Posted by Barton Lorimor
Illinois will have to spend at least $500 million more in interest, according to a report released by the Civic Federation earlier this week.
Moody’s Investors Service downgraded the state’s bond rating in June to A1 shortly after the Legislature broke for the summer. It has been said that their inability to pass the pension borrowing bill, which passed the House but could not make it out of the Senate, was one of the driving forces behind the downgrade.
It shouldn’t be earth shattering news. I seem to recall the Civic Federation, as well as other budget think-tanks, talking about the state’s bond rating this spring during the Senate Appropriation II Committee meetings.
The Sun-Times first reported the story a few days ago…
Since September 2009, the state has borrowed $9.6 billion, which is the second-largest borrowing spree in state history. The most borrowed during any 12-month period in Illinois history came under ousted former Gov. Rod Blagojevich, who signed off on a $10 billion borrowing plan in 2003 to shore up the state’s underfunded retirement systems […]
Because of the way the $9.6 billion is spread over three decades, the state won’t pay all $551.3 million in one year. But $72.9 million will have to be paid in 2011, while $301.2 million of the overall amount will have to be paid over the next five years, the group said.
So as if the budget crisis was not enough of an issue for candidates this year, imagine what it will be in the next 2014 election if things stay the way they are.
Greg Hinz summed it up pretty well on his blog…
Had Illinois maintained its prior AA bond rating, the state would have paid only about $2.7 billion in interest charges over the life of the $9.6 billion in bonds it sold in the year ended July 1, the Civic Federation said. […]
While Illinois’ interest costs are lower today than they were when the state had an AA rating in 2008, that’s only because the recession has driven down the cost of credit for everyone, the federation said. The state still is paying a half-billion dollars more than it likely would have had it kept its rating.
The Tribune followed-up yesterday and had this bit to add…
John Sinsheimer, Illinois’ director of capital markets, said the state’s costs remain attractive because interest rates are at historically low levels and because the federal government will pay 35 percent of the state’s interest on Build America Bonds, the taxable bonds the state is using to fund its capital program.
The costs of borrowing should be weighed against the benefits of the projects that are being funded, he said, adding that more than half the long-term debt issued in the last year will pay for improvements to schools, bridges and transportation systems.
Meanwhile, the Civic Federation also reported this week that the state is receiving timely payments from the federal government through the Build America Bonds program. However…
However, some payments have been withheld by the Internal Revenue Service to offset payroll taxes owed to the federal government by some BAB issuers. Although none of its BAB payments have been withheld yet, Illinois could face similar action if the state has trouble repaying $2.2 billion it has borrowed from the federal government to fund unemployment benefits. The State is depending on hundreds of millions in BAB subsidies to support debt service payments on $3.2 billion in capital bonds sold in the past year.
…Adding…The Tribune editorial board wrote about the federation’s report yesterday…
What would 551,300,000 dollar bills look like? Well, if we have our math straight, they would stack 37.4 miles high, give or take more raises for Gov. Pat Quinn’s staff. And that stack would weigh 607.5 tons. By contrast, the 177-member legislature tips the scale at only about 20 tons — if you don’t count the crushing weight of the Blagojevich scandal on all his Statehouse enablers.
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- CircularFiringSquad - Wednesday, Sep 1, 10 @ 6:05 am:
Of course the do nothing drop out Republicans must have clean hands in the eyes of the Trib edit board, who by the way, is bankrupt and guilty of fraud accordsing the examiner named by the federal courts.
Just becuase they refused to vote for cuts or new revenue should not be held against precious StateWideTom Cross and his friends.
Oh no they are the vision for the future. One only has to watch the 5 year anniversary shows on Katrina for a fresh reminder of what Republicans in Illinois and around the nation did for us all.
And yes the Bush recession/war economy did strip IL of billions
- wordslinger - Wednesday, Sep 1, 10 @ 9:02 am:
Well, like the man said, being broke is very easy to achieve but very expensive to maintain.
- Vote Quimby! - Wednesday, Sep 1, 10 @ 12:21 pm:
Quinn claims victory over reducing interest rate paid (glossing over the downgrade part) on state debt. Regarding the budget deficit: “Sure, we make a lot of money, but we spend a lot, too.” (h/t Patrick Ewing)
- Tough Love - Wednesday, Sep 1, 10 @ 1:00 pm:
Illinois should pay its current & future retirees only that which can be afforded with current funds and “affordable” future year contributions (if any), and no more. Sure, the retiree wikk sue, but the till is enpoty …. primarily a consequence of their own greed.
- Herbie - Wednesday, Sep 1, 10 @ 1:21 pm:
Rock and hard spot time-not that many taxpayers left in state.
deficits and debt beyond belief
pension benefits only part of of problem (lets face it, more was promissed than could be delivered and nobody wants to deal with that little issue)
Let’s let the state go bankrupt (it’s defaulting now so what is the difference) and deal with the problem right now, right here.
Outcome would be a clean slate–reasonable affordable pensions (just like when pension guarantee benefiot trust takes over)
remember–the huge pension plan actual assets are being depleated to pay benefits and investments aint doing so well.
So reset now while the pension plans still have assets to work with.
- wordslinger - Wednesday, Sep 1, 10 @ 1:50 pm:
Herbie, what do you mean by bankruptcy? Do you think the state should have a legal avenue to walk away from its obligations?
That’s simply immoral. The state has the ways and means to meet its obligations. Sometimes, in life, you just have to suck it up and spread the pain the best way that you can.
Illinois is a going concern. The idea is that we’re supposed to leave it in better shape than we found it. Will it be hard? That’s what she said.
- Perspective Please! - Wednesday, Sep 1, 10 @ 2:12 pm:
Nothing like a little fiscal hysteria to start Labor Day weekend.
This story is getting way overblown. It’s $551 million over 25 years. The press release says that the State will pay an additional $73 million of interest this year because of its fiscal policies. Maybe true, but the experts at the Civic Federation know very well that $73 million is 0.14% of Illinois’ $52 billion operating budget and 0.57% of the projected deficit.
Yes, sometimes even $73 million is small change in the big picture.
The federal government’s Build America Bond program with its 35% interest rate subsidies is still scheduled to end for bonds sold after December 31, 2010. Would Illinois have saved money by waiting to get its house in order before selling $3.2 billion of these bonds at very low interest rates? Who knows, but these bond issues are paying businesses and people for work building the roads, bridges, and schools that Illinois needs. Doesn’t sound like a bad deal to me.
Watchdogs are also supposed to shout when they see something. If Illinois was paying high interest rates in January, why has the Civic Federation waited seven months and $4.2 billion of bonds later to tell us this?
- Cook County Commoner - Wednesday, Sep 1, 10 @ 4:21 pm:
The real problem is not the numbers as they stand, but the constantly eroding condition of state and local government finances with no cohesive plan for government to improve its finances or a magic bullet of some sort delivering relief in the private sector. Harrisburg, PA, the state capitol, is likely to default on a bond payment in the next couple of weeks. We probably will see this in Illinois. The Moody’s rating is suspect because of its quasi-monopoly standing with S & P and Fitch as federal government sponsored rating agencies, but even Moody’s sooner or later will ignore the calls from politicians and rate Illinois paper more realistically. How Illinois and its local governments can get their houses in order without economy killing tax increases eludes me. And if the voters accept a tax increase without prior systemic reform, especially as to school funding and public employee pensions, I guess that will be the proof of wide-spread insanity.
- NRA associate - Wednesday, Sep 1, 10 @ 6:42 pm:
Tough Love would you please do a reality check with your statement. You have no idea!
- Obama's Puppy - Thursday, Sep 2, 10 @ 9:37 am:
Tough Love maybe we should take away your Social Security and see how greedy you can be. Get a clue.
- Perspective Please! - Wednesday, Sep 8, 10 @ 3:24 pm:
Back in February, the Civic Federation proposed cutting expenditures by $2.1 billion and raising taxes by $7.6 billion. These are the numbers we should be focusing on, not $73 million in additional interest that will be paid this fiscal year.
Rather than giving fodder to editorial boards, the Civic Federation should be asking Brady, Quinn, Cullerton, Radogno, Cross and Madigan what they will cut and how much they will raise taxes.
It’s too close to the election for distractions like this.