We got a very good interest rate, given the circumstances,” Quinn said. “We knew we were going to have very robust demand.”

The bond sale was part of a plan to plug at $13 billion budget deficit for the state’s current fiscal year, which ends June 30.  As part of the plan, the state has also raised taxes and cut spending.

According to one study, states are on the hook for about $1 trillion in unfunded retirement liabilities for their public employees, including pension and health care benefits. So far, Quinn, a Democrat, is the only governor to suggest a federal backstop to help a state meet its pension promises.

But in an interview in 2009 with Crain’s Chicago Business, Quinn's budget director, David Vaught, said the governor had “recently” discussed the idea with Treasury Secretary Timothy Geithner and other Obama Administration officials and “that he got a good enough reception that ‘he intends to extend’ his efforts”  to promote it. President Obama is from Illinois.