Thursday, January 17, 2008

Borrowing From Peter To Pay Paul - CT Style

What a joke. It just doesn't get much better than this. I am beginning to think that CT needs some serious debt counseling. Governor Rell issued this press release:
Governor Rell Authorizes $2 Billion in Bonds to Reduce Unfunded Liability in Teachers’ Retirement System - Landmark Sale Bolsters Pension Fund, Requires State to Continue Meeting Contribution Requirements Over Life of Bonds

Governor M. Jodi Rell today announced that the sale of $2 billion in Pension Obligation Bonds to help close a $6.9 billion, long-term liability in the teachers’ pension fund is expected to gain approval when the state Bond Commission meets January 25.

In July, Governor Rell strongly supported and signed into law Public Act 07-186, An Act Concerning Adequate Funding of the Teachers’ Retirement System, which authorized the issuance of bonds to reduce the liability. The legislation also requires the state to fund the Teachers’ Retirement Fund at 100 percent of the actuarially recommended contribution each year over the life of the bonds.
Currently, the unfunded liability of the Teachers’ Retirement Fund stands at $6.9 billion, largely because the state has failed to make the full annual deposit into the system – except in each year of Governor Rell’s administration, when it full amount was paid.

The fund currently contains $10.2 billion, which represents 59.5 percent of its future obligations. Under Public Act 07-186, the state will borrow $2 billion at favorable interest rates to invest in the pension fund to make up for past failures to fully fund the recommended annual contributions. The investment of $2 billion at the fund’s actuarial investment rate of 8.5 percent is expected to significantly reduce the long-term unfunded liability.

The budget signed in 2006 by Governor Rell authorized $245.6 million to fully finance the Teachers’ Retirement Fund for FY 2006 and FY 2007. The new state budget also makes full payments in FY 2008 and FY 2009.

“The fund has had a chronic shortfall for the two decades before my tenure. I am pleased we are taking appropriate action to begin to address the unfunded liability,” Governor Rell said.
This was in a Yankee Institute report from Feb. 5, 2005:
The governor's bonding proposals are excessive. Adding more than $2 billion to the state's bonded indebtedness at a time when Connecticut already suffers from the highest per capita debt in the nation is not fiscally sound. The governor should declare a moratorium on all state bonding projects not directly needed for public health and safety.
Things haven't changed much.
Furthermore, D. Dowd Muska stated this in the (Waterbury) Republican-American on January 31, 2007:
There's one final component of Connecticut's long-term fiscal nightmare worth examining. The state's bonded indebtedness is now at $14.2 billion. Even adjusted for the state's higher-than-average income, Connecticut has the fourth-highest debt obligation among the states. And how are Nutmeg State politicians planning to pay the GASB 45 bill? You guessed it -- by floating even more government bonds.
OK, so let me get this straight... This year we are borrowing money (also known as bonding) to the tune of $2 Billion dollars in order to reduce the teacher pension fund's liability? (Most likely because of the new GASB 45 rulings which will take into account our unfunded liabilities when State bond rating time comes around.) Bonding the $2 billion dollars will reduce our teacher pension liability to $4.9 billion, but it's still debt and liability. I guess we just moved one IOU into a different accounting column. Better to owe investors and pay them interest, than to owe those folks dedicated to educating our youth (as if they are all going to retire at once). The bond commission gets to vote on this proposal on Friday. Sometime after that, your children and mine will get the bill; that is if they don't high-tail it out of this state to one that has sane fiscal policies.

So I wonder, maybe I should take out a home equity loan, or a VISA cash advance, and put the money into my IRA?

As my buddy Mike S. said ... "At least they are not trying to make a "killing" playing the slots at Foxwoods".

For what it's worth - Last Year's Comptroller's Annual Report