SUBSCRIBE to Capitol Fax      Advertise Here      Mobile Version     Exclusive Subscriber Content     Updated Posts    Contact
CapitolFax.com
To subscribe to Capitol Fax, click here.
Investors yawn at Illinois’ failure

Thursday, Jan 10, 2013

* The failed lame duck session has so far been greeted with a yawn by investors. From Bloomberg

Illinois debt is close to the strongest in two years even after state lawmakers failed for the second time since August to fix the nation’s worst-funded pension system.

The $97 billion of unfunded retirement obligations that Democratic Governor Pat Quinn has likened to a python strangling Illinois are rising by $17 million a day. Moody’s Investors Service rates Illinois A2, five steps below the top rank and the lowest among U.S. states. Last month, it threatened another downgrade without pension changes.

Yet investors such as Eric Friedland at Schroder Investment Management North America said they expect the state will repay its general-obligation securities even though it faces a backlog of $8 billion in bills from vendors. The extra yield buyers demand on debt from Illinois and its localities shrank to as little as 1.32 percentage points over AAA munis last month, the least since February 2011.

“I anticipate credit quality will diminish, but at the end of the day, Illinois G.O. bonds aren’t going to ever default,” said Friedland, head of muni-credit research in New York at Schroder, which oversees about $2 billion of the bonds. Rating companies will probably cut the state’s credit another level, he said.

* This is why there has been no run-up in Illinois interest rates as of yet

Illinois by law must appropriate funds for debt service, according to a 2011 Fidelity Investments report that ranked it among the seven states with the strongest legal provisions.

- Posted by Rich Miller        


22 Comments
  1. - Small Town Liberal - Thursday, Jan 10, 13 @ 11:53 am:

    Does this mean the ratings agencies might not keep demanding 100% pension funding?

    Could go a long way in easing the pain of pension reform.


  2. - RNUG - Thursday, Jan 10, 13 @ 12:08 pm:

    And yet the bond people are trying to make sure their payments are ahead of pension “reform” payments like the language in failed amendment 11 from a couple of days ago.


  3. - wordslinger - Thursday, Jan 10, 13 @ 12:14 pm:

    –“I anticipate credit quality will diminish, but at the end of the day, Illinois G.O. bonds aren’t going to ever default,” said Friedland, head of muni-credit research in New York at Schroder, which oversees about $2 billion of the bonds. Rating companies will probably cut the state’s credit another level, he said. –

    LOL, except for the “credit quality” part, I agree with all of that. But does any of it make sense?

    A borrower has never defaulted, and will never default, — seems like good credit quality to me — but their credit rating will be lowered anyway.

    Meanwhile, the same crowd was rating Enron AAA four months before it disappeared from the face of the Earth.


  4. - Liberty_First - Thursday, Jan 10, 13 @ 12:16 pm:

    And Illinois’ pension protection laws are even stronger. It would seem the market competition for Illinois’ borrowing is still high.


  5. - Madame Defarge - Thursday, Jan 10, 13 @ 12:41 pm:

    Could it also be that Failure is the new Normal in Illinois?


  6. - Norseman - Thursday, Jan 10, 13 @ 1:59 pm:

    Word, you’ve been on target regarding the rating agencies. You da bond man in my book!


  7. - Norseman - Thursday, Jan 10, 13 @ 2:04 pm:

    === Could it also be that Failure is the new Normal in Illinois? ===

    Madame there is nothing new to state government failures. See today’s post - #IllinoisFail: 12-18 month delay to process medical licenses.


  8. - dupage dan - Thursday, Jan 10, 13 @ 2:14 pm:

    I remember reading here that pension funding has been lower than it is today, Someone mentioned yesterday that in 1942 it was at 28%. Could someone provide an overview (if it has been posted before I apologize for not catching it) regarding this? The level of funding could have been lower in previous years but the liability could also have been lower. Retirement ages could have been higher or life spans lower, that kind of thing. Pushing for a 95% funding level may be unnecessarily high creating a crisis where there should only be concern. Some clarity would be useful.


  9. - OneMan - Thursday, Jan 10, 13 @ 2:18 pm:

    You are going to be able to borrow, it is just going to cost more and more over time to do it most likely.


  10. - Small Town Liberal - Thursday, Jan 10, 13 @ 2:31 pm:

    - Pushing for a 95% funding level may be unnecessarily high creating a crisis where there should only be concern. -

    dan, you’re exactly right, but apparently the bond ratings agencies are demanding 100% or they’ll downgrade us further.

    It’s very silly, but since a lot of organizations can’t invest in debt rated below investment grade, it could potentially cause major problems if we drop further.

    Personally I wish these organizations would stop listening to the geniuses that rated subprime mortgages and Enron (thanks word) AAA just before their respective crashes, but sadly I don’t make the rules.


  11. - dupage dan - Thursday, Jan 10, 13 @ 2:41 pm:

    wordslinger, help us out here (NO snark intended). With the GA having a super majority, could limited borrowing help alleviate the short term crisis (real or trumped up) so as to prop up the pension funds and give Illinois some breathing room? Then with a program that involves the pain being spread out (47th Ward made that suggestion in another stream) this issue could be more manageable than the doomsday screamers would have us believe. A little effort to make sure this passes constituional scrutiny and some hand holding of the slippery governor and it could happen.

    Having just read what I wrote I can’t believe I could be optimistic. C’mon, MJM - super-majority headaches be dammed - get a move on!


  12. - wordslinger - Thursday, Jan 10, 13 @ 3:00 pm:

    –wordslinger, help us out here (NO snark intended). With the GA having a super majority, could limited borrowing help alleviate the short term crisis (real or trumped up) so as to prop up the pension funds and give Illinois some breathing room?–

    You’d be borrowing and investing money now to cover payments 20 years from now. Blago did it with a big POB to try and catch up, but I don’t think it’s a good idea.

    Maybe if there was a new dedicated revenue source it could make sense in a low-rate market, but the whiz kids who can really crunch could tell you better than I.

    Annual contributions and historic investment returns would be best. No magic beans.


  13. - dupage dan - Thursday, Jan 10, 13 @ 3:07 pm:

    I would assume that you can’t just borrow the cash without having some way to pay it back. Not looking for magic beans - just a good way to manage immediate crisis while addressing long term liabilities without resorting to costly gimmicks. Thanks.


  14. - wordslinger - Thursday, Jan 10, 13 @ 3:18 pm:

    –It’s very silly, but since a lot of organizations can’t invest in debt rated below investment grade, it could potentially cause major problems if we drop further.–

    I’d be shocked if any state was ever lowered to junk status, but then I didn’t expect S&P would ever downgrade the United States.

    Still, given the high demand for state debt, I imagine a lot of institutional investors could chance their criteria in a hurry. Everyone is chasing returns.

    Put it this way: there’s about $350 trillion invested worldwide in virtually unregulated, non-transparent Swaps.

    If you can find 10 people who can offer a clear explanation of what a Swap is, I’ll buy you a cigar.


  15. - wordslinger - Thursday, Jan 10, 13 @ 3:20 pm:

    –I would assume that you can’t just borrow the cash without having some way to pay it back–

    I was referring to bonds with dedicated revenue but also carrying the state GO.


  16. - Small Town Liberal - Thursday, Jan 10, 13 @ 3:40 pm:

    - I imagine a lot of institutional investors could chance their criteria in a hurry. -

    I would hope you are right, but I’m not sure it’s a worthwhile gamble for the state.

    Then again, I think I’d be comfortable daring them to downgrade us with a plan to get the pensions funded to 80%-90%.


  17. - soccermom - Thursday, Jan 10, 13 @ 3:46 pm:

    Preach, Word. And STL — I would be willing to call the rating agencies’ bluff at that 100 percent level. They have been plenty willing to lend at current levels. Are they downgrading other states that are at the 80-85% level?


  18. - dupage dan - Thursday, Jan 10, 13 @ 3:50 pm:

    My earlier question remains unanswered. Perhaps there is no empirical answer but I still hope. Is the pension crisis really as bad as we are being told? In the past, funding levels have been much lower but there was no hue and cry. Can we compare to the past and ease our minds?

    Anybody?


  19. - walkinfool - Thursday, Jan 10, 13 @ 4:32 pm:

    DD: Yes the pension situation is bad — but not as much because of the significant accumulated underfunding of the pensions themselves, but because keeping up with funding at any reasonable level takes a greater and greater percentage of our state budget and revenues. It is strangling our ability to pay for other needs.

    IMHO The pension funding shortfall standing alone, has been overblown. In its full context, it is becoming very serious.


  20. - Shemp - Thursday, Jan 10, 13 @ 5:24 pm:

    It’s never a big deal until it’s a big deal. Repayments are never late until they are for the first time. Is the likelihood of an all-out default high? Obviously not. However, one must ask if there is a better chance payments start getting made later and later.

    Like everything, fixing this stuff now, (let alone 5, 10 or 15 years ago) makes the forthcoming pain easier. Some day the outflow of pension payments vs the contributions and the problem of the State will be exacerbated by inflation and we’ll all be wondering why we didn’t act and the blame game will continue. As far as I am concerned, dismissing the warnings as inflated is just enabling more ineptitude in the General Assembly.


  21. - jerry 101 - Thursday, Jan 10, 13 @ 5:50 pm:

    we can’t give the bondholders a haircut, but we have to give the pensioners a haircut, eh?

    Seems like the actual bondholders aren’t too worried. It would be great to have a better funded pension system, and we should move toward that, but the whole “crisis” is bull. There is no crisis. There is a possibility that, at some future point in time, if benefits aren’t cut, or taxes aren’t raised, that the Pension plans would have to cut benefits because they don’t have enough money.

    But, in the end, it’s all an estimate. Actuaries aren’t gods. We’ve had a pension funding “crisis” for 50+ years now, in terms of being “severely underfunded,” yet pensioners are still getting their checks.

    The best result is for the state legislature to keep dithering until the crisis passes on its own. Once the economic climate in the state is stronger, then we should consider boosting the funding level in the pensions. To cut benefits or raise taxes to improve funding levels now will just hurt in the long run.


  22. - RNUG - Friday, Jan 11, 13 @ 1:31 am:

    DD,

    I didn’t want to answer until after Word weighed in since he’s probably much better at the financial / bond stuff than I am (and there are probably other people here also). But I wondered the same thing about taking a long term low interest loan, so I took a cursory look using a mortgage calculator since I was just looking for a “feel”.

    Conclusion I came to (as a non-financial person) was it might keep things from getting worse (in terms of catch-up payment levels versus the scheduled ramp increases) if you could borrow for 40 years at 3% and repaid it monthly. Shorter term or higher interest would require payments higher than the current “catch-up” amount. And given where we are at in this mess, just stopping the ramp from getting steeper would be a good thing.

    Or I could be way off base …


Sorry, comments for this post are now closed.


* Money-changers in the sports temples
* Question of the day
* Another Bost rant ad released
* Uh-oh
* Today's quotable
* AFSCME goes with Quinn
* *** UPDATED x1 *** Paranoia will destroy 'ya
* *** UPDATED x2 - Sanguinetti responds - NORML blasts Rauner *** Rauner blasts medical marijuana law
* Bost responds to "rant" ad
* Another day, another Rauner deal under the microscope
* Rauner lashes out at Quinn over IDOT scandal
* Dueling ads are no contest
* Paying the price for making bad hires
* Entrenched party portrays itself as the "reform" party
* Starting to gear up a bit
* Yesterday's blog posts

Support CapitolFax.com
Visit our advertisers...

...............

...............


Search This Blog...

Search the 98th General Assembly By Bill Number
(example: HB0001)

Search the 98th General Assembly By Keyword

          
        * First iPhone 6 Unboxing Video Surfaces
        * ZTE ZMAX phablet is a T-Mobile “Un-carrier” exclusive
        * Official iPhone 6 Plus Reviews Report 1 GB RAM
        * iPhone 6 NFC features, Google Nexus 9, Android Silver & more – Pocketnow Daily
        * Pre-order period starts for Moto X, G, 360 and Hint
        * Apple’s iPhone 6 And 6 Plus Cases Offer Comfort And Light Protection With Few Concessions
        * SwiftKey’s Predictive Keyboard App Is A Free Download On iOS

        * Introducing AirVR, the Silliest Virtual Reality Gear
        * Toshiba Encore 2 Write Tablet Is Pen-Enabled, Runs On Windows
        * Acer Iconia Tab 8W Hits The FCC
        * Blizzard To Free Up Dormant Character Names
        * Sustainable Food Rating Startup Raises $2 Million, Launches Apps
        * Germany To Google: Can We Know Your Search Engine Algorithm, Please?
        * HTC One (M8) Champions League Collector’s Edition – ‘Nuff Said!

        * Gillaspie, White Sox solve Royals' bullpen
        * Out call on Viciedo confirmed on replay
        * High hopes, no set plan for Konerko's remaining ABs
        * Ace Sale lined up to make final starts on the road
        * Konerko honored by Clemente Award nomination
        * MLB announces Clemente Award nominees
        * White Sox starters lead the way in cutting home run rate


        Main Menu
        Home
        Illinois
        YouTube
        Pundit rankings
        Obama
        Subscriber Content
        Durbin
        Burris
        Blagojevich Trial
        Advertising
        Updated Posts
        Polls

        Archives
        September 2014
        August 2014
        July 2014
        June 2014
        May 2014
        April 2014
        March 2014
        February 2014
        January 2014
        December 2013
        November 2013
        October 2013
        September 2013
        August 2013
        July 2013
        June 2013
        May 2013
        April 2013
        March 2013
        February 2013
        January 2013
        December 2012
        November 2012
        October 2012
        September 2012
        August 2012
        July 2012
        June 2012
        May 2012
        April 2012
        March 2012
        February 2012
        January 2012
        December 2011
        November 2011
        October 2011
        September 2011
        August 2011
        July 2011
        June 2011
        May 2011
        April 2011
        March 2011
        February 2011
        January 2011
        December 2010
        November 2010
        October 2010
        September 2010
        August 2010
        July 2010
        June 2010
        May 2010
        April 2010
        March 2010
        February 2010
        January 2010
        December 2009
        November 2009
        October 2009
        September 2009
        August 2009
        July 2009
        June 2009
        May 2009
        April 2009
        March 2009
        February 2009
        January 2009
        December 2008
        November 2008
        October 2008
        September 2008
        August 2008
        July 2008
        June 2008
        May 2008
        April 2008
        March 2008
        February 2008
        January 2008
        December 2007
        November 2007
        October 2007
        September 2007
        August 2007
        July 2007
        June 2007
        May 2007
        April 2007
        March 2007
        February 2007
        January 2007
        December 2006
        November 2006
        October 2006
        September 2006
        August 2006
        July 2006
        June 2006
        May 2006
        April 2006
        March 2006
        February 2006
        January 2006
        December 2005
        April 2005
        March 2005
        February 2005
        January 2005
        December 2004
        November 2004
        October 2004

        Blog*Spot Archives
        November 2005
        October 2005
        September 2005
        August 2005
        July 2005
        June 2005
        May 2005

        Syndication

        RSS Feed 2.0
        Comments RSS 2.0
        WordPress

        Loading


        * Candidates need reality check on pensions - Chi.....
        * The Politics of Pot..
        * Joliet Chamber honors Slinkard..
        * Peoria woman highlighted in latest IDOT scandal..
        * Rauner Fulfills $1M Pledge..


        * 2014 MacArthur 'genius grant' winners unveiled
        * Teen eludes electronic monitoring, attacks student
        * APNewsBreak: Chicago DEA chief heading to DC
        * Southwest flight makes emergency landing at Midway
        * McLean County nixes marijuana cultivation center
        * CDC study: Americans' bellies are expanding fast
        * School bus driver killed during safety drill
        * APNewsBreak: Chicago DEA chief heading to DC
        * New subpoena issued for Ill. anti-violence program
        * Nik Wallenda to tightrope walk over Chicago River

        * Rauner questions medical marijuana program secrecy
        * New subpoena issued for Quinn’s anti-violence program
        * Evans: Eliminate conflicts of interest in legislature
        * State legislative panel delays decision on fracking rules
        * Quinn: Monitor not needed to oversee state hiring
        * Video of state lawmaker's tirade resurfaces in U.S. House race
        * Rauner’s call for firings of ‘illegal patronage hires’ would affect many in Springfield
        * Quinn, Rauner clash on business, hiring
        * Coaltion forms to push school funding reform
        * Rauner’s education plan raises eyebrows

        * American Airlines agents approve union
        * Southwest flight makes emergency landing at Midway
        * CME, floor traders settle lawsuit
        * Floor traders cave, settle suit against CME
        * Boeing, SpaceX to share big NASA contract


        * Man charged with beating, sexually assaulting ex-girlfriend
        * Naperville Council OKs new liquor rules
        * Wallenda will walk tightrope across Chicago River in November
        * Boy shot in chest in Hermosa neighborhood
        * Gold Coast boutique hit by burglars
        * 15-year-old boy shot, critically injured in West Garfield Park
        * No-homework policy improves home life for younger students at one CPS school
        * CeaseFire worker charged in diamond theft
        * Denied musical instrument, racist prisoner plays world’s smallest violin
        * 94-year-old jailhouse lawyer reflects on life of crime


        * Naperville sets new rules on bars, alcohol sales
        * Man, boy injured in city shootings
        * Family of man killed by Wheeling police SUV files suit
        * Mosquitoes test positive for West Nile in Will County
        * Scots, Scottish Americans in Chicago brace for Thursday's independence vote
        * Barefoot man flees traffic stop, eludes police for hours
        * Ex-banker gets prison for raiding garages of Lincoln Park neighbors
        * Hinsdale high school district stops investigating teachers who 'liked' Facebook post
        * White supremacist Matthew Hale wants to play violin in solitary
        * Well water testing urged for some McHenry Co. residents


        * N.J. Gov. Christie Stumps For Rauner In Springfield
        * I Like Illinois Website Debuts, In Time For The Election
        * Springfield Mayor Houston Points Out Sewer Improvements
        * Fracking Rules Action Delayed; Could Be A Sign Of Revision
        * Attacks Get Personal Between Quinn, Rauner
        * Who Owns The Rights To Vivian Maier's Photos?
        * Legislature Approved A $100 Million Tax On Business & Didn't Know It
        * Schools CEO: privatizing janitorial services not 'as smooth as we would like'
        * What's The Best Way To Help Kids In Struggling Schools?
        * Quinn Defends Public Education, Though He's A Product of Private Schools


        * Our Opinion: Carbon monoxide alarms belong in schools
        * Rauner questions medical marijuana program secrecy
        * New subpoena issued for Quinn’s anti-violence program
        * Evans: Eliminate conflicts of interest in legislature
        * Michael Gerson: Leading from behind the curve
        * State legislative panel delays decision on fracking rules
        * Quinn: Monitor not needed to oversee state hiring
        * Video of state lawmaker's tirade resurfaces in U.S. House race
        * Rauner’s call for firings of ‘illegal patronage hires’ would affect many in Springfield
        * Another view: New law might boost clothing recycling


        * Kroner's area volleyball Top 10
        * Bulletin board: Watseka to honor ex-coach
        * Teams of the Week: Unity boys' cross-country in spotlight
        * Athletes of the Week: Keeble and Rice
        * Tuesday's prep highlights: Sabers, Cochrane celebrate win
        * One person injured when car turns into path of motorcycle
        * New subpoena issued for Ill. anti-violence program
        * Groups stressing benefits of child safety seats
        * Electric assistance applications available
        * Mo. man sentenced in Pike burglary


        * (No heading)
        * Young White Sox players getting their chance
        * Akinola, Schaumburg take command at Fremd
        * No Cubs-Kane County resolution yet
        * New Kane County animal control director promises teamwork

        * Patrick Cannon defense strategy rare but n...
        * Feds fine Jesse Jackson Jr.'s campaign com...
        * Jesse Jackson Jr. political fund fined nea...
        * Jackson Jr.'s political fund fined nearly ...
        * 'Celebrity Crime Files' Season Three, With...
        * Ex-Congressman Jesse Jackson Jr. faces sen...
        * Patrick Cannon defense strategy rare but n...
        * Feds fine Jesse Jackson Jr.'s campaign com...
        * Jesse Jackson Jr. political fund fined nea...
        * Jackson Jr.'s political fund fined nearly ...

        * CFPB Accuses Corinthian Colleges Of Cheati......
        * CFPB Accuses Corinthian Colleges Of Cheati......
        * CFPB Accuses Corinthian Colleges Of Cheati......
        * CFPB Accuses Corinthian Colleges Of Cheati......
        * CFPB Accuses Corinthian Colleges Of Cheati......

        * Shangri La's Barr al Jissah ResortSpa to o......
        * ISIS fight: Congress to vote on arming Syr......

        * The [Friday] Papers
        * Fantasy Fix: Reality Intrudes
        * U of C, UIC Among Four Obama Library Finalists
        * New Poll Shows Quinn With 11-Point Lead Over Rauner
        * Illinois Education Association Endorses Schneider
        * Report: Wage Theft Costs U.S. Workers Billions Of Dollars Annually (UPDATED)
        * Activists Protest Near West Side Shooting Involving Chicago Police
        * Denzel Ford police shooting 3
        * Denzel Ford police shooting 2
        * Denzel Ford police shooting 1


        * New subpoena in federal probe of Quinn anti-violence grant program
        * Rauner calls on Quinn to halt secret medical marijuana licensing
        * BREAKING: Quinn in court filing says no to hiring monitor, stands by cronies
        * Governor Quinn, clean house
        * IDOT, Secretary of State and AAA Launch National Child Passenger Safety Week in Illinois - Statewide Effort to Ensure Proper Restraints and Save Lives of Illinois Children




            Hosted by MCS SUBSCRIBE to Capitol Fax Advertise Here Mobile Version Contact Rich Miller