Illinois Pension Bonds to Test Investors’ Faith

The first time Illinois tried to bail out its teetering pension fund by borrowing billions of dollars, it ended in disaster.

Nevertheless, the state is trying again.

Illinois hopes to sell $3.7 billion of bonds to make this year’s contribution to its fund. It is essentially paying a single year’s bill by adding to its already heavy debt load. That short-term thinking is not unlike Americans taking out home equity loans to pay for cars and vacations before the housing bust.

But investors have learned a lot about the pitfalls of debt since the state tried to shore up its fund a few years ago. This time the municipal bond markets are jittery, and federal securities regulators are investigating whether Illinois has been properly describing its pension fund and the risks it may pose.

Read more: http://www.nytimes.com/2011/02/18/business/18illinois.html?_r=1&hp