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* 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.
posted by Rich Miller
Thursday, Sep 7, 17 @ 11:27 am
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Gov Rauner. I will help you make those cuts. I have about $1.2 billion up my sleeve. Where do I sign up?
Comment by blue dog dem Thursday, Sep 7, 17 @ 11:31 am
Congrats to the Governor on his first actual attempt at governing.
Comment by Ducky LaMoore Thursday, Sep 7, 17 @ 11:32 am
Where are Rauner’s cuts going to come from? His staff and agency heads can’t name any.
Comment by Precinct Captain Thursday, Sep 7, 17 @ 11:33 am
Well, that took long enough. If only the GOP had agreed when Quinn was governor.
https://www.google.com/amp/mobile.reuters.com/article/amp/idUSL1E8MFIZ620121115
Comment by Keyrock Thursday, Sep 7, 17 @ 11:33 am
“The Rauner Cuts”
That Rauner Crew better get use to…
“The Rauner Cuts”
Comment by Oswego Willy Thursday, Sep 7, 17 @ 11:37 am
6 Billion will lower the backlog to 9 billion ? With interest it will grow. I can see Rauner running for reelection having more than doubled Quinn’s backlog.
Comment by Anotherretiree Thursday, Sep 7, 17 @ 11:43 am
Borrowing makes sense, but I assume we all realize the outstanding debt is far in excess of the $6 billion in bonds authorized. We have over $15 billion worth of unpaid bills currently.
Comment by Rod Thursday, Sep 7, 17 @ 11:50 am
Here we go
He’ll get his several hundred million
By initiating
The great labor war
Implementing his AFSCME austerity contract
And destroying our health insurance
To which over 300,000 people are pegged
December is my bet
4th District Appelate mysteriously comes out with
Impasse ruling
Rauner immediately implements contract
This forces the union to either eat it or strike
Either way it will collapse the state workforce
Rauners gambit to destroy AFSCME and appear to gain savings will only serve
To permenantly stall the engine
Who will work for the state after that.
God sakes- we aspire to skeleton crew now
Comment by Honeybear Thursday, Sep 7, 17 @ 11:50 am
It doesn’t really matter, the ship known as the state of Illinois has sailed. Moody claims the pension obligation is about $250 billion, not $130 billion. The state can borrow, tax and cut. At the end of the day it just won’t matter. Hello fed bailout.
Comment by Anonymous Thursday, Sep 7, 17 @ 11:51 am
===Moody claims the pension obligation is about $250 billion, not $130 billion===
Right. But the $130 is the unfunded liability. The rest is funded.
Comment by Rich Miller Thursday, Sep 7, 17 @ 11:55 am
Hey, this is legitimately good news.
There was a real fear that part of the Governor’s political team thought that causing another crisis by not refinancing the debt would make the tax-hike look bad. The Governor chose not to walk that path and instead do the responsible thing.
The “no new borrowing” bumper sticker has cost taxpayers quite a bit and it’s refreshing to see the Governor has chosen saving taxpayer money over a cheap bumper sticker slogan.
Good stuff.
Comment by Dan Johnson Thursday, Sep 7, 17 @ 12:09 pm
Let’s see. GovJunk waits for another $80+ million in interest charges to build up. Then some mumbbo jumbo on deficit budget.
Was he:
1. tryin’ to cut some more pals into Vendor Assistance.
2. Linin’ up pals to buy to debt
3. All of the above.
4. W* himself on another back track
5. All of the above
Comment by Annoin' Thursday, Sep 7, 17 @ 12:17 pm
Good call by Rauner and team.
Politically, he might have scored points railing against borrowing.
Governmentally, this is the best move.
Good government is good politics.
Comment by Oh Boy Thursday, Sep 7, 17 @ 12:24 pm
== Borrowing makes sense, but I assume we all realize the outstanding debt is far in excess of the $6 billion in bonds authorized. We have over $15 billion worth of unpaid bills currently. ==
Paying some of it will garner Federal matching funds … maybe as much as $3B depending on exactly what they pay in the backlog.
Speaking of which … my mother-in-law just got two reimbursement checks on her state health insurance for services delivered over 2 years ago.
Comment by RNUG Thursday, Sep 7, 17 @ 12:37 pm
“Starve the beast” sickens me.
But, please lord, don’t use that damnable phrase “low hanging fruit”.
On arrival, he picked off the state museum. God help us what
The IPI crew comes up with.
Comment by Langhorne Thursday, Sep 7, 17 @ 12:46 pm
The “Deliberate Incompetecy” that Raunerites practice is mindboggling.
Comment by DeseDemDose Thursday, Sep 7, 17 @ 12:59 pm
==“Starve the beast” sickens me.==
That there is a beast to begin with is more concerning.
Comment by City Zen Thursday, Sep 7, 17 @ 1:10 pm
=Right. But the $130 is the unfunded liability. The rest is funded.=
Meaning the state pensions are only funded 48%? Wow. That’s worse than I remember reading before.
Comment by Robert the 1st Thursday, Sep 7, 17 @ 1:18 pm
OW says, ““The Rauner Cuts,” as though its a negative.
Smaller/smarter government proponents cheer this type of real action. Could this actually be a real reduction in actual spending through responsible management? (This, not to be confused with political rhetoric about cutting expenses and saving state cash flow resources.)
Maybe this be a sign of better pitching in the next few innings? Hope so.
Comment by cdog Thursday, Sep 7, 17 @ 1:19 pm
===OW says, ““The Rauner Cuts,” as though its a negative.===
When Rauner staff, Rauner agency heads, and Rauner legislative liaisons all testified to committees, they refused to name a SINGLE cut that the Administration was willing to make.
It’s not me seeing cuts as a negative. It’s Rauner and his Crew knowing, that owning cuts is damaging.
Comment by Oswego Willy Thursday, Sep 7, 17 @ 1:29 pm
September 7, 2017.
This is a historic day. Rauner has chosen — after two years — to finally govern.
I’m stunned. I did not expect this day to come. I expected Rauner to continue campaigning during the tenure of his first (and possibly only) term.
Comment by Mr. K. Thursday, Sep 7, 17 @ 1:32 pm
@RNUG:
Me too on the reimbursement checks. Just got $2,000 check plus one for interest on some major dental work performed July 15, 2015. Significantly beats old record of 15 month delay.
Comment by 37B Thursday, Sep 7, 17 @ 2:06 pm
To the Post,
“Good governance”, in this case realizing that bonding out substantial debt incurred, usually can expect applause from all sides, due to the realization that it’s needed to ha exa functioning state.
I’m pleased and applaud the move with the chorus that is growing, and coming from all sides.
Thankfully.
Comment by Oswego Willy Thursday, Sep 7, 17 @ 2:48 pm
===Moody claims the pension obligation is about $250 billion, not $130 billion===
==Right. But the $130 is the unfunded liability. The rest is funded.
Moody’s $251 B number is paired with ‘unfunded’in their releases, they claim it based on a much lower assumed rate of return, like 3-4%.
Comment by Shark Sandwich Thursday, Sep 7, 17 @ 2:49 pm
Another flipflop for Rauner. He was against refinancing the debt before he was for it.
Comment by anon2 Thursday, Sep 7, 17 @ 2:53 pm
So this is three big wins a row for Mendoza. She is one to watch.
Comment by Soccermom Thursday, Sep 7, 17 @ 3:38 pm
–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.–
Yeah, well, some people have been saying that for the last 2.5 years as the backlog went from $4.5B to $15B.
Rauner was against this just two weeks ago. Did he have a Road to Damascus epiphany?
Or did the big brains at BTIA have someone do the math for them and explain to them — slowly, in monosyllables — that the move is fiscally responsible good policy that is also good politics going into an election year?
Comment by wordslinger Thursday, Sep 7, 17 @ 3:45 pm
A win for sanity. Mendoza has been the tip of the spear on this stuff since jump street and has thoroughly, embarrassingly, outworked Rauner at every turn. Good luck finding an opponent for her, Bruce.
Comment by Billy Goat Thursday, Sep 7, 17 @ 4:01 pm
=== 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. ===
Longest sentence fragment in the history of the English language.
Comment by Free Set of Steak Knives Thursday, Sep 7, 17 @ 4:19 pm
So will all of today’s “applauders” (e.g., Frerichs, Mendoza) still be applauding when (or a big IF) Rauner announces what the “hundreds of millions of dollars” in spending cuts will be?
Comment by Leatherneck Thursday, Sep 7, 17 @ 5:43 pm
Pretty much everyone was calling out the nonsense with the agencies failing to ID cuts all summer. Is this a Trump-like standard where everyone is supposed to applaud Rauner for governing?
Comment by Sonny Thursday, Sep 7, 17 @ 8:55 pm