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* From Monique Garcia’s Twitter feed…
Quinn budget head Jerry Stermer said governor will soon present another”refinancing” plan to pay down $8 billion bill backlog.
That’s not a surprise, considering that both chambers now have Democratic super-majorities. The Republicans in both chambers have been dead-set against a borrowing proposal and it requires a three-fifths vote to borrow money, so nothing has been done.
The Senate came one vote shy of passing a borrowing bill when it had 37 members, so it’s probably a good bet that the chamber will be able to pass it if it comes up again. The House may be a different story. Lots of conservative Dems oppose borrowing, so even with 71 votes they’ll probably need at least a small handful of Republicans.
By the way, a bill has already been introduced by Rep. Esther Golar to borrow $4 billion for old bills.
*** UPDATE *** From the governor’s office…
We are focused on comprehensive pension reform to rescue the system, ensure public employees have access to benefits and prevent out of control pension costs from eating up core services like education and healthcare.
While the governor has always been interested in refinancing as an option to help pay down old bills, there is no new plan on this issue right now. The budget director today reiterated our interest in working with the General Assembly on this issue, which is not new.
posted by Rich Miller
Thursday, Nov 15, 12 @ 12:22 pm
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This is a no brainer.
I am all in.
Comment by gg Thursday, Nov 15, 12 @ 1:03 pm
Irony alert: Saviano would’ve voted for it; Willis won’t.
Comment by Anonymouse Thursday, Nov 15, 12 @ 1:20 pm
Since the state pays interest on late payments, and since the interest rate the state pays on late payments is higher than it would pay on the bonds issued to pay down the debt, this is a no brainer. It is especially so since the people to whom the state owes the money would rather have the money now rather than the interest later, while the people who would buy the bonds are happy to put out the cost of the bonds in order to get the interest now. The choice needs to be framed as borrowing from a willing lender (the bond market) or borrowing from unwilling lenders (vendors and service providers). They are both borrowing, but one is more accurately termed “stalling creditors”.
Comment by jake Thursday, Nov 15, 12 @ 1:23 pm
Saving the state money in the long run and putting money into the hands of providers in the short term, seems like a win win to me.
Comment by Small Town Liberal Thursday, Nov 15, 12 @ 1:31 pm
This is not new borrowing, it’s just changing who the lender is. The money is already being borrowed by small businesses, human service providers, hospitals and units of local government.
Comment by Ahoy! Thursday, Nov 15, 12 @ 1:32 pm
If the interest on the bonds is less than the interest on the payments, then you do it. It sucks to run a government that way, but you do it.
Comment by Fan of the Game Thursday, Nov 15, 12 @ 1:44 pm
Remind me–did the GOP articulate a reason (besides the 2012 election) for opposing this previously?
Comment by Rudy Thursday, Nov 15, 12 @ 1:55 pm
The only folks who don’t want this are those who are getting more juice — on a regular, monthly basis — in late payments.
It will save the state a lot of money and pump a B-12 shot of capital into the economy in a hurry.
The fact that we haven’t done it already in these times of historically low interest rates makes you want to scream in frustration.
Comment by wordslinger Thursday, Nov 15, 12 @ 2:20 pm
If “conservative Dems” won’t support it, why would they expect any of the remaining Republican to do so?
That is not a commentary on the nature of this bill, but an observation on the practicality of the politics behind it.
Even if those Republicans are from fairly moderate districts, breaking ranks to vote in favor of a borrowing bill won’t likely secure their re-election in two years.
If anything, doing so practically begs a primary challenge from the right. Good luck explaining how borrowing this money actually lowers costs, etc. in the long run while someone is hammering you with oversimplified ads about you “borrowing” even more money.
And is you survive the primary, it’s not as though the Democrats will give you and your depleted resorces a free pass in the general (see: Pankau, Saviano, Mathias, Cole, Mortland, et al.)
I hope we are entering a period of reconciliation, but it’s beginning to feel more like a period of self-preservation. That includes some of those “conservative Dems” and even a few of the new Dems from previously GOP-leaning districts.
Be interesting to see what happens.
Comment by S.Dolopoulos Thursday, Nov 15, 12 @ 2:32 pm
===why would they expect any of the remaining Republican to do so? ===
Governance?
Comment by Rich Miller Thursday, Nov 15, 12 @ 2:33 pm
The reason people have opposed it has to do with language rather than substance; that is, “borrow” is a dirty word politically, as in, “My opponent advocates more borrowing. Borrowing is what got us in this mess in the first place.” We have to get beyond this sloganeering and attack these issues on the substance. Wordslinger is right. In addition to what I wrote earlier, this move would also provide an economic stimulus–temporary to be sure, but at a time when we really need it.
Comment by jake Thursday, Nov 15, 12 @ 2:34 pm
@wordslinger nails it as usual. And for every one who wants the extra juice, there is another one who needs that check to keep going and providing services. Meanwhile, nothing changes. Very frustrating.
Comment by S.Dolopoulos Thursday, Nov 15, 12 @ 2:37 pm
Rich, I’d like to think so. I’d even go as afar as adding “good”, as in “good governance”.
One can hope.
Comment by S.Dolopoulos Thursday, Nov 15, 12 @ 2:39 pm
PS to last–Don’t expect anything coherent to come out of the Governor’s office on this. It will be all up to the legislators. The Governor will be sort of a demented Greek chorus on the sidelines, commenting (but mostly beside the point) as the process moves forward, and moving in to take credit if anything is accomplished. I would like to be proved wrong about this, but that seems to be his modus operandi.
Comment by jake Thursday, Nov 15, 12 @ 2:39 pm
Sorry to get all mathy here, but if we borrow $4 billion from our vendors for one year at 12% interest, versus borrowing $4 billion from bondholders for 30 years at 6%, I think that, over the long run, borrowing from bondholders costs lots more.
It’s kind of like paying off your credit card debt by taking out a second mortgage on your house. It helps reduce your monthly costs, but it’s going to cost you much more over the life of the loan.
Now, if the plan is to continue indefinitely (like, for 30 years) with the extended payment cycle, then a bond issuance makes sense. Otherwise, this plan benefits vendors — who absolutely deserve to be paid! - at increased expense to taxpayers as a whole.
So, not really a no-brainer.
Comment by soccermom Thursday, Nov 15, 12 @ 3:14 pm
Although Word makes a good point: The systemwide economic impact of a $4-8 billion cash injection would be pretty major, and would offset part of the increased longterm borrowing costs.
Comment by soccermom Thursday, Nov 15, 12 @ 3:16 pm
@soccermom. We are going to borrow $4 billion every year at 12%. It is not a one off.
Comment by Bourbonrich Thursday, Nov 15, 12 @ 3:20 pm
soccermom, I think they’re looking at ten years with an interest cost of about a billion dollars. So, yeah, it would be more. But you’d fix the damage that late payments are doing to the economy. And that’s very real.
Comment by Rich Miller Thursday, Nov 15, 12 @ 3:21 pm
And to be fair — seems like the rate for Illinois bond issuances would likely be closer to 3 or 4%. Could someone please do the math and figure out what the relative costs of the current “system” and a bond issue might be, just for grins?
And here’s the $8 billion question: If we do this, can we stay on a 60-day payment cycle going forward?
Comment by soccermom Thursday, Nov 15, 12 @ 3:22 pm
Bourbonrich - That assumes that revenues will never catch up to current spending. Is that our assumption?
Comment by soccermom Thursday, Nov 15, 12 @ 3:23 pm
@soccermon - Yes. I think the odds are better that revenues are more likely to decline than to increase.
Comment by Bourbonrich Thursday, Nov 15, 12 @ 3:25 pm
Rich - I’m not saying it’s necessarily the wrong thing to do. I’m just saying — aw heck, let’s run the numbers and figure out the true costs and the benefits.
Is $4 billion today worth paying $1 billion over ten years? It’s a real question, and one that deserves a thoughtful answer beyond “it’s a no-brainer.”
Comment by soccermom Thursday, Nov 15, 12 @ 3:27 pm
==but if we borrow $4 billion from our vendors for one year at 12% interest, versus borrowing $4 billion from bondholders for 30 years at 6%==
Actually, if we don’t do the borrowing or have a big influx of revenue, the $4 billion we owe to the vendors will keep rolling over and we’ll keep paying the 12%. The people currently waiting to get paid will be replaced by others waiting to get paid. If we issue bonds and then get a big influx of revenue, we can pay off the bonds or some other debts. So the time period the debts will be outstanding should presumably be the same.
Comment by Anonymice Thursday, Nov 15, 12 @ 3:47 pm
Went through the bill and they did not specify a payback time, but believe a 7 year bond would be more favorable due to the total interest over the term of the bond. They would still be able to manage the annual debt service, would be around $675 million and would be a fiscally prudent, which might help sway some moderates.
Comment by Ahoy! Thursday, Nov 15, 12 @ 3:47 pm
@bourbonrich- You are wrong. Revenues have been increasing. COGFA monthly reports are a useful read.
Comment by LilLebowskiUrbanAchiever Thursday, Nov 15, 12 @ 4:46 pm