It turns out the state of Illinois misled municipal bond investors by not disclosing its unfunded pension liability. Here we are in 2013, and the scolding from the SEC is about bond disclosures going back to 2005 and 2009. What’s the rush?
If you’ve been a regular visitor to Richardcyoung.com, then the unfunded pension liability is not news to you. We’ve been talking about this for years. I’m not sure what’s more distressing, the fact that the SEC is so late to the party or the fact that $2.2 billion of the stuff was snapped up by buyers. As usual, investors seem to be OK with piling on the risk just as long as they don’t lose any money. Stay tuned.
It’s shameful that the state of Illinois treats its pension like an afterthought. It has only 40 cents of assets for every dollar it owes. Who’s voting for these politicians anyway, the teachers? The money isn’t going to magically appear.
What’s concerning is that local politicians like Chicago Mayor Rahm Emanuel want to make their problem your problem by having the federal government pick up the tab. Mr. Emanuel wants Chicago’s retiree health benefits to be federally funded through an Obamacare state exchange. Are you ready to start paying for Illinois state workers’ health care? No? Too bad, it’s coming. At the end of the day, this move by the SEC is pathetic. It’s criminal that pension obligations are not met by proper fiduciaries. But no one is held accountable, as we can see in a case like this—when the SEC, an arm of the federal government, administers Illinois nothing more than a slap on the wrist.
