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* Treasurer Dan Rutherford threatened yesterday to tell the New York bond houses that he’s opposed to more long-term borrowing…
State Treasurer Dan Rutherford threatened Monday to short circuit attempts by Illinois lawmakers to borrow money to pay down a massive backlog of bills.
Rutherford, a Republican in his first term, said he doesn’t have the constitutional power to stop a long-term borrowing plan favored by Gov. Pat Quinn and some Democrats in the House and Senate, but he said he’d call bond houses and financial rating firms to outline how deep the state is in debt in an attempt to derail them from lending the state money.
“If I need to send letters to the rating companies to tell them the treasurer of Illinois is opposed to more borrowing, I’m going to do that,” Rutherford said. “We need to cut our spending and break our unsustainable borrowing cycle before we realize a further financial disaster.”
* His statements were actually even harsher than that. Watch the video…
* Quotes…
“My position is you can’t borrow any more money… And if it means I have to get ahold of the bond houses and let them know that I agree with you, that we are a major risk, and I’m the finance officer of this state, I intend to do those kind things if that’s what it’s going to take to keep Illinois from going into further debt.”
* Rutherford’s press conference came after I told subscribers yesterday that the Senate was preparing to vote on four different bills to borrow more than $6 billion over seven years. Democratic Sen. John Sullivan is the sponsor of those bills…
(L)awmakers are maneuvering to pass a measure through the General Assembly that would bypass any authority Rutherford has.
“I don’t have a vote on (the Senate plan),” said Rutherford. “If it’s long term, I can’t stop it.”
State Sen. John Sullivan, D-Rushville, said Republican and Democratic lawmakers must approve any borrowing, and Rutherford’s approach to handling Illinois’ massive pile of unpaid bills bothers him.
“Right now we’re using school districts, universities, private companies and health-care providers — we’re using them as our credit card,” said Sullivan. “They’re carrying that debt for us.”
Sullivan said he agrees with the treasurer that Illinois does not need to take on any new debt, but paying off old bills is taking care of old debt.
* Again, Sullivan’s comments were harsher than reported…
Quotes…
“To say that this backlog of these unpaid bills the state has should not be included in [Rutherford’s] statement, that seems to not make any sense whatsover… To make the statement that he is going to call the bonding companies and discourage them from doing business with the state of Illinois to drive up the cost of borrowing just seems very counterproductive… He’s making the point that it costs more to [borrow] and on the same hand he’s taking steps… he’s going to drive up that interest cost even more. Instead of working with us, it’s like he’s working against us.”
Thoughts?
posted by Rich Miller
Tuesday, May 24, 11 @ 9:08 am
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A few months ago, Rutherford said some short-term debt restructuring would make sense, though he opposed Quinn’s 8 billion dollar plan. It seems the Treasurer has changed his mind. I hope partisan considerations aren’t the reason.
Comment by reformer Tuesday, May 24, 11 @ 9:18 am
I get what Rutherford is trying to say, but like many of his former Republican Senate colleagues, he doesn’t offer a viable alternative to borrowing. No one wants to borrow more money, but it has clearly become the only pragmatic way to pay off our bills.
Comment by JL Tuesday, May 24, 11 @ 9:21 am
Very disappointing grandstanding by Rutherford.
Surely he’s a smart enough guy to know that the rating agencies could care less about his feelings on the debt issue. They’re all about revenues, the structure of bond issues and covering the nut, which the state always has done, in tougher times than these.
I can only guess that Rutherford felt some need to throw some red meat to his right flank, who also don’t seem to care that we’re paying more juice in late payments to cash-starved Illinois vendors.
Still, you can bet that the barracudas in the muni markets will use remarks like his to extort more juice out of ALL state bond issues in the near future.
Hope that real-dollar cost was worth it to him for his pandering solely for his political benefit.
Comment by wordslinger Tuesday, May 24, 11 @ 9:22 am
I agree with JL- no one likes to borrow. If we could all pay our bills ourselves we would NEVER want to borrow.
But Sen. Sullivan is right… Universities, schools and other government funded institutions are carrying the burden of our debt. These facilities need to pay their bills and be able to provide our future with a proper education. Not giving them the money necessary is handicapping our children- our future.
Republican legislators need to come up with alternate plans. It is easy to criticize a plan but coming up with a solution is a hard task. Time to step up to the plate repubs and give the public an alternate plan.
Comment by Anon Tuesday, May 24, 11 @ 9:25 am
Rutherford’s comments are outrageous. He has a fiduciary duty to the state to protect its finances, not impede them. Threatening to get higher interest rates is inappropriate under any circumstance. Doing so when the state needs the money to stop borrowing from vendors (many of whom are going out of business), is grossly irresponsible.
I really thought better of him. I thought Rutherford was one of the GOP grown-ups.
Comment by Anonymous Tuesday, May 24, 11 @ 9:25 am
1) Prompt payment act costs the state 12%. (This is restructuring)
I think Sullivan is coming across as very fair and moderate here. I hope the Senate R’s don’t fall back on the extreme tea-party rhetoric..that does no one any good. (I doubt it even gets them any more votes at this point). Hopefully we can get some adults at the kids table.
Comment by Time keeps on ticking, ticking... Tuesday, May 24, 11 @ 9:27 am
Rutherford’s stance, as well as the rest of the Republicans, is assinine and makes no financial sense. Nobody wants to borrow more money but the state cannot continue to make state vendors the “Bank of Illinois.” This is the best way to pay off old debt right now. For Rutherford to say what he said is completely irresponsible.
Comment by Demoralized Tuesday, May 24, 11 @ 9:27 am
Imagine that. Someone actually holding our political big spenders accountable.
What good will they do to improve the state’s financial condition by avoiding making serious cuts if they are permitted to borrow again and again and kick the can further down the road.
Borrowing is not the way out. The pain of cuts in programs and benefits must be shouldered by everyone, not just those without powerful lobbyists.
How bout we start by reducing salaries and benefits for our legislators. Reduce and eliminate their many perks.
Good for Dan Rutherford!
Comment by Justice Tuesday, May 24, 11 @ 9:28 am
If you borrow, you need to make sure to cut an ADDITIONAL amount in the budget equal to the interest payments. If we do the same backloaded plan Quinn proposed earlier this year (like spiking in 2015 when the tax cut expires), you have a budgetary nightmare in the making.
Simply borrowing would enshrine yet another non-negotiable lineitem in the budget that would immediately add to the deficit (and yes, the “shadow” borrowing against schools, et al, is essentially the same).
Simply borrowing isn’t a plan. What’s the plan to pay it back?
(And as far as I can see, the .25% part of the tax hike that should go to borrowing has already been allocated to GRF spending, and as much as there really was a difference before).
Comment by John Bambenek Tuesday, May 24, 11 @ 9:28 am
One of the comments the other day said that we needed to “borrow money to save money.” I’m curious as to how that would work out. Does Illinois pay interest or late fees on late payments to vendors? And if so, are those fees higher than any interest we would have to pay by borrowing?
I could see a case where we, say, undertake longer term debt to the tune of 6% interest if it means we’re avoiding late fees of 8% interest by being able to pay off our old debts now. It’d be the equivalent of refinancing a home mortgage at a lower interest rate. I can also see the POLITICAL sense of simply kicking the can down the road more and undertaking more debt to avoid hard choices. But if we’re not somehow saving loads of money through interest rate arbitrage when we borrow more long-term money, then I don’t see how it makes MATHEMATICAL sense–it would just dig us into a deeper hole, no?
Comment by John Galt Tuesday, May 24, 11 @ 9:28 am
If the rating companies are doing their job, they are aware of the backlog of unpaid bills and the interest accumulating on them, and have taken them into account in determining the riskiness of Illinois bonds. A proposal to issue bonds to pay the backlog, which will lower the interest the state has to pay and probably lessen the costs to the state that would result from its unpaid vendors going bankrupt or cutting off the state or suing for payment. So issuing bonds to pay the backlog should make Illinois bonds less risky than they are now. Unfortunately, rating companies might also take into account statements by Illinois officials that indicate they are clueless, and downgrade Illinois bonds accordingly.
Comment by Pat Robertson Tuesday, May 24, 11 @ 9:29 am
What is Rutherford gonna tell the rating agencies that they don’t already know?
Comment by Johnny USA Tuesday, May 24, 11 @ 9:29 am
Rutherford’s actions will cost the State more money in higher interest. He is going to make a bad situation worse. This is reckless and harmful to the State he swore to protect. What is he thinking?
Comment by Chitown HV Tuesday, May 24, 11 @ 9:29 am
Chitown-
I think he’s thinking that continuing to borrow and putting more non-negotiable line-items into the budget without corresponding cuts is more reckless and harmful.
Comment by John Bambenek Tuesday, May 24, 11 @ 9:31 am
What’s reckless and harmful is continuing to make vendors bear the burden of the state’s continuing fiscal nightmare.
Comment by Demoralized Tuesday, May 24, 11 @ 9:34 am
In honor of this occasion I offer your readers a walk down memory lane:
“Illinois Treasurer Patrick Quinn is questioning Gov. JimEdgar’s plans for a $300 million general fund cash-flow borrowing next month. Mr. Quinn is concerned that the money will be used to cover up an unconstitutional deficit in the state’s fiscal 1992 budget. Marj. Halperin, Mr. Quinn’s spokeswoman, said Friday that Mr. Quinn wants to be sure the money is needed to pay fiscal 1992 bills that have been rolled over into fiscal 1993 and will not be used to cover a deficit from last fiscal year or be used to pad the current budget against an anticipated deficit during the current fiscal year.” [Bond Buyer, 7/27/92]
Comment by Dirt Digger Tuesday, May 24, 11 @ 9:36 am
Why not “Rutherford slams long-term borrowing” rather than “Rutherford slammed for . . .”? There seems an implied prejudice against his action and prejudice for the reaction in the headline.
Comment by Anonymous Tuesday, May 24, 11 @ 9:38 am
- I think he’s thinking that continuing to borrow and putting more non-negotiable line-items into the budget without corresponding cuts is more reckless and harmful. -
We can argue all day about budgeting philosophy, but the bottom line is that this money has already been borrowed. Rutherford trying to pull a Chris Christie is counterproductive, if he wanted to oppose legislation he should have stayed in the Senate.
Comment by Small Town Liberal Tuesday, May 24, 11 @ 9:39 am
Rutherford’s comments make him the “Meredith Whitney of Illinois” with his irresponsible warning of bond defaults. Such comments, coming from a finance officer of Illinois, will end up costing the State more in debt service as the bond house sharks on Wall Street, who he is threatening to write, will gladly accept the higher interest rates. Will his next prediction be when the world will end?
Comment by Wall Street Ron Tuesday, May 24, 11 @ 9:39 am
–Borrowing is not the way out. The pain of cuts in programs and benefits must be shouldered by everyone, not just those without powerful lobbyists.–
It’s really not that difficult. The money has been borrowed from vendors. The debt has been incurred. We’re paying more in interest in late payment charges than we would by refinancing the debt on the market.
There’s no philosophical discussion to be had. It’s the most elementary arithmetic.
Comment by wordslinger Tuesday, May 24, 11 @ 9:40 am
From a strong Republican. Based on this recent statement from Rutherford and several other issues, he should resign. Basically he has set out to undermine the executive and legislative branches of Illinois if they should go forward with any type of borrowing agreement.
Comment by open Tuesday, May 24, 11 @ 9:40 am
Dan is already running for Governor in the next election…diarrhea of the mouth has officially commenced…
Comment by Loop Lady Tuesday, May 24, 11 @ 9:41 am
I was shocked to see Rutherford’s comments yesterday. To deliberately attack Illinis’ standing with credit rating agencies and bond houses, in order to impact legislative prerogatives, is way out of bounds for his or any executive office. Sullivan’s comments that Rutherford is simply making no sense, is being charitable to him. I usually like Rutherford — prehaps he got in over his head this time.
As to the substance: switching one liability for another with lower interest costs, is a no-brainer; while borrowing more than is necessary only to pay down the delinquent payables, is a serious concern.
Comment by walkinfool Tuesday, May 24, 11 @ 9:41 am
Who is Sharon Watkins?
She was the Enron officer that finally blew the whistle on that failed firm’s shaky financial condition.
Rutherford is Illinois’ Sharon Watkins. Which makes Quinn……Kenneth Lay.
Comment by Downstate Tuesday, May 24, 11 @ 9:43 am
And just to be clear: everybody agrees that we don’t have the revenue to pay our old debts, continue our spending going forward, and NOT somehow increase revenue. One of those three (or a combination thereof) needs to change. Either we partially stiff our vendors (who will cry bloody murder), we significantly pare back our future budgets (wherein interest groups hooked on the government dole will cry bloody murder), or we somehow jack up revenue (and if we simply boost taxes & fees we just erode our tax base as they flee for Indiana, Texas, etc.).
All of those choices stink to high heaven. But the cruelest choice of all would be to bury our head in the sand and let the problem escalate even MORE. At this point we still have the ability to somewhat prioritize and manage this in a controlled and stable manner. But if we wait too long, the choices will be made FOR us. It’s the difference between a household trimming their own budget versus being evicted or having their utilities shut off unilaterally.
So rather than say to most agencies “your budget will be gradually cut 10% over the course 3 years” (or whatever), they’ll be told “mandatory 15% cut IMMEDIATELY” in some emergency budget crisis. And I suppose what’s driving this is that each individual interest group or agency are making the calculation that it won’t be THEM that’s on the chopping block when that time comes, and so each one is willing to push things to the brink assuming it’s the OTHER guy that will eventually pay for it all.
It’s like a giant game of economic chicken….
Comment by John Galt Tuesday, May 24, 11 @ 9:43 am
Unless there is a change in the way Illinois manages its budget, borrowing money to pay bills doesn’t make sense. If I run my credit card up to the max, then go get a home-equity loan to pay it off, and then run the credit card balance up to the max again, what good did the loan do? The point Rutherford is trying to make is about the budget deficit that we continually operate under. You can’t just keep shoring up budget deficits with borrowing. That works for awhile but it’s not a viable long-term approach to money management.
Every year I have a certain amount of income. That number provides that limit of what I can spend for the year. I don’t just spend what I want and hope some more money materializes from somewhere. I don’t include a projected raise in my budget when it’s not likely to occur this year. Why is this so hard for the state to do? Because politicians keep making promises in order to keep getting re-elected. They don’t care about anyone but themselves, as can be seen by how they draw the redistricting maps to help their re-election chances and hurt their opponents (both parties do this when they get the chance, it just happens to be the Democrats turn this decade). Do we really have to have a total economic meltdown before our state and our country can get back on track? Apparently so, since nobody has the guts to make the hard decisions to do it gradually by running surplus budgets and paying down the debts. If we ever did run a surpplus budget that money would burn a hole in the politians pockets and be spent on new programs before a penny of it was applied to our debt.
Comment by cynical Tuesday, May 24, 11 @ 9:46 am
As Time says Prompt Payment Act calls for 1% per month for bills over 60 days old. Medicaid bills are 2% per month over 60 days. Makes 6% bonds look pretty good under the circumstances. How long do you keep shorting the vendors?
Comment by zatoichi Tuesday, May 24, 11 @ 9:49 am
@ John Galt (9:28)
Currently the state pays 12% annualy to cover late payments to vendors.
So if the state can borrow 6 Billion @ 4% and pay off the late payments it makes plenty of sense.
The problem is if the State borrows the money, pays off the vendors and then goes out of balance again with the budget. We can’t continute to borrow MORE than we already owe, but it does make fiscal sense to borrow at a cheaper rate than we are currently paying.
Comment by How Ironic Tuesday, May 24, 11 @ 9:52 am
===Why not “Rutherford slams long-term borrowing” rather than “Rutherford slammed for . . .”?===
Coverage follows conflict.
Comment by Rich Miller Tuesday, May 24, 11 @ 9:55 am
@ Pat Robertson:
If that were true then borrowing wouldn’t be a totally insane proposition. The devil’s in the details. As Bambenek said, it’s all about what mandatory line item costs do we have in our budget moving forward. If we’re not careful, our debt repayment will crowd out any annual discretionary spending we have (assuming we don’t just do deficit spending until the cows come home–still baffled as to how we ignore out balanced budget requirement). So, if it turns out that we have a net reduction in debt payments by clearing our old debts off the books and undertaking new debt, then our immediate financial picture could improve.
However, what also concerns me is that even IF that were the case, the immediate “breathing room” we would create would just be squandered. I’d assume we’d still be running a significant annual deficit and so the risk is that, even if the immediate pressure is off, so is the pressure to actually make structural changes in how we operate our state. It’d be the equivalent of a habitual deadbeat who is $100K in debt, is on the verge of hitting a psychological “bottom” and truly mending his spending ways, and he suddenly gets handed a $30K check to relieve the pressure. Unless that deadbeat made some serious fundamental changes in how he behaves, he’s just going to see that $30K as a way to continue his terrible behavior for another few years until he yet again finds himself in trouble.
Comment by John Galt Tuesday, May 24, 11 @ 9:59 am
Let’s see: $6 billion per year times a difference of 8% interest; that’s equal to $480 million per year.
So the current GOP position is the state should spend $480 million more per year in interest costs? Why? In order to “starve the beast?”
The GOP/Rutherford position reduces to: let’s put vendors out of business, or at least make them (and local governments) wait for payment. And let’s reduce new spending by making sure we spend an extra 1/2 billion a year in interest!
Comment by Anonymous Tuesday, May 24, 11 @ 9:59 am
@ cynical & @ How Ironic.
Exactly. I guess you both posted those as I was typing my 9:59am comment…
It isn’t so much the short term fix (which is fine), it’s whether we’ll learn anything from the opportunity. My wild guess here would be a “no.”
Comment by John Galt Tuesday, May 24, 11 @ 10:01 am
“- Downstate - Tuesday, May 24, 11 @ 9:43 am:
Who is Sharon Watkins?
She was the Enron officer that finally blew the whistle on that failed firm’s shaky financial condition.
Rutherford is Illinois’ Sharon Watkins. Which makes Quinn……Kenneth Lay.”
Downstate, this is unproductive fear mongering. Quinn has not singularly caused this problem, and Rutherford is not some innocent whistle blower. Remember he was a member of the Senate (read: also part of the problem). I am very much sick of this blame game,we just need to get this fixed as quickly and as pragmatically as possible.
Comment by JL Tuesday, May 24, 11 @ 10:04 am
Very disappointed in Dan Rutherford here after he had done so much to earn my respect and appreciation for his vote on civil unions on the way out of the Illinois Senate.
His comments about sending letters to the rating agencies just sounds so petty and irresponsible and make me question whether he’s looking out for the interests of Illinois taxpayers or the interests of the bond houses. Yet there are enough people already looking out for the interests of the banksters. Regardless of politics and partisanship, a responsible treasurer should be negotiating the best possible deals on our investments and doing everything he can to facilitate good deals on our investments.
There are plenty of arguments to make against the borrowing plan or any more borrowing that actually take the concerns of the taxpayer into account and don’t involve undermining the taxpayer in terms of getting the best possible interest rate on any borrowing deal that the Democrats may come up with.
Sullivan is right that Rutherford’s threat here doesn’t make any sense. He can’t stop a Democratic borrowing deal that he disagrees with so he’s going to write letters to the ratings agencies to make sure Illinois gets slapped with the worst interest rate possible on that borrowing? How does forcing Illinois to have to borrow MORE help out Illinois taxpayers at all?
Comment by hisgirlfriday Tuesday, May 24, 11 @ 10:07 am
Anonymous:
I don’t think that’s the current GOP position. That’s Rutherford’s apparent position.
I believe the position of many GOP in the state is effectively: “show us you’re serious about getting sobered up first, then we’ll help you.” Most serious GOPers I’ve spoken with have no problem with long-term borrowing or even non-confiscatory taxes or fees, but only IF it’s clear that the root cause of the problem (the spending) is addressed first. Otherwise any borrowing or revenue hikes would only be addressing the symptoms without addressing the underlying issue.
Comment by John Galt Tuesday, May 24, 11 @ 10:07 am
Dirt Digger, you’re comparing apples and bowling balls.
As I’m sure the 1992 Bond Buyer article brilliantly explains, under the state Short-Term Borrowing Act, Quinn as treasurer, along with Netsch as comptroller, had statutory duties to certify any short-term borrowing for cash-flow purposes by Edgar was just that.
If memory serves, Quinn and Netsch signed off on Edgar’s requests.
Rutherford has no role in long-term borrowing and is making no fiscal sense whatsoever in his opposition to refinancing existing debt at a lower rate. He is, however, probably going to cost state taxpayers real money in the form of higher rates on all future Illinois debt in the near future.
Comment by wordslinger Tuesday, May 24, 11 @ 10:13 am
Illinois ranks ahead of several sovereign nations in our likelihood to default. We are up there with such awesome places as Iran and Venezuela. This musing is just food for thought.
Comment by Team Sleep Tuesday, May 24, 11 @ 10:15 am
Illinois has too much debt. Don’t issue more debt. Which means cut spending. Live within your means. Not saying it will be easy but it’s required.
Comment by Mark Tuesday, May 24, 11 @ 10:17 am
I have no great insight as to why Rutherford is dialing up the pressure as one of the State’s Chief Financial Officers.
There is an answer to this which revolves around shared pain and suffering. As a significant vendor owed many millions from the State, my bank is difficult enough to deal with without this type of rhetoric.
I don’t care about receiving the PPA (Prompt Payment Act) interest nearly as much as normalizing or partially normalizing the State’s liabilities that have already occurred. Missing out on higher Medicaid reimbursements absolutely costs the State more cost.
Hopefully the budget will get passed this week or next with cost reduction initiatives virtually across the board.
I receive Radogno’s blog whenever she launches it. Instead of critizizing what is very easy to criticize, do what’s necessary to stabilize the economy, create jobs, payroll and income tax revenues and watch all the programs and all the dollars. Does she have some negative bias against all of the struggling state vendors that can’t meet payroll for very much longer?
The tax increase has a 1/2% component to address these old liabilities. Use it and keep me providing services that are desparately needed by our citizens.
Comment by Robert T Tuesday, May 24, 11 @ 10:21 am
“Don’t issue more debt” = economic illiteracy.
Issuing the bonds at a lower interest rate allows the state to RETIRE debt for which it is paying a higher interest rate. Every month’s delay costs the state something like $40 million (if these numbers are right).
The state is giving $40 million away every month due to politics and/or economic illiteracy.
Comment by Anonymous Tuesday, May 24, 11 @ 10:21 am
I am sympathetic to Treasurer Rutherford’s concern that borrowing long term to continue spending excessively short-term is poor economic policy. However, we are still in the midst of the worst recession in 80 years, and some short-term deficits should be acceptable. Whether the Civic Federation’s $2.4 billion estimate is accurate or should be the controlling number, I honestly don’t know. The issue really hinges upon whether one believes that Gov. Quinn can effectively manage state government operations, and on that question, I am unconvinced. The legislature needs to keep Quinn on a tight leash, not refinance unsecured debt with long-term obligations.
Comment by Louis Howe Tuesday, May 24, 11 @ 10:26 am
“So the current GOP position is the state should spend $480 million more per year in interest costs? Why?” Not sure.
Comment by Time keeps on ticking, ticking... Tuesday, May 24, 11 @ 10:27 am
@John Galt
What is this “the spending” you refer to?
It seems to me that whenever “the spending” is translated into specific budget line items such as:
(1) Let’s de-fund and close a school for deaf kids, or
(2) Let’s cut state aid to municipalities, or
(3) Let’s cut education spending
then most everyone (Dem & GOP) begin saying, “Eh that is not ‘the spending’ I was talking about”
Comment by Bill White Tuesday, May 24, 11 @ 10:29 am
Here’s the article that Reuter’s released yesterday.
Illinois on “verge of financial disaster”: treasurer
http://www.reuters.com/article/2011/05/23/us-illinois-debt-treasurer-idUSTRE74M63E20110523
It includes quotes from Rutherford and Quinn’s office.
Here’s the first three paragraphs.
Illinois faces an estimated $45 billion in principal and interest payments on its outstanding debt over the next 25 years, up nearly four-fold from the $12 billion owed in 2002, according to a position paper from the Republican treasurer, who took office in January.
Adding to the state’s debt burden is $140 billion in unfunded pension and retiree health-care liabilities and $8 billion of currently unpaid bills, the paper said.
“Every household in Illinois is responsible for the repayment of $10,000 to reimburse our bondholders in the coming years,” Rutherford said in a statement, adding that unpaid bills and pension and health-care liabilities would boost that total to $42,000 per household.
Comment by Mark Tuesday, May 24, 11 @ 10:30 am
I think Rutherford is trying to make a philosophical point that if we choose not to borrow, the only way out is to cut drastically. Not just hold the line on current expenditures and program eligabilities; but real cuts from current spending levels and reductions in program eligabilities. I think he is trying to force the issue towards cuts by making it the sole response to our current fiscal problems. Is that the best answer? That is what the debate is all about. Real reductions in services to people, or continuation of borrowing either by slow pay to vendors or actual structured loans.
Comment by One of the 35 Tuesday, May 24, 11 @ 10:39 am
Here is Dan Hyne’s position paper on Debt released May 23, 2011.
http://www.treasurer.il.gov/news/PR05232011PositionPaperonDebt.pdf
It’s titled, “No More Debt”.
Comment by Mark Tuesday, May 24, 11 @ 10:39 am
Mark, that was Dan Rutherford’s position paper, not Hynes’.
Comment by Rich Miller Tuesday, May 24, 11 @ 10:43 am
===I think Rutherford is trying to make a philosophical point ===
It goes way beyond that. And it also may be a gross violation of his fiduciary responsibilities.
Comment by Rich Miller Tuesday, May 24, 11 @ 10:44 am
I think Rutherford is trying to say, “I’ll teach them a lesson.”
Comment by Cheswick Tuesday, May 24, 11 @ 10:52 am
@ Bill White:
I’ve seen spending proposals floating around there that say if we simply cut our spending to 2004 levels (or thereabouts), the rest of the math would work out OK. The last time I checked, Illinois 8 years ago was not a Dickensean novel with poor disabled children & elderly folks rotting in the gutters.
Yes, hard choices will have to be made. But even the not-so-hard choices aren’t being made right now. Yesterday I heard all kinds of ads on the radio paid for by IDOT reminding people to buckle their seat belts. Don’t tell me the state would melt down if those ads suddenly stopped.
During Blago’s impeachment trial, senators were railing against Blago’s unconstitutional expansion of various state programs as part of the rationale for impeachment. Why can’t we roll back some of those programs? Again, it isn’t like we were living in some dystopian society pre-Blago…
Comment by John Galt Tuesday, May 24, 11 @ 10:55 am
It makes you wonder: Are they any GOP grown-ups?
(And I’m not that partisan. I’m old enough to have voted for Dick Ogilvie and Chuck Percy.)
Comment by Anonymous Tuesday, May 24, 11 @ 10:56 am
—-I get what Rutherford is trying to say, but like many of his former Republican Senate colleagues, he doesn’t offer a viable alternative to borrowing. No one wants to borrow more money, but it has clearly become the only pragmatic way to pay off our bill—
I agree completely that the borrowing is the pragmatic solution and should be done. We just have to make sure that this year’s budget is also completely and clearly balanced.
Comment by downstate hack Tuesday, May 24, 11 @ 11:01 am
Rich-your are entirely correct. A huge violation. However, these bond houses would probably laugh them out of the office. They are quite aware of the problem, as Johnny USA said, hence the pricing of the debt at a higher rate. They probably will like the interest rate as the state of Illinois has never defaulted.
They are aware of the risks and they act accordingly. If there was no money to be made the bond houses wouldn’t buy any IL bonds, notwithstanding anything the Treasurer says. Hello?
That is basic free market finance. I’m surprised so many Republicans aren’t aware of that.
Comment by oh please Tuesday, May 24, 11 @ 11:02 am
Criminitly! Who was supposed to be watching him? I can hear the campaign ads already: “Dan Rutherford’s reckless statements cost the State of Illinois. . .”
Comment by Way Way Down Here Tuesday, May 24, 11 @ 11:02 am
Dan Rutherford is out for Dan Rutherford’s next political climb of the ladder.
Sabotaging Illinois’ credit rating to feed the Tea Party fringe on whom his climb depends makes no difference to him.
The moment Rutherford sends out letters to bond house to undermine any legally enacted bond borrowing, a member of the House should file article of impeachment against him.
Comment by King Louis XVI Tuesday, May 24, 11 @ 11:11 am
Undermining the State of Illinois for political gain…sounds familiar.
Comment by Cliff32 Tuesday, May 24, 11 @ 11:19 am
I tried to read most of the comments, but not sure if I got through them all, so if I’m repeating something someone else has said, I’m sorry.
The bond houses know about our state’s past due bills and consider them debt. In fact, they are more worried about our debt to our vendors than they are worried about us taking out bonds to pay our debts, they would in fact prefer this. So what our Treasurer is saying is this, he’s going to contact the bond houses to try to raise our interest rates on debt that they would prefer us to take out to pay off our debt to vendors.
If he’s calling about taking out more bonds to pay for pensions or other operating costs, he will find sympathetic ears; he will not on the other hand, find people who agree with him on the debt restructuring at the bond houses. A few phone calls beforehand would have saved him this embarrassment.
Also, why is an elected official even talking about calling the bond companies to raise interest rates on Illinois taxpayers? How is this protecting us?
Comment by Ahoy Tuesday, May 24, 11 @ 12:00 pm
I watched Rutherford for about 5 minutes yesterday morning on CNBC before the markets opened. He was well received by the financial crowd on that program. Unfortunately, Illinois abuts reform minded Wisconson and Indiana and is receiving heavy flack for its fiscal profligacy and intransigence to reform. Rutherford claimimng that each Illinois household owes $43,000 (that’s what he said) in state debt was eaten up by this crowd. Illinois is making the national business media with increasing regularity. “Greece” of the Midwest is starting to stick. Maybe some high profile media appearances like Rutherford’s is what the state needs to develop a sense of urgency to resolve its troubles.
Comment by Cook County Commoner Tuesday, May 24, 11 @ 12:03 pm
Flip. Flop.
I guess rutherford’s done with senate confirmation hearings?
Comment by Yellow Dog Democrat Tuesday, May 24, 11 @ 12:16 pm
I have a fair amount of respect for Rutherford. But he’s 100% wrong and backward on this one. It’s absolutely stunning he can’t see how important these bond plans are for correcting our state’s current binge of borrowing from schools, universities, service providers, income tax refunds - you name it - in order to pretend to stay afloat.
So much for the lip service paid to “job creation.” These long-unpaid bills are forcing layoffs right and left, an enormous drag on our economy and our recovery.
And threatening to call-out your own state to the bond houses this way? Betrayal.
Comment by Linus Tuesday, May 24, 11 @ 12:18 pm
IL Constitution
SECTION 18. TREASURER - DUTIES
The Treasurer, in accordance with law, shall be responsible for the safekeeping and investment of monies and securities deposited with him, and for their disbursement upon order of the Comptroller.
From the blog post”
“If I need to send letters to the rating companies to tell them the treasurer of Illinois is opposed to more borrowing, I’m going to do that,” Rutherford said.
I must be unclear on the concept as I’m having trouble reconciling this.
Comment by MikeMacD Tuesday, May 24, 11 @ 12:55 pm
What makes Rutherford such an expert on this financial stuff? If I want an honest assessment of IL bond ratings and fiscal outlook I will ask those folks that actually know what they’re talking about like Senator Harmon or Comptroller Topinka…
Comment by Loop Lady Tuesday, May 24, 11 @ 1:05 pm
So let’s talk about policy and politics.
Policy–The most sensible thing for the state to do is issue bonds to pay off existing debt, and to include in a balanced budget with reasonable revenue projections the payments needed to pay off the bonds. This will be painful, but is a path to finally getting the state on a sound fiscal footing. The pain will be mitigated by the fact that this will boost the economy by putting money into circulation in the Illinois economy that the vendors are owed.
Politics–If you want to abuse your ostensibly non-policy statewide office to demagogue the issue by claiming that such a sensible policy is actually a continuation of profligate borrowing, to sabotage any effort by the Quinn administration to get the State back on track, so that you can run for Governor in 2014, then you would do exactly what Rutherford is doing.
Comment by jake Tuesday, May 24, 11 @ 1:23 pm
This year’s budget deficit becomes next year’s “old bills” so that the arguments being used to justify the new borrowing go on for ever.
I think Rutherford is trying to point out that we haven’t changed out way despite increased taxes, this year’s budget is still out of whack too.
Bring the budget into alignment with honest estimates of revenues, including the new interest rates imposed by proposed additional borrowing, and I think you’ll find a chance for compromise. Continue excess spending, and Republicans will keep sniping. Your move, Democrats.
Comment by Cincinnatus Tuesday, May 24, 11 @ 1:46 pm
A reckless gimmick all about trying to get himself press and his mug on camera. We can’t have someone playing destructive games like this in charge of our money. Rutherford should do the right thing and step down.
Or maybe he’ll say it was his car Pongee who did it without authorization.
Comment by just sayin' Tuesday, May 24, 11 @ 2:36 pm
Cinci
Cross apparently agrees with Madigan’s revenue estimates and his proposed spending cap. If the House version of the budget is approved, will that meet your standard to justify debt restructuring? Or will you move the goalpost?
Comment by reformer Tuesday, May 24, 11 @ 2:45 pm
Rutherford keeps coming back to the Civic Fed saying that Quinn’s proposed budget is not balanced to the tune of about $2B deficit. Which suggests he might go along with bonding in the context of a genuinely balanced budget. But he didn’t express it plainly, so I don’t know for sure.
And I tend to agree with Rich that what Rutherford is threatening to do may well be a breach of his fiduciary responsibility. He is not responsible for State spending outside his own relatively small office, nor revenues outside of funds his office invests, nor the budget. He seems to be going well outside the bounds of his responsibility, even if I sympathize with his desire that the State do an honestly balanced budget for a change.
Comment by Marty Tuesday, May 24, 11 @ 2:49 pm
Rutherford’s statements were the lead story on Stuart Varney’s Fox Business news show yesterday morning.
Comment by waitress practing politics... Tuesday, May 24, 11 @ 3:05 pm
Reformer,
Let’s use Madigan’s instead of the Senate or Quinn’s, agreed?
Will the budget be balanced? No. It will be worse with the Senate’s and Quinn’s. So no matter whose revenue bogey we use, we are setting up the situation where this year’s over spending (Constitution be damned) is next years “old” bills. And of course, we will borrow some more. What’s your rosy scenario?
Comment by Cincinnatus Tuesday, May 24, 11 @ 3:09 pm
Sullivan is right we must pay our bills. Rutherfords remarks were dreadful, no Treasuer in his right mind would shot his own state. This is
bad.
Comment by mokenavince Tuesday, May 24, 11 @ 3:11 pm
Yea keep spending not only more each year than last year but even more than the new revenue growth each year. Yea keep borrowing on top of borrowing. I am all for it for the next 15 years since I am a Senior and oh BTW I have no children so I don’t care what it cost the next generation or the generations down the road. Heck with them. Well isn’t that the attitude by keep borrowing!
Comment by Childless Senior Tuesday, May 24, 11 @ 3:29 pm
Childless Senior–It’s not additional debt. The proposal is to replace existing, high-interest debt with low-interest debt to save the state money.
What part of this don’t you understand?
Comment by King Louis XVI Tuesday, May 24, 11 @ 3:54 pm
“What part of this don’t you understand?”–It’s like a religion. They don’t have to understand it.
Comment by Time keeps on ticking, ticking... Tuesday, May 24, 11 @ 4:07 pm
King Louis XVI - your right I don’t understand. As the State continues to go deeper and deeper into debt why would anyone would gives us lower interest rates now than the interest rates when the State was somewhat less riskier. Hey but maybe I too could be State Treasurer.
Comment by Childless Senior Tuesday, May 24, 11 @ 4:12 pm
I agree with a lot of the above comments, particularly mokenavince and king Louis. Cost saving is not just chopping heads, it is reducing the borrowing cost as low as possible. Paying (or really accruing) prompt payment interest at 12% is a very bad way to go. We need to cut programs, WC insurance rates, and everybody must recognize that the Blago Governorship in Illinois really left us in a hole. The biggest hole was from the near depression that Obama inherited which cut jobs and revenues from all sides.
To Childless, I am sorry you had no kids and don’t give a rat about generations younger than you. Most of us want to see Illinois recover and prosper, and not only on the backs of those who can least afford it. Unlike you I worry about my kids future.
Rutherford needs to inspire with productive cost reduction ideas for the legislators and should be doing everything possible to inspire confidence. He has a point which everyone understands. Hurting the creditors and citizens of Illinois is really bad.
Comment by Robert T Tuesday, May 24, 11 @ 4:15 pm
Here is a Jan 26, 2011 Moody’s rating for the State of IL. It is specifically about the $3.7 billion of general obligation bonds, taxable series of February 2011.
It also goes into their overall negative outlook of the State of IL.
http://www.moodys.com/research/MOODYS-ASSIGNS-A1-RATING-TO-STATE-OF-ILLINOIS-37-BILLION?lang=en&cy=global&docid=NIR_16808337
And thanks for catching my Hynes/Rutherford typo earlier today Rich, I was running out the door and thinking of 10 things at once.
Comment by Mark Tuesday, May 24, 11 @ 4:29 pm
If we can borrow the money now and pay a much lower interest rate AND not be faced with a higher debt load at the end of the term, I’m okay with borrowing the necessary cash. But the spending “cap” that allows for “slight” growth needs to go. If we are going to bond out or borrow new dollars to pay down old debts, we do not need to incur more debts now and face the possibility of doing this again in a few years. My worry is that new age politics are too cyclical and that we will not learn from these mistakes in four years when we may have a new governor and possibly a new House speaker (either by Madigan’s retirement or, perhaps, a GOP win of the House). My other worry is that our bonding houses will call our debt. It may seem silly now, but anything is possible. A protracted fiscal crisis and the never-ending devaluation of the dollar make for a volatile bond future.
Comment by Team Sleep Tuesday, May 24, 11 @ 4:32 pm
–As the State continues to go deeper and deeper into debt why would anyone would gives us lower interest rates now than the interest rates when the State was somewhat less riskier. Hey but maybe I too could be State Treasurer.–
Well put. Slam head against wall.
The money already has been borrowed. Borrowed, by the way, from folks who could really use the cash to do crazy things like stay in business.
In February, the last Illinois GO bond issue had a true interest rate of 5.56%. That was the magical, mystical, market judgment.
http://www.state.il.us/budget/Debt%20Service%20Disclosure%20GO%20Bonds%20Taxable%20Series%203.23.11.pdf
Under the Illinois Prompt Payment Act, the outstanding debt in question carries an annualized interest rate after 60 days of 12%, except for Medicaid debt, which carries an annualized interest rate of 24%.
Maybe this should be an ACT question:
Which is the lower annual interest rate:
A. 5.56%
B. 12%
C. 24%
D. I don’t get it.
Clearly, A and D are the most common answers.
Comment by wordslinger Tuesday, May 24, 11 @ 4:36 pm
word,
Well said.
Comment by Demoralized Tuesday, May 24, 11 @ 4:39 pm
Speaking of the Rutherford report(http://www.treasurer.il.gov/news/PR05232011PositionPaperonDebt.pdf ), has anyone ever heard of the public finance expert that the Treasurer’s position paper is based upon — Feinberg Municipal Bond Analysis? They’re an unknown to the muni bond geeks on the Street and don’t show up on a Google search.
The comparisons Rutherford uses are suspect, if not completely bogus. The Rutherford/Feinberg team compares an IL GO Bond to an issue of the Commonwealth of Kentucky (which BTW hasn’t issued a GO Bond since 1966 and has no GO debt outstanding; see: http://finance.ky.gov/NR/rdonlyres/3476C228-F305-4772-9D98-3D3709AAE8BA/0/debtmgmt04.pdf ) but to the Kentucky Asset/Liability Commission, which just does interim financing and working cash borrowings for the Commonwealth’s capital program. In short, completely apples to oranges.
Maybe it was Feinberg Municipal Bond Analysis that also gave the Treasurer bum advice regarding contacting the rating agencies and investment banks to bad mouth the State.
In short and reiterating my earlier comment, Treasurer Rutherford is the “Meredith Whitney of Illinois.”
Comment by Wall Street Ron Tuesday, May 24, 11 @ 4:47 pm
– My other worry is that our bonding houses will call our debt.–
What in the world are you talking about?
“Our bonding houses” don’t hold the debt. Technically, they underwrite it, but it’s all pre-sold anyway, or is scooped up in minutes on the market.
“Our bonding houses,” for their minimal effort, get a half of one percent of the issue, which is pretty sweet money for virtually no work.
There is no “call” provision in SOI GO debt that investors hold. Why would there be? The state has never missed or been late on a bond payment in its existence.
Are we back to the weirdo, “60 Minutes” ignorant hysteria on muni debt?
Nice job, Mr. Treasurer. I hope you enjoyed your 15 minutes, because it’s going to cost the rest of us a lot down the line.
Comment by wordslinger Tuesday, May 24, 11 @ 4:53 pm
Word, why shouldn’t there be a “call” provision? A debt holder isn’t motivated by whether we’ve made a payments on time forever and a day but rather making money and reporting a profit to shareholders and stakeholders. I realize the issuers don’t own our debt, but borrowed money from other sources could be called at any time.
Comment by Team Sleep Tuesday, May 24, 11 @ 4:59 pm
Silver Lining:
The CapFax commentariat seems to know more about state finances than the state treasurer. So we got that going for us…which is nice.
Comment by JL Tuesday, May 24, 11 @ 5:00 pm
Don’t worry, Wordslinger.
The bond houses don’t give a rat’s behind what Dan Rutherford thinks.
He’s got a prestigious bachelor’s degree from ISU, for Pete’s sake.
Comment by Yellow Dog Democrat Tuesday, May 24, 11 @ 5:04 pm
If a vendor has enough cash, the state Prompt Payment Act is a great investment. Where else can you earn 12% or 24% on your money? Will the state default on the debt payments? Not likely. How many tens of thousands of business would close and small claims court cases get filed? As others have said, those vendors are already getting loans to meet Friday payroll. There are several large banks currently fronting the vendor debt in exchange for the Prompt Payment interest payments. Get the bonds, pay off the debt. Comptroller already projecting $8B something in unpaid bills. How high does it have to go to actually do something?
Comment by zatoichi Tuesday, May 24, 11 @ 5:06 pm
–I realize the issuers don’t own our debt, but borrowed money from other sources could be called at any time.–
No, the debt absolutely can not be called at any time, under boilerplate terms of bond agreements.
I’ve seen provisions in more exotic issues where bondholders can attempt to accelerate redemption after late payments or defaults, but not in a state GO issue. Outside of the Confederacy (they really weren’t states, anyway), I don’t think there’s been a state GO default since the Age of Jackson.
By the way, State of Illinois is the “issuer.” The Wall Street boys are the “underwriters.” The holders of the debt are the “bondholders.”
Why, in 2011, “underwriters” deserve half a point is beyond me. Except when you consider “negotiated” issues and political contributions.
Comment by wordslinger Tuesday, May 24, 11 @ 5:15 pm
Cinci
If the Madigan-Cross budget is adopted, the budget will be balanced, except for the 8 billion in old bills.
The state needs to continue reducing expenditures. We also need to pay our bills, and reduce the interest on our debt, just like refinancing a mortgage.
Comment by reformer Tuesday, May 24, 11 @ 6:09 pm
Ok I’m confused. Wasn’t the tax increase being sold as a way to pay our bills? So now we have to borrow to pay our bills. What’s next, borrow to pay our borrowing?
Comment by WazUP Tuesday, May 24, 11 @ 6:20 pm
Thank God for guys like Rutherford. The anti-Blago/Quinn/Madigan/Jones/Cullerton. Someone to tell the truth.
Deal with it folks.
Comment by Park Tuesday, May 24, 11 @ 9:19 pm
reformer,
Does the Madigan-Cross budget also include service on these new loans or is it off the books?
Comment by Cincinnatus Tuesday, May 24, 11 @ 9:41 pm
Here is what Judy Baar Topinka, the current State of IL Comptroller, has to say about the State of IL Finances.
TOPINKA: SPENDING THE ISSUE FOR ILLINOIS
Talk of new revenue, borrowing must cease until cuts are made
http://www.ioc.state.il.us/index.cfm/news-portal/5122011-topinka-spending-the-issue-for-illinois1/
Notably:
- In fact, as the Illinois General Assembly enters the final weeks of the Spring legislative session, the state is on pace to end the fiscal year on June 30 with $8.3 Billion in unaddressed financial obligations – including roughly $4.5 billion in unpaid bills from businesses, hospitals, schools, social service and not-for-profit agencies.
The state has indeed brought in additional revenue through the tax increase, but those dollars are already spent. To clarify, Illinois raised an additional $1.6 billion in tax dollars over the last four months, and estimates show it will bring in $6-$7 billion more in the coming fiscal year. But those dollars are needed for future pension and Medicaid costs – leaving few new dollars to pay down the bill backlog and address other unaddressed financial obligations.
The predicament underscores an inescapable reality: spending reform is the only way to restore the state’s fiscal integrity. -
Here’s the April 2011 Comptroller’s Quarterly Report.
http://www.ioc.state.il.us/index.cfm/linkservid/F1AB693F-1CC1-DE6E-2F487E164B292C29/showMeta/0/
Comment by Mark Tuesday, May 24, 11 @ 11:49 pm
IL Treas. Rutherford says that he would write to bond houses to tell them Il is a risk? How do we get rid of this guy? His personal ambitions should not get in the way of his responsibility to us.
Comment by anon Wednesday, May 25, 11 @ 2:59 am
I read some of these comments end its apparent many people still don’t get. Rutherford is right, nor more borrowing. We raised the income tax, what a responsible legislature would have done is cut spending deeply and used the extra revenues to pay off old bills. This is how responsible government works, but this state has been run into the ground by democrats and some willing republicans. It’s time to stop feeding the beast, wake up IL
Comment by kevin in palatine Thursday, May 26, 11 @ 7:54 am