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.


* Good morning!
* Final thoughts before calling it a night
* *** UPDATED x3 - Script *** Quinn airs radio ad of Rauner joking about being "scared" of four African-Americans
* Karen Lewis endorses Chuy Garcia for mayor
* Friday night TV ad rating
* 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

          
        * Samsungfreude: A funny thing happened on the way to the winning
        * The Week in iPad Cases: Stands, keyboards, and bags
        * Sonos revealed to be working on Android Wear controls
        * Nexus 6 sells out in minutes, DROID Turbo goes ballistic, Microsoft Band sneaks out early | Pocketnow Weekly 120
        * Roku adds Google Play Movies & TV to its feature list
        * Minuum iOS update picks up new languages, advanced settings (Giveaway)
        * A final word from Taylor Martin

        * Bell Exclusively Launches Sony Xperia Z3 Compact for $79.95 On Contract
        * Samsung Stays As The Top Smartphone Vendor For Q3, Xiaomi Rises to Third
        * Facebook Mobile Photo Updates: This Week in Social Media
        * Amazon Executive Says Fire Phone Was Overpriced
        * How to Enable On-Screen buttons on Mi 3 & Redmi 1S
        * Sprint Leases Samsung Galaxy S5 For $20 A Month
        * OnePlus One With Yellow Kevlar Back Poses For The Camera

        * From the archives: Minnie Minoso's history and Hall of Fame case
        * Fall Stars Game filled to brim with talent
        * Fall Stars Game filled to brim with talent
        * White Sox opt to decline Paulino's '15 option
        * White Sox have flexibility to pursue multiple upgrades
        * White Sox offseason plan roundup: Third base
        * Minnie Miñoso belongs in the Hall of Fame


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

        Archives
        November 2014
        October 2014
        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


        * U. of Illinois building $13.3 million feed complex..
        * Inmate freed in landmark Illinois case..
        * Documentarian Recalls the 1986 World Series Cha.....
        * Tokyo Thrills the Global Stock Markets..
        * Ill. 14th District: Hultgren, Anderson emphasiz.....


        * Lake Michigan waves slam Chicago lakeshore
        * Creator of Operation couldn't afford own operation
        * Union backs county commissioner for Chicago mayor
        * Judge won't close hearing in Islamic State case
        * Lake Michigan waves slam Chicago lakeshore
        * Wallenda ready for windy Chicago tightrope walks
        * Woman charged with defrauding Illinois couple
        * Quinn, Rauner talk jobs, early voting Friday
        * Judge won't close hearing in Islamic State case
        * Cook County Jail guard faces theft charge

        * State contribution to TRS to increase by $300 million next year
        * Former Gov. Edgar to campaign with Rauner
        * Attorney general seeks clarifications from Topinka’s former nonprofit
        * Inmate freed from Jacksonville prison in landmark Illinois case
        * Cross opposes income tax hike extension
        * Gay marriage, abortion issues take back seat in governor’s race
        * Madigan’s office seeks clarifications from former Topinka nonprofit
        * Cross says no to income tax hike extension, sales tax on services
        * Gay marriage, abortion issues take backseat in governor’s race
        * Illinois inmate freed in landmark capital punishment case

        * SEC examines Caterpillar's accounting for Bucyrus
        * Cubs hire Maddon as manager, fire Renteria
        * Karen Lewis endorses Jesus Garcia for Chicago mayor
        * A stormy Lake Michigan swamps Lake Shore Drive – and sinks Chicago's mood
        * A stormy Lake Michigan swamps Lake Shore Drive — and sinks Chicago's mood


        * Garcia: I'm a serious mayoral candidate, not just a protest vote
        * Boy, 3, hit by car while trick-or-treating in Winnetka
        * On O’Hare noise, aldermen demand action, but get no satisfaction
        * A higher standard of criminal justice
        * Ex-Northwestern doctor to pay $475K to settle fraud claims
        * Sad day  when  Catholic  schools  close
        * Chicago bead merchant Ronnie Klein, whose Loop business drew stars, dead at 65
        * Chicago bead merchant Ronnie Klein, whose Loop business drew stars, dead at 65
        * Durbin, Oberweis square off for final time
        * State’s attorney investigating alderman’s prize offer to voters


        * Teen shot by police charged with attempted murder
        * 2 dead, 4 hurt in shootings since Friday evening
        * Karen Lewis endorses Garcia for mayor in new video
        * Boy, 3, struck by car while trick-or-treating in Winnetka
        * Missing Garfield Ridge man located
        * Trial to begin for Darien man charged in 2012 killing
        * Alleged victims of ex-Wilmette teacher share memories online
        * New rules make Illinois voting easier
        * Federal judge refuses government request to close terrorism hearing
        * Emanuel's top attorney: Watchdog had no right to sue


        * Scary Story: St. Michael And Mr. Pyles By H.W. Devlin
        * Dodging DUIs: Secretary of State Candidates Faceoff
        * Cook County posting indigent burials in 'virtual cemetery'
        * Whom do you trust when it comes to nutrition advice?
        * Zombie barge sinking in storm at Navy Pier
        * The digital afterlife
        * Making Buildings Healthier From The Inside Out
        * Scary Story: Planes By Ted Morrissey
        * Listen to State Week - October 31, 2014
        * "Monster Mash" Celebrates Halloween With Classical Music


        * E.J. Dionne: Moderate thunder out of Kansas
        * Charles Krauthammer: A referendum on competence
        * Quote of the Day: Nov. 1
        * State contribution to TRS to increase by $300 million next year
        * Former Gov. Edgar to campaign with Rauner
        * Esther Cepeda: Elizabeth Pena: Trailblazer on the big screen
        * Andy Shaw: Voter turnout instrumental to reform
        * Ty Fahner: What if the Court rejects pension reform?
        * Attorney general seeks clarifications from Topinka’s former nonprofit
        * Quote of the Day: Friday, Oct. 31


        * Top of the Morning, Nov. 1, 2014
        * Nuns say they find pain, despair on campaign trail
        * Flick Fact 11/1/14
        * Christopher wins fight with Census Bureau over town's population
        * Chilly air can't stop Halloween fun
        * Area Calendar 11/1/14
        * Alleged sex acts with girl net charge
        * Upcoming Services (Nov. 1, 2014)
        * Frerichs highlights experience, downstate residence in bid for treasurer
        * Edgar joins Rauner on campaign trail


        * Naperville Central rallies for victory
        * (No heading)
        * Timothy Christian advances to championship game
        * Stevenson recovers against Ross, Lyons
        * Wheaton Warrenville South produces another miracle

        * Patrick Cannon defense strategy rare but n...
        * Feds fine Jesse Jackson Jr.'s campaign com...
        * Ex-Congressman Jesse Jackson Jr. faces sen...
        * Representative Jan Schakowsky Sends Letter...
        * Rep. candidate pushes to uphold marriage b...
        * Reps. Schakowsky and Waxman Introduce Bill...
        * Statement by Representative Jan Schakowsky...
        * U.S. House Passes Resolution Condemning An...
        * FAA Rejects Call For New O'Hare Noise Stud...
        * Representatives Quigley, Duckworth, Schako...

        * Forget Halloween, members of Congress alwa......
        * Senate Candidates On Climate Change...
        * Senate Candidates On Climate Change...
        * Senate Candidates On Climate Change...
        * Senate Candidates On Climate Change...

        * Tale of the tape: Obama's campaigning a fa......
        * Sen. Mark Kirk questioned by Triton students...

        * Higgins: Closing argument on the Illinois election
        * Our America Fund launches series anti-Durbin ads [videos]
        * Excellent University Ideas That Can Help You
        * AFP Illinois fights 40 tax-raising referendum on Nov. 4th ballots
        * Weaponizing the Government [video]
        * IDOT Warns Drivers Of Stepped Up Halloween Weekend Enforcement
        * Facebook Conservatives lose board members over Rauner recommendation
        * Government Failure and What to Do About It [video]
        * Op-Ed: The Ups & Downs of Election Laws, Are Voters Being Tricked at the Door?
        * Andrew Klavan: Is Obamacare Working, Or Are We All Going to Die? [video]


        * Editorial: Governors, raining taxpayer $ on Illinois
        * Governor Quinn and Mayor Emanuel Thank New Safe Passage Workers - Nearly 700 Additional Workers Hired This Year to Serve 133 Schools, 69,000 Students Across the City
        * Editorial: Rauner best choice as governor to begin to reverse Illinois’ fortunes
        * Quinn to celebrate Rauner’s UI Labs accomplishment
        * Another Democrat Runs Away From Pat Quinn




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