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Did Rauner kick a big can?

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Illinois

Gov. Bruce Rauner has pushed off an impending and potentially budget busting day of reckoning to resolve a toxic 2003 state bond deal—to the day after the fall 2018 election in which the Republican is expected to seek a second term.

The governor had been facing a November 27 deadline to renew letters of credit that back the safety of investing in the $600 million bond issue, a procedure fraught with unusual difficulty because of the state’s prolonged budget standoff and fiscal crisis. Expiration of the letters threatened to trigger a termination of bank agreements and require an accelerated repayment of the bonds that could cost as much as $1 billion.

But under a recently announced agreement, four banks will acquire and hold the debt until November 7, 2018. Interest and fees will be close to the current rate of 6.79 percent, according to a senior Rauner administration official who spoke on condition of anonymity.

“Given the state’s credit rating and financial condition, we got a good deal,” the official said.

That buys time to come up with alternative financing schemes to mitigate financial pain, but absent that the state could still find itself in a similar bind when the new agreement with banks expires on Nov. 7, 2018, according to a supplement to the state’s most recent bond offering document.

That date, coming one day after the next election for governor, carries significance for a political leader who has often chastised opponents for putting off tough decisions.

In June 2015, Rauner criticized Mayor Rahm Emanuel’s pension reform proposal as a “kick-the-can-down-the-road approach.” And during budget negotiations in May, he called on lawmakers to stay focused, stay disciplined and “don’t kick the can.”

Saqib Bhatti, a policy analyst at the Roosevelt Institute, a liberal-leaning think tank, said Rauner’s administration also now seems to be entering delay mode on resolving problems with the bond deal rather than confronting them directly.

“They’re kicking the can down to the end of the governor’s term where it may not be his problem,” said Bhatti.

The senior administration official said the expiration coming a day after the 2018 election is merely a coincidence. Two years is standard for these types of deals. “We would have gone longer if we could get three or four years,” the official said.

posted by Rich Miller
Monday, Oct 24, 16 @ 10:22 am

Comments

Do as I say, not as I do.

Comment by Boone's is Back Monday, Oct 24, 16 @ 10:24 am
The Rauner tax increase will make the Quinn tax increase seem less significant than a 55 cent I-Pass debit on a toll road you only use once every other year. For an entity with bonding authority, failing to take advantage of post-Brexit lows in interest rates, and instead paying 6.79 percent is financially irresponsible. I think it’s quite possible they could bond the money they already owe for about 1/2 that interest rate.

Comment by AC Monday, Oct 24, 16 @ 10:41 am
Of course he did. Takin’ those arrows.

Can’t wait for October 2018 when he will be talkin’ up bankruptcy as an option. /s

Comment by Henry Francis Monday, Oct 24, 16 @ 10:42 am
It’s nicely done and probably wasn’t easily done. It being the day after the election obviously doesn’t look good, but I accept the explanation. Unfortunately I think it more likely Rauner will not use the next couple of years to planfully address the issue, rather will be happily gifted with a whole lot of leverage following his re-election in what will likely be a strong republican year.

Comment by Earnest Monday, Oct 24, 16 @ 10:59 am
== In June 2015, Rauner criticized Mayor Rahm Emanuel’s pension reform proposal as a “kick-the-can-down-the-road approach.” And during budget negotiations in May, he called on lawmakers to stay focused, stay disciplined and “don’t kick the can.” ==

Apparently, only Governor Rauner is allowed to kick the can.

Comment by thunderspirit Monday, Oct 24, 16 @ 11:16 am
Well, I think it is being put off to be a problem for the NEXT governor. The next governor will be a democrat and it will be a BIG problem for that individual. Maybe causing enough trouble to make citizens turn against him and vote republican in the 2022 election?

Comment by NoGifts Monday, Oct 24, 16 @ 11:22 am
Actually, this is probably the most reasonable approach for both sides. Would our ‘friendly TBTF Banksters’ love to get that big payoff. You bet.

Do they want all the grief that would come with getting it? Not a chance. And there would be some really serious pain involved that they wouldn’t want.

Old adage in the business: “Bulls make money, Bears make money, HOGS lose everything”.

A 6.79% return looks pretty good to bondholders for a type of bond issues that has been heavily criticized. Remember, from a client standpoint the ‘Banksters’ want to (a) get a solid return, and (b) keep those clients invested in your (future) deals.

You take that big ‘win’ (and get loads & loads of grief), most of the ’score’ money goes to the ‘Banksters’, and that’s great for your quarterly earnings, but what are you going to replace it with in your clients portfolio. Lot more risk in newer bond issues, and terms/rates aren’t going to be anywhere near as good. Result: Clients looking for yield look to go elsewhere.

Am I happy with the extension deal? No. But, what you are seeing is all sides taking positions that this is one bond deal to leave alone for a while. Everybody’s negotiating positions have strengths and weaknesses, and this is one of those times for everybody not to get too greedy.

Remember the Jefferson County, Alabama sewer bonds? Good primer on how NOT to handle these types of negotiations.

Comment by Judgment Day Monday, Oct 24, 16 @ 11:57 am
It looks like either Rauner wins in 2018 and extends the credit the next day, or he loses, dumps the mess in the Democrat’s lap, and sets up the Republican nominee’s 2022 campaign.

Comment by Anonymous Monday, Oct 24, 16 @ 11:59 am
The day after the election? Seriously?

From the Daley School of Public Finance…..

Comment by wordslinger Monday, Oct 24, 16 @ 1:11 pm
1.4% didn’t kick the can down the road. He made a sound financial decision which will come back and bite him in the butt.

Comment by Huh? Monday, Oct 24, 16 @ 2:05 pm
I believe the Rauner Administration person spoke to the fact it would be close to the average. Isn’t the average a little closer to 9% rather than 6.7% with businesses such as these? I believe these numbers may be skewed a little in the favor of the one kicking the can. Although 2 years and a couple of weeks from now this will have all been forgotten or at least remembered in a different light.
Why did we just give state employees raises if we don’t have the money? Why are we not moving those particular people to the insurance plans proposed by the governor?(a cost savings measure that could of happened months or years ago) So many questions so few answers.
It is just confusing how there is money for certain items of little necessity, but for paying bills there is no money!! Is this how he ran businesses into the ground? So others could make money?

Comment by FirstTimer Monday, Oct 24, 16 @ 4:24 pm