* From the governor’s office…

After conducting a thorough review of the out-of-balance fiscal year 2018 budget passed by the General Assembly in July, Gov. Bruce Rauner today announced he intends to exercise borrowing authority to issue $6 billion in bonds to pay down a portion of the state’s bill backlog.

“Illinois has been deficit spending for many years, resulting in a huge unpaid bill backlog. The state has been, in effect, borrowing from local service providers, including nonprofits and small businesses, because it takes months for them to get paid,” Gov. Rauner said. “My preferred solution has always been for state government to reform its spending, and for a strong, competitive economy to grow family incomes faster than the cost of government.

“Unfortunately, the General Assembly passed a tax hike and an out-of-balance budget over my veto. Even with a permanent income tax increase costing the average Illinois household more than $1,000 a year, the budget is more than $1 billion out of balance and is still growing the unpaid backlog. We’re choosing to exercise borrowing authority because it’s better to have Wall Street carry our debt than Main Street Illinois.”

A significant portion of the bill backlog is currently subject to late-payment interest penalties at rates of up to 12 percent annually. The governor directed his staff to initiate a bond issuance to refinance this high-cost debt by borrowing from banks at a much lower interest rate, which will result in considerable savings to the state.

The General Obligation Bond Act was amended by the legislature as part of the fiscal year 2018 budget package. It grants the state the authority to issue up to $6 billion in general obligation bonds as Income Tax Proceed Bonds. The Income Tax Proceed Bonds must be issued before Dec. 31, 2017, and must be used to pay for expenses vouchered from general funds or state employees’ group health insurance costs that were incurred before July 1, 2017.

Bonds issued under this authority must be paid within 12 years from the date of the sale and require level principal payments each year. For example, a $6 billion issuance would require 12 annual principal payments of $500 million, plus interest payments depending on the interest rate.

The legislature-passed budget did not account for the increase in debt service costs to cover the bill backlog bond issuance. The governor’s office is identifying several hundred million dollars in possible spending reductions to address this budgetary shortfall. The governor also would like the General Assembly to return to Springfield this fall to work with him to balance the budget and enact structural reforms that could save much more.

“Illinois cannot afford to repeat the mistakes of the past,” Gov. Rauner said. “We have to work together to truly balance the budget. We must protect residents from further tax hikes while ensuring the most vulnerable receive the services they need. Building upon the success of the recent bipartisan education funding law, we can find common ground for real solutions.”

*** UPDATE 1 ***  Press release…

Illinois State Treasurer Michael Frerichs today applauded Gov. Rauner’s decision to finally agree to refinance debt that carried a staggering 12 percent interest rate.

“Gov. Rauner finally made a good decision. It is frustrating to know that his delay likely cost taxpayers $62 million in interest payments,” Frerichs said.

Illinois’ $15 billion bill backlog borrows money from unwilling lenders because it does not pay vendors. These unpaid bills accrue interest rates as high as 12 percent. The interest payments alone equate to $2 million each day.

Gov. Rauner’s decision to refinance current debt is possible because Democrats and Republicans in July came together to override the Governor’s budget veto. In doing so, lawmakers authorized Gov. Rauner to refinance debt incurred prior to July 1, 2017.

“Willing lenders will gladly refinance this debt at interest rates far below 12 percent,” Frerichs said. “This decision is long overdue.”

*** UPDATE 2 *** Comptroller Mendoza…

This is a good day for taxpayers. We are pleased to see Governor Rauner has listened to the many voices of Illinois residents and businesses urging him to issue bonds as the General Assembly authorized. This news will come as a relief to businesses around Illinois owed money by the state.

We look forward to working with the Governor’s Office of Management and Budget to move this process along as quickly as possible — especially considering the fact that every delay costs taxpayers at least $2 million a day in additional late payment interest penalties. Refinancing our debt at a much lower interest rate - just like any sensible homeowner with a high mortgage rate would do - will provide payment for services rendered to thousands of people across the state and save Illinois taxpayers billions of dollars over the life of the bonds.

*** UPDATE 3 *** Senate GOP Leader Bill Brady…

“I believe Governor Rauner is taking responsible action,” Leader Bill Brady said. “Using this tool from the Democrat majority’s budget can get payments out the door to struggling state vendors, save taxpayers’ money and begin a renewed dialogue on how to manage the deficit in the Fiscal Year 18 budget,” Brady said. “The Administration is forced to manage the budget as crafted by the Democrat majority but I am hopeful the Democrat leaders are willing to work collaboratively to try to close the gap on that deficit.”

*** UPDATE 4 *** Sen. Donne Trotter…

Following a press conference Assistant Majority Leader Donne Trotter (D-Chicago) held in Chicago Tuesday urging the governor to use the borrowing authority given to him through Senate Bill 42, the governor’s office announced today it plans to use the tool.

“I’m glad to see the governor is taking the General Assembly’s lead and is using the bonding authority given to him that will help save taxpayers billions over the next 12 years,” Senator Trotter said.

“If only he’d made this decision back in July, instead of vetoing the legislation and forcing an override he could have saved taxpayers millions. As of today, this delay has cost the state approximately $132 million.

This step will finally help pay down the state’s debt and provide a sense of financial stability our state so desperately needs.”

*** UPDATE 5 *** Press release…

“The Chicagoland Chamber fully supports the Governor’s decision to issue $6 billion in bonds to pay back a portion of the state’s bill backlog. For too long, the many Chicagoland businesses to whom the state owes this money have been forced to carry the state’s debt, waiting months, and even years, to be paid. With this act, Governor Rauner is providing much-needed cash flow and stability for these companies and their employees. While we all look forward to a day when Illinois boasts a strong and growing state economy, coupled with real fiscal restraint, that makes the need for this type of borrowing a thing of the past. Today, we see the Governor’s decision to borrow at a lower rate than taxpayers are currently paying as a fiscally responsible first step toward a stronger Illinois,” said Michael Reever, Acting CEO, Chicagoland Chamber of Commerce.