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ILLINOIS UPDATE: Emperor Has No Clothes: Pensions Are Short Cash. In early January, while every?

By Glenn Reynolds

ILLINOIS UPDATE: Emperor Has No Clothes: Pensions Are Short Cash.

In early January, while everyone was busy watching the nasty campaign commercials, the State of Illinois pulled an end-run on the budget process. On Jan. 7 the state sold $3.5 billion of “pension obligation notes.” In simple English, the state borrowed money to finance the state’s contribution to its five retirement systems.

These five-year debt securities carry an interest rate of 3.84 percent, tax free to bondholders. It’s a much higher yield than you could get in the bank because of the risk involved. Moody’s and Standard and Poors rated them at least 6 notches below the top AAA rating. In fact, all the rating agencies characterized the outlook for Illinois finances as “negative.”

It just gets worse.

Full post as published by Instapundit.com on February 15, 2010 (boomark / email).