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Top bond investors want stability, progress out of the next governor

Thursday, Oct 11, 2018

* Bloomberg’s Elizabeth Campbell talked to bond investors about the gubernatorial campaign. At the top of their list, they don’t want another budget impasse. More

“We don’t care if it’s a Democrat or Republican, we just want to make sure that whoever is in the office knows how much new taxes and revenue increases are needed to make those hard decisions of trying to deal with pensions,” said Dora Lee, vice president at Belle Haven Investments, which manages about $7.5 billion in municipal bonds, including Illinois debt. “We just need someone who has the vision and the political capital to make those hard choices because time is kind of running out.” […]

Even though Rauner pushed for fiscal reforms that would have cut costs, none of those were enacted, said John Miller, head of municipals at Nuveen, which holds more than $140 billion in state and local debt, including Illinois bonds.

“The concept that there could be a better, maybe a more productive dialogue where you could actually pass some fiscal changes that require legislation, that’s got to be considered better than gridlock,” Miller said. “I actually think the bond market would respond more positively to a change,” said Miller, who noted that his comments were from a revenue, expenses and budgeting point of view and not a political perspective. […]

“If there’s unified government, whether you view that favorably or unfavorably, it does mitigate appropriation risk and decreases the chance of a government shutdown, and it also mitigates the risk of not having a budget passed,” said Dennis Derby, a portfolio manager at Wells Fargo Asset Management, which holds $39 billion of municipal debt, including Illinois bonds. “No matter who wins, going forward, we would want to see balanced budgets, attempts at pension reform and a reduction in the payables backlog.”

Not too hard to read between those lines.

- Posted by Rich Miller        

35 Comments
  1. - 47th Ward - Thursday, Oct 11, 18 @ 10:08 am:

    ===Top bond investors want stability, progress out of the next governor===

    So do I.


  2. - People Over Parties - Thursday, Oct 11, 18 @ 10:12 am:

    The pension mess ain’t going anywhere. Just ask Rockford. I’m just waiting until JB’s relationship with labor sours over this, unless he embraces cowardice and kicks the can further.


  3. - Demoralized - Thursday, Oct 11, 18 @ 10:14 am:

    ==kicks the can further==

    The can kicking partially stopped with Tier II. That was the fix for future employees. You aren’t going to “fix” Tier I costs (no matter how much people stomp their feet about it). The solution is to pay those costs. But nobody wants to accept that. Instead, as you say, we kick the can on that by constantly talking about unconstitutional changes.


  4. - wordslinger - Thursday, Oct 11, 18 @ 10:14 am:

    These bond types are such divas, always with the drama.

    Here’s an indisputable fact: Rauner piled on an additional $10 billion in unpaid bills for daily operations in 2.5 years, running up the backlog to $16 billion.

    Hundreds of vendors all over the state got stiffed for months on end for goods and services delivered.

    But guess who got paid, in full, on time, every time?

    Get over yourselves. You have no beef. By law, you’re first at the trough, always, and you know it.


  5. - Big Joe - Thursday, Oct 11, 18 @ 10:15 am:

    If that’s what they want, then JB must be tried as governor. Rauner sure hasn’t showed any inclination to get things done with cooperation between the parties.


  6. - Beg to differ - Thursday, Oct 11, 18 @ 10:17 am:

    The pension problems will alleviate. People hired in the last 5 years are Tier 2 pensioners. You could sell the bad debt and pay vendors on time and that will help the state.


  7. - City Zen - Thursday, Oct 11, 18 @ 10:27 am:

    ==The pension problems will alleviate. People hired in the last 5 years are Tier 2 pensioners.==

    That assumes Tier 2 remains as-is. Considering the large number of pension enhancements Tier 1 folks received over the decades, I don’t think anyone should bank on Tier 2 saving us when the majority of those folks are decades from collecting benefits.


  8. - Six Degrees of Separation - Thursday, Oct 11, 18 @ 10:28 am:

    ===we would want to see…attempts at pension reform===

    My reading between the lines is that the appearance of trying is more important to these guys than actually getting anything done.


  9. - Lucky Pierre - Thursday, Oct 11, 18 @ 10:37 am:

    Why do these people believe budgets will magically be balanced as required by our state constitution if Democrats resume total control of Springfield again is baffling. See the record size 2003

    Past is prologue, Democrats are completely incapable of restraining the size and scope of state government

    Government unions fund their campaigns and are rewarded with ever increasing pay and benefit packages that are bankrupting the state


  10. - VanillaMan - Thursday, Oct 11, 18 @ 11:02 am:

    Of course they want stability.
    No one wants to invest where there has been a fight over if bills get paid.
    With our credit rating, every loan is from a loan shark.


  11. - Angry Republican - Thursday, Oct 11, 18 @ 11:05 am:

    ==Not too hard to read between those lines.==. Yes, the ratings houses are demanding another tax increase. The next governor needs to find a way to tax non-voters and raise a few billion dollars.


  12. - The Dude Abides - Thursday, Oct 11, 18 @ 11:09 am:

    Well that sure sounded like an endorsement for JB. Rauner just stated a few weeks ago that paying down our debt isn’t a big priority to him. At least one time I heard him say that our bond rating wasn’t that critical, though he did say that it was back in 2014 when running against Quinn.


  13. - JS Mill - Thursday, Oct 11, 18 @ 11:12 am:

    =I don’t think anyone should bank on Tier 2 saving us when the majority of those folks are decades from collecting benefits.=

    Tier 2 is already saving about $500 million per year and that number is growing.

    If we taxed retirement income, particularly that over $50k per year, we would go along way to solving our revenue issues.

    =Government unions fund their campaigns and are rewarded with ever increasing pay and benefit packages that are bankrupting the state=

    Corporations and wealthy CEO’s fund their campaigns and are rewarded with ever increasing pay and benefit packages that are bankrupting the state

    There ya go. Fixed it for ya.


  14. - Shemp - Thursday, Oct 11, 18 @ 11:13 am:

    Tier 1 is not going away that soon. If we don’t make the ARC (actuarial recommended contribution) payments, we’re just going to add to the misery. Anyone have any confidence the State can or will make those? I don’t have that confidence. Every shortfall just compounds the problem… literally. There’s going to be some pain somewhere, and there should be enough to go around, but who has the intestinal fortitude to make all those changes AND get the G.A. on board? I just don’t see it.


  15. - Lucky Pierre - Thursday, Oct 11, 18 @ 11:20 am:

    Even though Rauner pushed for fiscal reforms that would have cut costs, none of those were enacted, said John Miller, head of municipals at Nuveen, which holds more than $140 billion in state and local debt, including Illinois bonds.

    And we wonder why Illinois hasn’t been fixed

    “The concept that there could be a better, maybe a more productive dialogue where you could actually pass some fiscal changes that require legislation, that’s got to be considered better than gridlock.

    Mr Miller admits Rauner’s reforms would have saved the state significant money and Democrats opposed every single reform.

    Then he goes on to say he thinks the state will be better off if Democrats, who promised to work cooperatively and professionally with the Governor, are rewarded for their obstruction with total control of state government.


  16. - wordslinger - Thursday, Oct 11, 18 @ 11:27 am:

    –Of course they want stability.–

    You can’t have more “stability” than a history of bonds always being paid on time in full, even in the worst fiscal conditions.


  17. - City Zen - Thursday, Oct 11, 18 @ 11:31 am:

    ===I don’t think anyone should bank on Tier 2 saving us when the majority of those folks are decades from collecting benefits.==

    ==Tier 2 is already saving about $500 million per year and that number is growing.==

    No doubt it currently saves money over Tier 1, but any pension enhancements will chip away at whatever savings have been projected. In 1970, did anyone plan on AAI’s doubling and being calculated using compounded interest? Or 2.2 service year multipliers? Or all the other enhancements? Doubtful.

    Do we honestly think Tier 2 will remain untouched for 30 years? History says otherwise. Projected vs actual. We shall see.


  18. - Steve - Thursday, Oct 11, 18 @ 11:32 am:

    When you have this much Illinois debt out there : these guys become your boss…


  19. - Pick a Name - Thursday, Oct 11, 18 @ 11:40 am:

    JB’s new ad

    Bond Investors Demand New, Higher Taxes and I’m Just The Guy To Do It!!


  20. - Six Degrees of Separation - Thursday, Oct 11, 18 @ 12:01 pm:

    ===Do we honestly think Tier 2 will remain untouched for 30 years? History says otherwise. Projected vs actual. We shall see.===

    One difference is that there are way more interested eyes on the pension problem, and proposed legislation, than there were in the 1990s when a lot of changes/enhancements were passed. I don’t think a sweetener, and early retirement initiative, or such can be introduced, much less passed and signed by a GA and governor, in this environment without being put under the public microscope.


  21. - Skeptic - Thursday, Oct 11, 18 @ 12:03 pm:

    “Mr Miller admits Rauner’s reforms would have saved the state significant money and Democrats opposed every single reform.” You know, if you stop feeding your family you’ll save significant money. But I’ll bet every one of them would be opposed to such an idea.


  22. - Demoralized - Thursday, Oct 11, 18 @ 12:11 pm:

    LP

    I’ll be glad when your computer programming gets corrupted.


  23. - wordslinger - Thursday, Oct 11, 18 @ 12:18 pm:

    –When you have this much Illinois debt out there : these guys become your boss…–

    How so, with specific examples?

    For the record, Rauner’s peeps estimated that all his “reforms” would net $510 million a year in new state revenues.

    That’s 1.3% of a $38.5 billion GRF budget. It’s absurd to think that would move the needle on credit ratings. You didn’t get a bump after a $5 billion tax increase.

    https://www.chicagobusiness.com/article/20160119/NEWS02/160119822/rauner-s-turnaround-agenda-math-doesn-t-add-up


  24. - City Zen - Thursday, Oct 11, 18 @ 12:18 pm:

    ==I don’t think a sweetener, and early retirement initiative, or such can be introduced, much less passed and signed by a GA and governor, in this environment without being put under the public microscope.==

    The Feds might have a say in this too with the Safe Harbor rules.

    All I know is the state has a generation to make whatever pension enhancements it wants. And when it happens, most of those Tier 2 savings will never materialize.


  25. - JS Mill - Thursday, Oct 11, 18 @ 12:21 pm:

    =We shall see.=

    The pension goodies have gone the way of the dodo. They have done everything except flat out deny raises. So, no I don’t think that Tier 2 will see changes to AAI etc.


  26. - Lucky Pierre - Thursday, Oct 11, 18 @ 12:26 pm:

    Demoralized

    Good job completely ignoring the issue at hand about why Democrats are better suited to balance the budget by cutting spending and resort to 7th grade Alinskyite playbook

    #5. “Ridicule is man’s most potent weapon.”


  27. - Lucky Pierre - Thursday, Oct 11, 18 @ 12:31 pm:

    For the record, the bipartisan Cullerton pension plan that the Governor supported and the Speaker blocked is $700.000 to 1 billion a year in savings, so to get to your number Wordslinger, Rauner’s reforms would have to cost the state money

    Cullerton’s office estimates the plan would save the state $700 million to $1 billion a year, based on analyses done by the various state pension systems. The legislature’s bipartisan Commission on Government Forecasting and Accountability said it is conducting its own review of the numbers, but has not yet completed it.

    http://www.sj-r.com/news/20170121/illinois-senate-to-try-again-on-pension-reform


  28. - wordslinger - Thursday, Oct 11, 18 @ 1:28 pm:

    – so to get to your number Wordslinger, Rauner’s reforms would have to cost the state money–

    Not my number, Einstein, it was Rauner’s, as clearly stated in the link. Now that you’ve sounded out the words, try reading for comprehension.


  29. - Oswego Willy - Thursday, Oct 11, 18 @ 1:32 pm:

    ===For the record, the bipartisan Cullerton pension plan that the Governor supported and the Speaker blocked===

    Yeah, I’m gonna stop you there.

    Rauner had no 71… or 60… to get it passed in the House.

    So, for the 7,896th time…

    … had Rauner put 71… even 60… on the stairs… you’d have a point.

    You don’t.


  30. - Perrid - Thursday, Oct 11, 18 @ 1:53 pm:

    It’s not even reading between the lines, I mean, “unified government”? Unless they think the Senate and the House and the Governor are all going Republican, they’re “endorsing” Pritzker.


  31. - Ole' Nelson - Thursday, Oct 11, 18 @ 1:53 pm:

    LP
    Cullerton pension plan is quite possibly unconstitutional. How about pay what we owe?


  32. - Lucky Pierre - Thursday, Oct 11, 18 @ 2:35 pm:

    Math is hard but $700 million to 1 billion is for pension reform is greater then your debunked $500 million in total savings.

    Then you could add the AFSCME number that was $770 million.

    Worker’s Comp other reforms would make the number even higher.

    Quit while you are behind


  33. - wordslinger - Thursday, Oct 11, 18 @ 3:02 pm:

    –Math is hard but $700 million to 1 billion is for pension reform is greater then your debunked $500 million in total savings.–

    LOL, debunked by whom, you?

    Read. Slowly. Try. Harder.

    https://www.chicagobusiness.com/article/20160119/NEWS02/160119822/rauner-s-turnaround-agenda-math-doesn-t-add-up

    https://drive.google.com/file/d/0B4Bi-iePG1O6cVdsLUNsQ0k2OGc/view

    https://drive.google.com/file/d/0B4Bi-iePG1O6dGFHei02cER4VzQ/view


  34. - Demoralized - Thursday, Oct 11, 18 @ 3:45 pm:

    ==Alinskyite playbook==

    Just when I thought your credibility couldn’t go any lower.

    ==why Democrats are better suited ==

    Why is Rauner? He’s shown he can’t govern.

    == the plan would save the state $700 million to $1 billion a year==

    Unless that plan has an option to keep what you have it isn’t going to save anything because it’s unconstitutional. The plan offers false choices because both result in a reduced pension. That has been ruled on. But by all means lets waste more time on the issue.


  35. - RNUG - Thursday, Oct 11, 18 @ 4:56 pm:

    As currently constructed, the Cullerton plan adjusted to please Rauner is unconstitutional and will save nothing.

    If it was changed to voluntary only, to achieve the stated numbers you have to have 30% of the current Tier 1 empolyees decide to make a choice that is clearly not in their best financial interest.


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