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The “irony” is lost on me

Friday, Jul 14, 2017

* AP

Illinois lawmakers who recently ended the longest fiscal standoff of any state since the Great Depression are counting on an ironic strategy to dig out of mountains of debt: borrowing even more money.

It’s an unorthodox approach, considering deficit spending largely created the mess, and Illinois’ worst-in-the-nation credit rating makes borrowing inordinately expensive. However, supporters say it’s the best way to begin to erase $14.6 billion in overdue payments to vendors and service providers.

Bills that are 90 or more days past due incur 12 percent in late-payment fees. By paying off a chunk of that at a time with the sale of bond proceeds, the state could cut that rate in half.

“We are being smothered by our liability and our indebtedness, not only in the state and trying to deal with the budget, but with the people we owe money,” said Democratic Sen. Donne Trotter, of Chicago, the assistant majority leader who sponsored the measure.

Trotter said it currently takes Illinois about 200 days to pay a bill, but his plan would reduce that to as few as 60 days.

The Democratic-controlled General Assembly endorsed the budget — and a $6 billion borrowing scheme — over Republican Gov. Bruce Rauner’s vetoes. However, it’s unclear whether Rauner will actually use the borrowing authority given to him. He has said nothing about it in the 10 days since the budget was passed, and his spokeswoman, Eleni Demertzis, declined to comment on Thursday.

It’s not necessarily “unorthodox.” For two years, the state spent more than it was taking in, under judicial orders and executive branch contracts and leases. Revenues now balance with spending, but businesses and not-for-profits are owed billions. Continuing to borrow from them is irresponsible and forces continued and unnecessary hardships. It’s therefore better (and in many cases cheaper) to borrow on the bond markets.

- Posted by Rich Miller        

31 Comments »
  1. - Hamlet's Ghost - Friday, Jul 14, 17 @ 9:42 am:

    Since when is it unorthodox to refinance existing debt at a lower interest rate?


  2. - ArchPundit - Friday, Jul 14, 17 @ 9:44 am:

    ===Since when is it unorthodox to refinance existing debt at a lower interest rate?

    Exactly. This is obvious thing to do.


  3. - lake county democrat - Friday, Jul 14, 17 @ 9:45 am:

    In Canada, Justin Trudeau led his party back into power on a campaign platform of increase the federal budget deficit by borrowing at historically relatively low interest rates and spending it on infrastructure.


  4. - Henry Francis - Friday, Jul 14, 17 @ 9:47 am:

    Surely an Ivy League educated finance expert bidnessman can see how this makes financial sense? Right? Won’t this help Illinois get more competitive? And then we can be compassionate.


  5. - Winnin' - Friday, Jul 14, 17 @ 9:47 am:

    But…many well-connected middle men who are paying those businesses an reaping the benefit of those high interest rates will lose their gravy train.


  6. - Generic Drone - Friday, Jul 14, 17 @ 9:48 am:

    Its done on mortgages all the time. Non story.


  7. - Last Bull Moose - Friday, Jul 14, 17 @ 9:49 am:

    When you refinance your mortgage to pay off your credit card debt, that is smart money management. Then you need to limit the use of credit cards, another part of smart money management.


  8. - Roman - Friday, Jul 14, 17 @ 9:51 am:

    It’s no fun for a reporter to write a story about government doing exactly what it should do. That won’t sell papers or earn clicks. So a false narrative is created.

    Journalism continues to wither in Illinois.


  9. - Oswego Willy - Friday, Jul 14, 17 @ 9:53 am:

    You refi on the house to fix the foundation of the structure.

    That’s ironic?


  10. - Biscuit Head - Friday, Jul 14, 17 @ 9:56 am:

    What’s occuring here requires an adult understanding of finance. And opposition to it can easily be condensed to an oversimplified quip or sound bite.

    Therefore the “media” and obstructionists can easily misinform a significant part of the public. (See also: “fooling some of the people all of the time”)


  11. - wordslinger - Friday, Jul 14, 17 @ 9:57 am:

    The only losers in this plan are the flush, clouted debt buyers.

    They’ve been buying vendor receivables at a discount, then collecting the big juice when the late payments roll in.

    The arithmetic for refinancing the backlog benefits taxpayers and Illinois vendors owed money. It would take some crazy petulance for Rauner to not do it.


  12. - justacitizen - Friday, Jul 14, 17 @ 10:00 am:

    Dave Ramsey would not like Illinois tactic either. Beans and rice, rice and beans until you’re out of debt.


  13. - Streator Curmudgeon - Friday, Jul 14, 17 @ 10:05 am:

    Irony is wrecking the economy of Illinois to make it more attractive to business.


  14. - Biker - Friday, Jul 14, 17 @ 10:05 am:

    It’s clear that business economics can’t hold a candle to a good ideological story. Best lesson I’ve had in finance is to understand the investment opportunity of reducing high interest rates on debt. So many people live with 30 year mortgages and 30 year student loans without attempting to pay off anything early, and it will trap an entire generation in financial limbo. We’ve normalized terrible financial decision making to the point that 12% interest vs. 7% interest isn’t even a clear decision.


  15. - Phil King - Friday, Jul 14, 17 @ 10:07 am:

    You don’t see the irony of borrowing to pay off borrowing? It’s a self defeating cycle.

    There are only two ways out of this mess:

    1) Cur spending to be BELLOW current revenues and use the surplus to pay down debt
    2) Grow the economy so we have SUSTAIABLE new revenues (which just got that much harder thanks to the 32% income tax hike).


  16. - Ahoy! - Friday, Jul 14, 17 @ 10:08 am:

    If your friend loaned you $10,000 at a 12% interest rate and your friend was facing financial collapse, wouldn’t the right thing to do be to go to a bank, get a loan for $10,000 at 4.5% and pay your friend off?

    This has the advantage of being:
    1. The morally right thing to do.
    2. The financially right thing to do.

    Who in the world would argue against this besides people who can’t do math.


  17. - Hamlet's Ghost - Friday, Jul 14, 17 @ 10:11 am:

    @Phil King

    I see perfidy in paying above market interest rates to clouted insiders to advance an agenda that seeks to dismantle government.


  18. - ??? - Friday, Jul 14, 17 @ 10:12 am:

    Speaking of “bellowing,” Phil - please stop with the capitalized words.


  19. - Arock - Friday, Jul 14, 17 @ 10:17 am:

    Agreed that it is better to pay at a lower rate if you can get one but also prudent to look for more areas to cut spending and use those savings as well to pay off the debt. The three billion in cuts is what was being spent under the court ordered decree not from what the actual budget would have been so now is the time to look to cut and pay off old debt.

    To the “What’s occurring here requires an adult understanding of finance.”- those same adults that failed to pay pension obligations and ran up the pension debt? Those same adults that are forcing tax payers to pay a higher rate and watch the pension debt continue to increase. According to the Sun-Times that interest payment of $7 billion a year continues to grow and will be at $16 billion before you know it. Because of the Ramp agreement that the Great Wizard was part of in 95.


  20. - the Patriot - Friday, Jul 14, 17 @ 10:18 am:

    Ok, take a finance class.

    The issue is not the interest rate, it is the time. Yes, borrowing at 12% is stupid, but so is long term borrowing for short term financing. You may save %, but pay more interest.

    This is deciding to put your electric bill on a 20 year mortgage. You save %, but pay more interest.

    At least now we won’t have to worry about what history will say about Madigan, because this type of stuff ensure they will still be paying off his mistakes for another generation.


  21. - WhoKnew - Friday, Jul 14, 17 @ 10:25 am:

    Borrowing at a reduced rate will save a lot of interest, no doubt.
    Injecting 6 Billion into the Illinois economy should also help with tax receipts.
    The velocity of money, people!


  22. - wordslinger - Friday, Jul 14, 17 @ 10:48 am:

    Phil, I’m sorry I missed all your “fiscal conservative” posts the last two years while the state was deliberately increasing its borrowing from vendors by more than $10 billion.

    Because of that involuntary lending forced upon them, those vendors have let go thousands of workers, drawn down capital reserves, tapped lines of credit or even shut down.

    How’s that for an economic growth strategy?


  23. - Robert the Bruce - Friday, Jul 14, 17 @ 10:50 am:

    Possibly Rauner is trying to see if the state can welch entirely.


  24. - DuPage - Friday, Jul 14, 17 @ 11:31 am:

    This should have been done several years ago when interest rates were at their lowest, and before the downgrades. Paying 8% pension debt with 2% state bonds would have been a very good move.


  25. - RNUG - Friday, Jul 14, 17 @ 12:12 pm:

    == Paying 8% pension debt with 2% state bonds would have been a very good move. ==

    1) the discussion is about borrowing to pay accounts payable, not pension debt

    2) on the pension debt, will never happen. Right now the State just owes itself, and can manipulate the payments as wanted / needed. Once you bond it to the private sector, you have a fixed payment schedule you have to meet.


  26. - Hieronymus - Friday, Jul 14, 17 @ 12:18 pm:

    @DuPage 11:31am

    Yeah, but those pesky bondholders have an unreasonable expectation on being paid both interest and principal right on time and with the political clout to back up that expectation; whereas, it might just be possible to arrange a future default on the demonized retirees. /s


  27. - Phil King - Friday, Jul 14, 17 @ 12:59 pm:

    wordslinger,

    Businesses selling to the state were hit by the impasse, but our economic problems are a lot deeper than that. What percentage of GDP do you think is accounted for by State vendors? I don’t know, but it aint much.

    The bigger problems are high property taxes (main contributor to overall high tax burden), excessive professional licensing, and outrageous worker’s comp costs.

    Private markets, most of which don’t interact with the state, are being strangled in IL. If Rauner had been able to get some meaningful reforms done, it would have been more than worth 2 1/2 years of impasse.


  28. - Rich Miller - Friday, Jul 14, 17 @ 1:06 pm:

    ===What percentage of GDP do you think is accounted for by State vendors? ===

    If you figure it at $15 billion, that’s 1.9 percent of GSP.


  29. - VanillaMan - Friday, Jul 14, 17 @ 1:18 pm:

    If all of Rauner’s agenda was enacted, it would not even cover the cost of the bill backlog.

    The Governor flushed away billions. He wasted billions more than he promised to save.

    Conservative? Rauner vetoed budgets that were billions less than what we ended paying because of his vetoes. His vetoes wasted billions.

    Nothing - absolutely nothing would have been worth the billions lost due to the impasse.

    You have no idea what you are talking about. At all.


  30. - Phil King - Friday, Jul 14, 17 @ 2:05 pm:

    ==If you figure it at $15 billion, that’s 1.9 percent of GSP. ==

    That’s just the unpaid portion, not including delayed, but fair enough to look at as the negative effect of the impasse.

    So if the other 98% of GSP is being held back by structural economic problems, is the trade off not worth it? Our state is losing population, businesses, jobs, taxpayers. We’re losing Congressional representation in Washington with each census as a result.

    I don’t doubt that the impasse hurt people, particularly social services, but continued inaction on our structural problems will hurt many more.


  31. - Oswego Willy - Friday, Jul 14, 17 @ 2:09 pm:

    ===So if the other 98% of GSP is being held back by structural economic problems, is the trade off not worth it? ===

    1.4% growth or $500+ million for destroying Labor, Social Services and Higher Ed?

    Nah, it’s not worth it.

    Get better numbers. Get back to everyone.


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