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* UPDATED x2 * Rauner loan plan emerges

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To help cover Illinois’ unpaid bills in the midst of a budget stalemate, Gov. Bruce Rauner is turning to an obscure state agency usually occupied with arranging loans to farms, towns and hospitals.

The Illinois Finance Authority board approved a plan Thursday to withdraw $12 million of its $17 million in investments and use it to provide zero-interest loans to 911 providers throughout the state and cover bills from state vendors for snowplow repair, food for inmates and other “essential government goods and services,” Executive Director Christopher Meister said.

The Finance Authority soon may cover still more state bills by issuing bonds. Board members could approve bonds of up to $115 million within the next few weeks, Meister said.

Rauner asked the Finance Authority to make money available as part of a broad request “that state agencies use whatever resources were within their control, within the limits of existing law, to manage through the budget impasse,” spokesman Lance Trover said.

* Reuters…

In the case of a debt service shortfall on the IFA bonds, the moral obligation pledge requires the governor to request an appropriation from the legislature, which is not legally obligated to act.

IFA Chairman R. Robert Funderburg noted the irony in the risk that money for the bonds might not be appropriated.

“An agency of the state of Illinois is discussing the relative risk of doing business with the state of Illinois,” he said at a board meeting.

Meister said that once structured, the bond deal would need final approval from the IFA board at or before its December meeting. The board approved Citigroup Capital Markets as the underwriter for the bonds, which could be sold in the U.S. municipal market or structured as a direct purchase or private placement.

Meanwhile, the IFA will tap in to its $12 million of available cash to immediately loan at no interest up to $3 million to local 911 call centers relying on a state pass through of revenue from a phone surcharge that has been held up due to the lack of an appropriation, according to Meister. Another allotment of up to $3 million would be made available to state vendors “at the end of their rope” in return for their state receivables and a 1 percent per month late payment penalty that kicks in after 90 days, he added.

*** UPDATE 1 *** Do you remember this from the governor’s memo the other day?…

While we continue to urge legislative leaders to enact a complete balanced budget rather than taking a piece-meal approach, Governor Rauner is comfortable with HB 4305 proceeding as an effort to build on the compromises announced yesterday regarding Unemployment Insurance, Child Care Assistance Program and DON Score. In addition, to further strengthen the progress made over the last few days, legislators can – and should - fund the public safety and critical services currently excluded from HB 4305, including salt for snow-covered roads, funds for veterans in state-run homes and debt service payments that would ensure Illinois avoids a debt default.

That highlighted text was so odd to me at the time because state debt payments are automatic. They don’t require an appropriation. But this new debt would require a specific appropriation.

So, maybe now we know why that phrase was in the memo.

*** UPDATE 2 *** There were some formatting problems in the above update because I accidentally hit the “Save” button on my end too soon. Oops. Anyway, the governor’s folks saw what I saved and told me…

The highlighted portion you reference is detailed in the memo. It refers to the civic center debt payment due next month. Like McPier debt payment, civic center debt payment is NOT a continuing appropriation. If the state defaults, it will be because this funding was held up. That’s the only intended reference in the memo.

Ok then.

posted by Rich Miller
Friday, Nov 13, 15 @ 9:06 am

Comments

A somewhat bizarre plan to deal with the mess.

OW–did you notice the increasingly stirring pictures of the Governor in the Tribune? Will Lance be setting up a photo session in a future “Dad’s Home State?” Might it include the Governor being pictured as a Roman noble?

Comment by Keyrock Friday, Nov 13, 15 @ 9:12 am
Perfect example of solving the wrong problem. Fees and expenses incurred for no good reason.

Talk to each other.
Listen to each other.
Compromise.
Pass a #%^* budget.

Comment by Langhorne Friday, Nov 13, 15 @ 9:15 am
The cynical part of me is shaking my head over the irony of this. The optimist in me sees this another sign of thawing and an opportunity to save more hostages.

Comment by CCP Hostage Friday, Nov 13, 15 @ 9:17 am
- Keyrock -

The cameras are always rolling on “Dad’s Home State” on HBO. “It’s not TV, it’s HBO”. Check your cable or satellite provider for dates and times.

To the Post,

Loaning monies to Munis that are owed the monies to begin with isn’t what I’d call a good … Shaking up… and maybe a case can be made to… Bring back… actual governing to the Executive Branch of Illinois government.

Ya know, with a budget… none of this would be needed

“Hang in There!” Illinois Munis.

Comment by Oswego Willy Friday, Nov 13, 15 @ 9:21 am
Moral obligation bonds to fund daily operations? That’s insane.

The whole “moral obligation” part of such bonds are that the state can be relied upon to make an appropriation to cover debt service.

Since the need for these bonds is caused by the state’s inability to make an appropriation of money sitting in its treasury, I’m guessing those bonds would go out as junk.

FWIW. moral obligation bonds were invented by John Mitchell when he was the biggest bond lawyer on Wall Street.

His buddy, Rocky the Builder, had run up against Constitutional ceilings on NY GO debt.

So Mitchell just persuaded his pals in the very small muni world to take Rocky’s word that they’d get paid. But you pay a premium for them.

Indiana uses them a lot to get around its Constitutional debt limits and make its debt load appear much smaller than it actually is.

Comment by wordslinger Friday, Nov 13, 15 @ 9:24 am
A proverb from a wise man goes, “Don’t wreck the truck to collect the insurance money to pay off the loan.”

Comment by Under Influenced Friday, Nov 13, 15 @ 9:24 am
Like using a credit card to buy groceries. The hole just keeps getting deeper.

Comment by Streator Curmudgeon Friday, Nov 13, 15 @ 9:32 am
Bernie Madoff financial adviser. Call me.

Comment by tobor Friday, Nov 13, 15 @ 9:33 am
Sounds like we’re getting into Greek yogurt now.

Comment by Harold's Left-wing Dinner Friday, Nov 13, 15 @ 9:33 am
In the short run, I guess this is a good development — the locals are not to blame for the problem, and should be getting the funds that are due. (Although having them borrow and pay interest is not great.)

In the long run, any action that extends the budget impasse is bad. This action plants seeds that will show up in many future budgets. I really wonder about all the unintended consequences of this truly bizarre fiscal year.

Speaking of which — and admittedly off topic: wasn’t the reason the judge in St. Clair ordered that state employees be paid that the Comptroller would need months to figure out how to comply with FLSA? And haven’t months already passed? I know that politically no one is willing to ask that the judge lift his order because the Comptroller has had plenty of time to comply with FLSA, but it’s something that I think merits a legitimate discussion. Again, sorry for off topic.

Comment by the Other Anonymous Friday, Nov 13, 15 @ 9:34 am
As I recall, the downfall of Blago started with corruption at IFA. Not that this has anything in common with Ali Atta, just seems interestingz

Comment by Jerry 101 Friday, Nov 13, 15 @ 9:35 am
1.) This isn’t enough money to actually solve the problem.

2.) This is just enough money to avoid having utilities shut down at very public locations like rest areas.

3.) In the long run the bond issue is going to be an incredibly expensive means of addressing this cash flow problem, and frankly, I don’t think the a bond counsel is going to feel comfortable writing a bond disclosure that specifically states that promise of repayment specifically depends on an appropriation from the legislature and that there is no other assurance. That being said, the bond structuring could make it so that’s not an issue through the call date of the bond, but the long term interest rate on something that is almost a junk bond with only the hope of appropriation to pay the interest isn’t going to be what I’d call affordable.

4.) Bonds are not credit cards and folks should be aware that there’s a lot of potential for being sued by bond holders and that the SEC is now holding entities responsible for misleading statements in their bond disclosures. Meaning, if one isn’t brutally honest about the state of affairs in Illinois, bingo, that’s a lawsuit or a significant fine.

That’s enough of a risk that some underwriting firms, the good ones with lots of clients to choose from, aren’t going to be interested in the business.

5.) Borrowing to maintain service level adequacy is always bad. Issuing this bond can negatively impact the state’s credit rating with rating agencies.

6.) Illinois shouldn’t be adding additional debt service to it’s structural “budget gap.”

7.) If the utilities issuing disconnect notices are getting paid through this creative process, more disconnect notices will be issued, so that’s fun.

Comment by Anon Friday, Nov 13, 15 @ 9:36 am
Waiting for all of those editorial boards who preached against borrowing in the past to weigh in.
When they waiver, revert back to “its Madigan and the Democrats’ fault.”

Comment by Austin Blvd Friday, Nov 13, 15 @ 9:36 am
Maybe a budget is in order? Because, while silly, this is the best idea the governor has had to bypass the budget issue. Come on already. Just get a budget done.

Comment by Ducky LaMoore Friday, Nov 13, 15 @ 9:40 am
===But this new debt would require a specific appropriation.===

That’s dangerous. One more political football to kick down the field. I retract my previous statement on this being the best plan the gov has come up with. Avoid this, please.

Comment by Ducky LaMoore Friday, Nov 13, 15 @ 9:50 am
This is a truly bad idea. This makes no fiscal sense at all.

Comment by DuPage Dave Friday, Nov 13, 15 @ 9:54 am
Yes, Rauner’s awful start in office put us in the place we’re at now. This is his fault. Not calling meetings for months is his fault.

But now at least 911 services are being funded. (With fees going to big banks and big law firms unfortunately).

Governors own, Rauner deserves blame, and he will continue to get blame. I’m just glad he’s finally working toward solutions.

Rauner is finding solutions to things like funding 911 services, while Madigan is putting bricks on legislation until a budget compromise can be reached (and trying to hide from his responsibility for the bricks)…and without seeming to compromise on anything.

Comment by Robert the Bruce Friday, Nov 13, 15 @ 10:00 am
Rich, I thought I heard the other day that the debt service was for civic center bonds. Unlike GO, those may not have a continuing approp (not sure).

Anyways, remember when the Governor said borrowing to pay for operations was fundamentally wrong? He has now done it at least twice in less than a year since he said that. So clearly this is him compromising and being flexible. Definitely not a man stuck in his ways.

Comment by Juice Friday, Nov 13, 15 @ 10:03 am
This isn’t robbing peter to pay paul. This is robbing peters unborn children to pay paul instead of taking the cash out of your wallet. Usually when people rob peter it’s because they don’t have the cash to pay both here we just don’t have the maturity.

Comment by Mason born Friday, Nov 13, 15 @ 10:04 am
Why are they doing this when the money for some of these things is sitting in accounts just waiting to be appropriated? It seems to no be a fiscally responsible move on the part of the governor.

Comment by ANONIME Friday, Nov 13, 15 @ 10:13 am
Juice,

===the Governor said borrowing to pay for operations was fundamentally wrong?===

Illinois wanted a businessman. Businessmen often claim they’re not going to do exactly what they’re planning on doing. Comcast is run by business folks. Imagine if Comcast were running your government.

Mason born,

===This isn’t robbing peter to pay paul.===

Illinois has had decades of tradition of robbing future generations. Hence, having unfunded pension liability for almost a century now, and taxing zero dollars of federally taxed retirement income since 1984 — which provides zero benefit to low income seniors and there are literally people earning more than a million dollars a year paying zero in taxes.

Issuing bonds is generally a pretty short term means of spreading out the cost. If you want to use hyperbole, at least complain about the right thing.

Like grandparents refusing to pay income taxes to fund the education of their grand kids or to pay the pension debt associated with services they’ve been receiving over the last 60 years of their debt.

Pick a better issue to complain about, Mason born.

Comment by Anon Friday, Nov 13, 15 @ 10:14 am
Rauner has stated that he’s against borrowing for capital projects, but he’s ok borrowing for operations?

Genius.

Comment by Daniel Plainview Friday, Nov 13, 15 @ 10:15 am
“Work arounds” (instead of directly solving the actual problem swiftly) always get people in some kind of drama or legal or financiial problem trouble. “Rescue me from previous bad decisions” is what they are. I never recomend those. Not a clean approach, all messy-messy and subject to sabotage or other manipulations. Financial terrorists are opportunists like most forms of terrorism. The only way to escape the trap is see it, expose it, do a clean extrication with the least amount of damage, be direct, swift and certain in action.

Comment by internal angel Friday, Nov 13, 15 @ 10:18 am
The only way this makes a lick of sense, in a twisted way, is if the guv plans to attempt to change the law and grab the lion’s share of money owed munis for GRF.

He could use it, obviously, given his nonsense to date.

Plus, he’s been promoting muni bankruptcy as a union-busting tool (misguided, if you follow recent muni bankruptcies) and stealing their money is another tool in the bag to accomplish that.

Massive deficits. Billions in unpaid bills. Borrowing for operations. Promoting bankruptcy.

Ladies and gentlemen, the Illinois Republican Party of 2015.

Comment by wordslinger Friday, Nov 13, 15 @ 10:23 am
This is a misuse of the IFA. They should be very careful in considering this. If they decide to go into this kind of business, they will lose support for their original mission.

Comment by walker Friday, Nov 13, 15 @ 10:29 am
If this is even used by the locals, this looks like a giant mess waiting to happen. I can imagine problems with repayment and record keeping.

Comment by Norseman Friday, Nov 13, 15 @ 10:29 am
If it requires a new appropriation then why not simply make the correct appropriation? Make it come out of the funds it was supposed to come out of in the first place. Whats the point?

Comment by Union Dues Friday, Nov 13, 15 @ 10:30 am
===If it requires a new appropriation then why not simply make the correct appropriation?===

It requires an appropriation later on. It’s basically I will gladly appropriate funds Tuesday for funds today.

The bonds can be structured in such a fashion that debt service payments aren’t made until FY 2017, or even until the end of borrowing period as a lump sum payment.

I guess the theory is you would convince investors that appropriations for FY 2017 or FY 2018 — but this is where you can get fined for misleading statements, and the SEC has already sued Illinois for doing so in 2013 regarding the unfunded pension liability.

Comment by Anon Friday, Nov 13, 15 @ 10:47 am
This is what I always do when I’m in debt, I just take out another loan. If you’re always in debt then you are never in debt.

Comment by Dale Cooper Friday, Nov 13, 15 @ 11:09 am
Where is the outrage from the partisan hacks at IPI? If a Democratic Governor was attempting to do this they would have had a poll, three “news items” and a cartoon by now. By not saying anything it just shows their true colors - Green for money.

Comment by Obamas Puppy Friday, Nov 13, 15 @ 11:38 am
Some very good comments on here so far. Word, I had a finance professor who was convinced that mora obligation bonds were going to doom the US economy lol.

Back in the day, I was a board member of a regional development authority that issued moral authority bonds. I don’t see how they’re going to get an issuer’s counsel opinion in this day and age that signs off on this, but we’ll see. All snark aside, I would also like to hear John Filan’s two cents worth on this idea.

Comment by Arthur Andersen Friday, Nov 13, 15 @ 11:49 am
Or Ty’s two cents worth–unless Mayer Brown is doing the bond work.

Comment by Keyrock Friday, Nov 13, 15 @ 11:54 am
Real mafia-style governing from our governor. What else would we expect from Bustout Bruce.

Comment by Precinct Captain Friday, Nov 13, 15 @ 1:16 pm
Word.- nothing left but LGDF and Universities or a total reverse back to 5%. What ya thinking?

Comment by Blue dog dem Friday, Nov 13, 15 @ 1:46 pm
AA, moral obs are a ridiculously raw undermining of state constitutional debt ceilings all over the country.

They are a revealing example of how easy it was for the Wall Street boys and politicians to get their way when it comes to money.

When I first got into the business, an old-timer explained: “They’re not truly moral or obligations, but we can sell them.”

But to sell moral obs for daily operations, when the money is sitting in the Treasury gathering dust? That’s dumbfounding.

If this goes down, the underwriting team, bond counsel and financial advisors need a thorough vetting, because the meat will be a-cookin’.

Comment by wordslinger Friday, Nov 13, 15 @ 3:43 pm