This just in… More trouble ahead
Thursday, Jul 16, 2009 - Posted by Rich Miller
* 11:18 am - Right on cue…
Moody’s Investors Service put the state of Illinois’s general-obligation bond ratings on review for possible downgrade, saying the state has long-term budgetary challenges.
The firm said the state has a long history of general-fund operating deficits, and liquidity in the fund has been increasingly strained, which it said was evidenced by growing use of short-term debt and delaying payments to Medicaid providers and vendors… Moody’s said some of the proposed measures would help in the short term but be at the expense of future budget years. […]
Moody’s said increasing evidence of strained liquidity, growing structural imbalance, further deterioration of fund balances and other factors could cause a downgrade on the ratings.
More…
The review will focus on consideration of the state’s prospects for restoring structurally balanced financial operations while addressing sizable funding requirements for pensions and retiree health benefits, as well as the state’s liquidity position and growing debt burden.
A focus of the review will be the budget legislation for the current fiscal year.
Our “growing debt burden” is beyond obvious, as is our pension nightmare. If the “focus” of the review is the goofy budget which just passed, then the state could be cruisin’ for a bruisin’.
By the way, this is a very broad review…
This action also applies to ratings that are linked to the state’s general obligation rating, including Build Illinois Bonds (rated A1), Metropolitan Pier and Exposition Authority’s Expansion Project (A2) and Dedicated Tax bonds (A2). In addition, it affects the state’s Aa2 general obligation rating on the global scale.
…Adding… Speaking of our “growing debt burden”…
With unemployment still rising, Illinois has had to borrow federal money to meet its obligations for jobless benefits.
The state has drawn about $9 million from a federal credit line to help replenish its unemployment insurance fund and pay out close to $100 million in unemployment claims. The fund had dwindled to about $81.8 million as of July 5 from $1.45 billion at the start of 2009.
*** 11:36 am *** Uh-oh…
“We are concerned about how the state will move from here to return to balanced financial operations,” said Ted Hampton, the Moody’s analyst who wrote the report on Illinois. “The state has essentially kicked the can down the road in terms of making decisions.”
Hard to argue with either of those points.
*** 4:33 pm *** From Crain’s…
Moody’s action drew an immediate reaction from one of the Republicans running for governor, state Sen. Kirk Dillard, who voted against the new state budget.
The action “is not a surprise. Wouldn’t you do this?” Mr. Dillard said in a phone conversation. “It’s time for the state of Illinois to tear up its credit card. We are pushing our obligations out further and are exacerbating our operaqting deficits.”
Gov. Pat Quinn’s office had no immediate response.
- VanillaMan - Thursday, Jul 16, 09 @ 11:22 am:
I am very sad to read this, but it must be done because our state is led by political morons that have ruined our credit.
This kind of government was meant to crash. The failure of the Democratic Party is the fact that they eventually run out of other people’s money to give away to their supporters.
- Bill - Thursday, Jul 16, 09 @ 11:23 am:
Uh Oh!
- montrose - Thursday, Jul 16, 09 @ 11:29 am:
And as the bond rating goes down, our return on the sale of bonds - such as yesterday’s approved pension obligation bonds - tank, and thus our budget hole is even bigger than estimated yesterday. Is the thought that if we digging a deeper and deeper hole, we going to find a tax increase at the bottom?
And what does this coming downgrade mean to the capital bill?
- South Side Mike - Thursday, Jul 16, 09 @ 11:31 am:
Did I read the unemployment fund numbers correctly? The fund has dropped over 94% in seven months! Unemploynent’s not even close to peaking yet.
IL is going to need all $900 million of the interest-free loan available to it by the end of this year. But what about next year? How much will IL have to pay to provide jobless benefits then?
- Rich Miller - Thursday, Jul 16, 09 @ 11:32 am:
Yep, you read that right.
Oy.
- Mike an Ike - Thursday, Jul 16, 09 @ 11:40 am:
Well maybe and hopefully the Democrats will not be able to find anymore hand out money for votes.Maybe the people that are getting all the free will figure out what Mom and Dad said is true”nothing is free.
- Ghost - Thursday, Jul 16, 09 @ 11:43 am:
SO we need to pass a tax increase to show a revnue stream or our ond ratings willbe donwgraded. I wonder if this effect the billions in bonds we have outstanding still, or just new bonding.
We just need the GOP to do the right thing and help Illinois by passing a tax increase; after all, the GOP has stood behind every tax increase the State has passed, and those were with deifictis that were billions less. Just like Illinoi families, since the State can not file for bankruptcy, it needs its second job to get through the tough times. In this case a temp tax increase.
- wordslinger - Thursday, Jul 16, 09 @ 11:45 am:
Right on cue is right. Moody’s was just waiting for the GA to wrap up, on the off chance they might actually craft a balanced budget. This has been coming for months because of down revenues.
The pension notes will sell in a New York minute. The extra juice will just make it that much sweeter to the investors. The state’s credit is hardly ruined (except with its vendors). The market wants the state to issue debt, and lots of it, because of tax-exemption and security — the noteholders will get paid before anyone, they always do.
You shouldn’t have believed what Quinn was telling you weeks ago.
- Macbeth - Thursday, Jul 16, 09 @ 11:51 am:
Everybody knows a tax increase is coming. I suspect all this is simply a (better) build-up to the inevitable.
- Six Degrees of Separation - Thursday, Jul 16, 09 @ 12:09 pm:
And what does this coming downgrade mean to the capital bill?
Probably less than it means to the state’s general credit-worthiness. Capital has a dedicated revenue stream paid for by fairly inelastic income with growth potential.
I am concerned with the amount of short-term expenditures that were funded with the capital bill. It would have been better if more of the projects with a 30 year payback stream were meant to last 30 years. Kinda like buying groceries or a new car and refinancing your house with a 30-year note to pay for it.
- done - Thursday, Jul 16, 09 @ 12:24 pm:
Cut, cut, cut, cut, then cut some more.
- wordslinger - Thursday, Jul 16, 09 @ 12:37 pm:
Regarding the Capital Improvement Bonds, are they just Revenue Bonds, or are they double-barrel bonds with the state’s GO or potion of the sales tax providing extra coverage?
You’ll get a better price with the GO on them, even with a downgrade. And they’ll sell.
Illinois residents of a certain income (you know who you are) should talk to your financial advisor about them. The double tax-exemption is pretty sweet.
- fed up - Thursday, Jul 16, 09 @ 12:51 pm:
Wordslinger ” You shouldn’t have believed what Quinn was telling you weeks ago” I think that is good advice for now and the future. Quinn doesnt even believe what he is saying thats why it changes every few days.
- wordslinger - Thursday, Jul 16, 09 @ 12:57 pm:
Fed Up, I’m referring in particular to when he said you couldn’t issue bonds with an unstable budget situation. Obviously, his position has changed (or maybe he wasn’t being entirely truthful in his comments then).
- reformer - Thursday, Jul 16, 09 @ 1:03 pm:
Every politician who has ever run for office claims the mantle of fiscal responsibility. What we’re seeing here are the consequences of gross fiscal irresponsibility.
The Republicans would rather face those consequences than face a primary challenge by voting for the income tax, and Democrats would rather face those consequences than take sole responsibility for an income tax hike.
- lake county democrat - Thursday, Jul 16, 09 @ 1:04 pm:
David Brooks makes this argument in the NY Times that when the government is incapable of making tough/painful choices, they should punt to a non-partisan board, along the lines of the Federal Reserve Board. Similarly, you get these commissions like the 9/11 commission that give pols cover (the reform commission wouldn’t count because that was Quinn-only). Maybe we need something like that in Illinois.
- He Makes Ryan Look Like a Saint - Thursday, Jul 16, 09 @ 2:55 pm:
I reviewed the Video Gameing bill that passed, I can assure you the revenues they pitched for that bill will NOT come close. It hoses every small club, organization that currently own their own machines. In fact many will not have machines at all anymore.
I don’t know where they get their projections but they are very poor.
- Yellow Dog - Thursday, Jul 16, 09 @ 3:25 pm:
What are the odds that either the GOP or Mother Tribune will acknowledge Moody’s concerns?
- Bill - Thursday, Jul 16, 09 @ 3:34 pm:
YD, Are you no longer a democrat?
- Rob_N - Thursday, Jul 16, 09 @ 5:06 pm:
Might be different people/users Bill.
- Arthur Andersen - Thursday, Jul 16, 09 @ 5:12 pm:
Bill, good question. I was wondering about that as well.
word, I don’t think the PONs will be tax-exempt; the POB’s in 2003 were taxable GO’s. I agree they will sell like hotcakes-either way. I’m trying to find the answer to your question re: the new capital bonds-if they are double barreled, the downgrade may actually benefit the buyer as the spread widens up a bit more.
Sticking all this debt issuance out there, most exempt from negotiated sale, is a nice farewell present to Filan. Paging Mr. Fitzgerald….
- The Doc - Thursday, Jul 16, 09 @ 5:15 pm:
Whatever. What’s a few more hundred million in interest payments when we’ve already got our pound of flesh via the capital bill? The GA can’t be burdened with trivial issues like a balanced operating budget when there’s campaign cash to be raised and incumbency to protect.
Here’s a suggestion - Quinn has shown an uncanny ability to quickly create and appoint members to commissions and blue-ribbon panels. Reform, the budget, Burr Oak, U of I clout.
Let’s scrap the legislative branch and let these groups create law. Wouldn’t it be fun to watch the governor flip-flop on issues generated by his hand-picked minions? Could they possibly be as short-sighted and cowardly as the legislature?
Plus, they’re mostly free of charge, right? No salaries, benefits, per diems, or pensions.
- Cheswick - Thursday, Jul 16, 09 @ 5:49 pm:
Suggestion: If possible, reallocate the $500 million in member initiatives to the unemployment fund. Not that they would.
- wordslinger - Thursday, Jul 16, 09 @ 7:21 pm:
AA, I guess that makes sense about the pension notes. If they were tax-exempt, everyone would do it all the time. No real public purpose, which is supposed to the threshold.
- PW - Thursday, Jul 16, 09 @ 10:36 pm:
7/16/2009
How about our lawmakers providing ‘constiuent services’ & getting underqualified students into the U of I. Where is the outrage & disgust from voters? Why are we going to get rid of the trustees when it was the legislators pulling the strings.