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Illinois eyes borrowing $4.5 billion from Federal Reserve program

Thursday, May 21, 2020

* Greg Hinz

Some details are still in flux, but it looks like lawmakers are settling on a plan as to how to balance the proposed 2021 budget as state finances reel amid the COVID-19 pandemic. The plan: borrowing up to $4.5 billion from a special Federal Reserve program. […]

The borrowing apparently would occur under a Federal Reserve program in which the bank has the authority to lend up to $500 billion to states and municipalities. The U.S. Treasury Department has the authority to cover up to $35 billion in losses, with the loans to have maturities of up to three years.

Officials here hope the borrowing will serve as “sort of a bridge loan,” covering state cash needs until either Washington Republicans relent and agree to boost direct financial aid to state and municipalities or voters this fall enact Gov. J.B. Pritzker’s proposed graduated income tax amendment, one source told me.

With the money, the state will be able to make its full statutory pension payment and avoid major layoffs or cuts in aid to schools and other local governments, multiple sources close to the matter told me.

The idea, I’m told, is that Congress will come through with an aid package and the loan can be paid back quickly. But we’ll see.

* Yvette Shields at the Bond Buyer

Legislative sources cautioned that the amount of borrowing and the overall budget plans are still fluid and have not been finalized. The state must close a $6 billion to $7 billion gap in the next fiscal year that begins July 1.

Pritzker said he remains hopeful that federal aid will eventually pass Congress and the state won’t have to turn to borrowing.

“We hope not” to fully use the proposed authorization “because there is a state and local funding bill that is working its way through the Congress,” Pritzker said when asked if the state would tap the full $4.5 billion amount during his daily briefing Wednesday on the state’s response to the pandemic. […]

As previously reported by The Bond Buyer, Pritzker’s administration on Friday said the state would submit a notice of interest to potentially tap the program to competitive sell its $1.2 billion of one-year certificates that are on the day-to-day calendar. Under the new program, the state has access to nearly $9.7 billion of MLF borrowing based on its applicable revenues. […]

The debt authorization requires a three-fifths majority of the Illinois Legislature. Pritzker is a Democrat and Democrats hold a three-fifths majority in both chambers.

Senate Democrats were missing three members yesterday, so they’ll still have enough to pass something with a three-fifths majority if everyone sticks around and sticks together and the Republicans refuse to play ball. The House Democrats had four excused absences yesterday, at least one of whom returns today (Rep. Conroy). That’s cutting it awful close.

…Adding… I’m told another HDem will also return today.

- Posted by Rich Miller        

26 Comments »
  1. - don the legend - Thursday, May 21, 20 @ 10:22 am:

    This vote should show if the super minority caucus wishes to remain a super minority caucus. By voting no they will play to an ever shrinking base of voters who deliver primary wins but nothing else.


  2. - essentially working - Thursday, May 21, 20 @ 10:25 am:

    “covering state cash needs until either…”
    What happens if neither of those two things come to pass? Neither is a certainty. I guess rather than being just completely screwed like we are now, we are mega-completely-screwed and bankruptcy may look pretty good… Businesses aren’t having their revenue replaced, why would the states?


  3. - Todd - Thursday, May 21, 20 @ 10:45 am:

    looks like they are banking on this being forgiven and congressional democrats turning this into a bailout


  4. - Nagidam - Thursday, May 21, 20 @ 10:47 am:

    The Republicans should demand the loan repayment be tied directly to future Fed bailout money for their votes. In otherward if the future fed money comes it has to be used to pay off this loan. I realize it is rather odd to have to think about making this demand but we are in Illinois. Same with any added increase in revenue generated by the passage of the Progressive income tax hike.


  5. - TinyDancer(FKASue) - Thursday, May 21, 20 @ 10:49 am:

    Yep. That’s what they’re there for - lender of last resort - and it appears Powell thinks it’s a good idea.
    The Fed should step up and refinance all the bonds at a lower rate, the interest is what’s killing us.
    And while we’re at it, find a way out of the parking meter deal.


  6. - Back to the Future - Thursday, May 21, 20 @ 10:53 am:

    I was surprised that the last bond issue Team Pritzker managed to sell was oversubscribed by 3 times. The only way this can happen is if the demand is woefully underestimated which is evidence of an interest rate offering being set too high.
    Before the GA goes along with more debt offering managed by
    Pritzker perhaps they should look into how the administration is going about picking, managing and disciplining it’ s underwriters.
    We are now paying interest rates well above the markets. It makes one wonder how much due diligence the Pritzker folks put into pricing the bond.


  7. - Rich Miller - Thursday, May 21, 20 @ 11:04 am:

    ===which is evidence of an interest rate offering being set too high===

    And this isn’t the first time. Wordslinger used to complain about this very thing.


  8. - dbk - Thursday, May 21, 20 @ 11:06 am:

    –The Fed should step up and refinance all the bonds at a lower rate, the interest is what’s killing us.–

    Anybody know what the rate on this $4.5 billion will be?

    I agree, they’re banking on outright Federal aid to states and munis. [Although I saw today that McConnell said the Senate HEROES Act won’t be anything like the bill passed last week by the House, which doesn’t bode particularly well.]


  9. - Demoralized - Thursday, May 21, 20 @ 11:08 am:

    ==and congressional democrats turning this into a bailout==

    There are more and more congressional Republicans moving this direction as well


  10. - Back to the Future - Thursday, May 21, 20 @ 11:08 am:

    Miss that Wordslinger.


  11. - Just A Dude - Thursday, May 21, 20 @ 11:19 am:

    dbk: I think the aid package will pass as do others from what I have read. It has to as many states are affected. The final version will include some of the Republican wants. Things like the payroll tax cut and legal immunity for employers if any of their employees get Covid 19. If the latter is is in a final bill that passes I am sure a lot of remote workers will be ordered back to the office.


  12. - illinifan - Thursday, May 21, 20 @ 11:24 am:

    Needed but it keeps moving the problem down the road. Taking this loan should include plans for actions to be taken if this loan is not forgiven or federal assistance does not come into being. Doubt if that will happen.


  13. - Scott Cross for President - Thursday, May 21, 20 @ 11:28 am:

    Now more than usual, we need Wordslinger


  14. - TinyDancer(FKASue) - Thursday, May 21, 20 @ 11:36 am:

    On Tuesday, the Fed said it will buy debt issued by state and local governments…….

    Interest rate should be zero.


  15. - DuPage - Thursday, May 21, 20 @ 11:37 am:

    If the interest rate is really low, then the state should go ahead with it.


  16. - bored now - Thursday, May 21, 20 @ 12:35 pm:

    is the “congress will pass a relief bill” thing said w a straight face? (serious question)


  17. - Just A Dude - Thursday, May 21, 20 @ 12:45 pm:

    Bored: You don’t think congress will pass a relief bill? There are both Red and Blue states in line don’t forget. Climbing unemployment, election in November, etc. Not to mention a global 100 year pandemic.


  18. - Blue Dog Dem - Thursday, May 21, 20 @ 1:01 pm:

    does Illinois negotiate their rate or is it competitively bid?

    I would not bet the farm that congress passes an aid bill of any substantial size.


  19. - Back to the Future - Thursday, May 21, 20 @ 1:21 pm:

    Some municipal governments have put bonds on the market that are competitively bid in the market place.
    The State establishes a list of investment banks in tiers that State officials pick from to build syndicates to negotiate an interest rate to take to market. The Investment Houses are supposed to come up with a rate that bond buyers will find attractive enough to invest in while protecting the interests of citizens in our state. If the interest rate they set is too low the market will not provide enough buyers to support the issue. If the interest rate is set too high Bond Buyers will over subscribe.


  20. - Blue Dog Dem - Thursday, May 21, 20 @ 1:26 pm:

    back to the future. Sounds like a negotiated process. Who do the investment banks have in their best interest. Buyer or seller,?


  21. - Back to the Future - Thursday, May 21, 20 @ 1:52 pm:

    It starts with the executive branch that represents our citizens.
    The Investment Banks that are picked also represent the citizens in trying to get the lowest interest they can while insuring they can sell out the bond issue. Usually the main houses bring in other investment banks to help sell the bond issue and that involves using a diverse set of firms. Our General Assembly has set being diverse as a goal and history has shown those firms have done good work.
    Someone has to pay for this as sales folks expect to be compensated. They are concerned with the sellers, but mainly the sellers they selling to investment management houses and mutual fund folks that are just not going to pay up if they think the issue is priced too high. Usually buyers are asked to subscribe to the issue. If the demand is not present then the issue needs to be repriced or completely pulled from the process.
    I’d suggest that you look up Wordslinger old Posts for a better explanation.


  22. - Not a Billionaire - Thursday, May 21, 20 @ 1:59 pm:

    Well if we could get the primary rate at the discount window it’s 0.25 % . I would like to find the whole debts at that . For 150 billion that would fill the hole.


  23. - Back to the Future - Thursday, May 21, 20 @ 2:21 pm:

    Illinois is not a bank so off to the Bond market we have to go.
    For more information on Bond sales folks you can go to the Illinois Office of Management and Budget.
    The rates we are paying are higher than you might think.


  24. - RNUG - Thursday, May 21, 20 @ 2:33 pm:

    Looks like I wasn’t too far off the other day on predicting / estimating the needed borrowing.


  25. - Back to the Future - Thursday, May 21, 20 @ 2:48 pm:

    Have to admit RNUG was just about spot in.
    The Capital Markets section of BoB’s web site lists the recent offerings.
    Of course, a lot of things go into new issue bond offerings; but it seems Team Pritzker needs a review by the GA.
    Governing is tough stuff.


  26. - dbk - Thursday, May 21, 20 @ 3:49 pm:

    –The rates we are paying are higher than you might think–

    Thanks for the heads-up. And yeah, rates are quite a bit higher than I would have expected.


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* Reader comments closed for the weekend
* Pritzker thanks Dr. Ezike, extends financial protections, points to progress, says no more daily COVID-19 briefings - Calls Trump tweets "reprehensible" - "I want to send my condolences to the family of George Floyd, and also to every African American in this country" - Defends budget decisions - Credits Illinoisans for progress against virus - No bill signing ceremonies - Hopes testing progress continues - "It seems as if President Trump is withdrawing us from the rest of the world" - No out of state travel plans - Talks contact tracing - Asks Illinoisans to be careful during reopening - Will sign Medicare for undocumented seniors bill - Refuses to criticize Lightfoot for Trump comments - Talks about difficulties in securing testing locations - Dr. Ezike and Pritzker respond to question about what they've learned about themselves and leadership - "We're no longer in a stay at home order"
* 1,622 new cases, 86 additional deaths
* *** UPDATED x1 *** What in the heck is going on in Rockford?
* COVID-19 roundup
* All metro areas reporting record high unemployment rates
* School seclusion and restraint bill derailed after opposition
* Attorney DeVore asks appellate court to dissolve another TRO
* Question of the day
* Madigan issues new guidance to members, staff
* Architects abandon alternative reopening plan
* SUBSCRIBERS ONLY - Supplement to today’s edition
* House of worship attendance limit expected to be removed from stay at home order
* Open thread
* SUBSCRIBERS ONLY - Today's edition of Capitol Fax (use all CAPS in password)
* *** LIVE COVERAGE ***
* Sheriffs file suit against state for refusing to accept jail transfers
* Pritzker says IDPH has offered "suggestions" to churches - Says he's received "pushback" from some private nursing homes - IDPH will file new rule on nursing homes - Still looking at what to do about IDPH rule - Dodges question about Willie Wilson - Employers should use "common decency" when bring workers back - Will wait on feds before making any more budget decisions - Central Illinois hospitalization numbers improve - "We might potentially have to move backwards in the phases - "Not our intention" to make changes to Phase 4 guidance - No plans to dine at restaurant this weekend - No decision about ending daily briefing - Repeats that he has never encouraged police enforcement - Suggests GOP demand for IDES audit could be a "political move" - Still pondering school reopening - All testing is free - Asked about dangers of Legionella in large buildings - Testing and tracing metrics are "internal goals" - Points to federal rules on unemployment and workers who refuse to return - "Difficult for us to open theaters in the near future" - Dr. Ezike talks rules for malls - Dr. Ezike monitoring outbreak at county jail with ICE detainees
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