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* Remember last week when Cook County Judge Rodolfo Garcia stopped just short of ruling that the continuing appropriation for legislative salaries could be ignored by the Illinois comptroller? Garcia is expected to issue a final ruling later this week.
Well, here’s a warning shot from a subscriber who is also a financial analyst back East…
Hey Rich, just to point out for possible unintended consequences – I think any judges scrutinizing too closely the continuing appropriation language could be a big problem for the bond market. The current ratings of both IL GO and Sales Tax are, I’d say, highly reliant at this point on the existence of the continuing appropriation. S&P, itself, has stated this directly about the [General Obligation Bond Retirement and Interest fund] (after calling your state ‘service-level insolvent’).
Our state’s bond payment guarantees are viewed as some of the strongest in the nation, so allowing a comptroller to delay paying continuing appropriations might possibly rattle the markets a bit.
* There are other statutes on the books, however. From a recent Bond Buyer report…
A core strength of the state GO – highlighted in state investor presentations and recognized by market participants as one of the strongest among states – is the irrevocable and continuing appropriation for debt service payment.
Statutes direct the state treasurer and comptroller to make all necessary transfers monthly from any and all revenues and funds of the state to cover 1/12 of principal and 1/6 of interest for payments due in the next 12 months. They flow into the General Obligation Bond Retirement and Interest fund known as GOBRI.
“These features remain integral to the state’s investment grade ratings,” a recent S&P report said.
Analysts worry that such a prioritization over other state stakeholders starved for their aid or vendor payments is not “sustainable.”
“Sometimes those protections can fall away,” Petek said, citing challenges posed to debt structures in Detroit, Puerto Rico, and Stockton. Calif. At the end of the day, he said, flow of funds and security features don’t make up “for what is fundamental insolvency.”
Illinois is nearing a point of “service level insolvency,” and “it’s problematic,” he said.
posted by Rich Miller
Wednesday, Mar 22, 17 @ 11:53 am
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The “bond retirement fund” has priority over the “employee retirement funds”?
Comment by DuPage Wednesday, Mar 22, 17 @ 12:16 pm
Another possible consequence of a judge ruling that continuing appropriations can be ignored: skipped pension payments….including payments to the judge’s fund. Tread lightly, your honor.
Comment by Roman Wednesday, Mar 22, 17 @ 12:23 pm
One thing worth noting is that Section 18 of the Bond Act does explicitly provide bond holders the remedy to sue the state to compel payment to satisfy the State’s obligations.
Investors often overreact, but in this case they really shouldn’t. IL’s Bond guarantee is about as iron clad as they come. Insolvency is truly the only risk they have. To over-simplify, a lot of truly awful things will happen way before the State misses a bond payment……like many of IL schools literally closing because the State can’t pay GSA.
Comment by Get a Job!! Wednesday, Mar 22, 17 @ 1:17 pm
Rich you know better than most the unintended con of so much that is done by pols …..just another example.
Comment by scott aster Wednesday, Mar 22, 17 @ 1:41 pm
The specificity of the irrevocable bond continuing appropriation does not appear to have any wiggle room.
Comment by wordslinger Wednesday, Mar 22, 17 @ 2:01 pm
How are the judges being paid? I believe that’s the state’s responsibility. Are they being treated like other state employees, or are their salaries covered by a continuing appropriation? And if they are covered by a C.A., will the Comptroller have the Judge Garcia-given authority to delay paying judges just like legislators? Sure, the judges can point to the constitutional protections afforded to their salaries…but the Comptroller wouldn’t be stopping pay, she’d just be delaying it.
Comment by Tommy Wednesday, Mar 22, 17 @ 2:28 pm
In other words, a partisan judge, constitutional officers or a speaker of the house who plays partisan politics in an attempt to gain a perceived political advantage can and does have real life negative consequences beyond press clips and elections.
But Hey this is Chicago, where the only thing that matters to the pols seems to be the political gamesmanship. Enough already.
Comment by Larrym Wednesday, Mar 22, 17 @ 2:29 pm
The political question facing Judge Garcia is: should legislators get paid during a budget standoff?
The legal question is whether a continuing appropriation is what we’ve always thought it to be.
It’s easy to come up with a political answer, but the legal question is fraught with difficulties.
Comment by Telly Wednesday, Mar 22, 17 @ 3:26 pm
The post is about bonds, but if the judge goes way to far and hits the pension continuing approp, things could really get interesting. I think the pension piece is pretty tight, too,
but Jeez we don’t need this right now.
Comment by Arthur Andersen Wednesday, Mar 22, 17 @ 9:19 pm