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“Most of them won’t be funded this year”

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Illinois

* The Civic Federation looks at state appropriations for capital projects…

The total appropriation of roughly $17.1 billion is the largest capital bill since FY2015. The roughly $8.1 billion of new appropriations are the highest amount since the passage of FY2010’s Illinois Jobs Now! capital plan.

However, since the FY2019 budget does not raise any additional revenues for capital projects, it is unlikely that a majority of the appropriations will be spent during the fiscal year. Authorized projects that are not completed or started may be rolled forward with reappropriations in future years.

* As does the Bond Buyer…

llinois’ new state budget paves the way for the state to pay off swaps tied to $600 million of floating-rate debt and authorizes $1.8 billion in new general obligation borrowing to finance pension buyouts and capital projects.

The new GO authority — $1 billion for the buyouts and $800 million for capital — is lean and falls far short of a fiscal 2019 capital budget that totals $16.8 billion when new authorizations of $7.8 billion are counted along with $9 billion in reauthorized projects. Most of them won’t be funded this year.

Keep all that in mind during the summer and fall ribbon-cutting ceremonies.

* Back to the Bond Buyer…

State debt service peaks this year at $4.4 billion and then declines by $1 billion next year as bonds issued in 2011 to cover pension payments are retired. The state owes a total of $32.2 billion in principal and $14.2 billion in interest on $14 billion of GOs for capital, $2.3 billion of Build Illinois sales-tax bonds, the $6 billion of GO bill backlog pay down debt issued last fall, and $9.9 pension-related GO debt. The backlog borrowing carries $1.8 billion of interest and is retired in fiscal 2030.

posted by Rich Miller
Thursday, Jun 28, 18 @ 10:14 am

Comments

–State debt service peaks this year at $4.4 billion–

And the mooks at the rating agencies claim that the state’s credit rating is near junk, like there’s a chance it can’t cover that nut?

GRF, with no federales money, is projected at more than $37B for FY19. The bondholders get first crack, by law. With debt service at $4.4B, that’s more than eight-times coverage.

With that bond debt and that GRF revenue, the chance that the SOI would miss a debt service payment is zero.

Which, if you noticed, when Rauner was driving the backlog of unpaid bills up to $16B, the bondholders still got paid on time, in full.

If you don’t miss a debt service payment under those circumstances, when would you?

The rating agencies are an anachronistic joke.

Comment by wordslinger Thursday, Jun 28, 18 @ 10:34 am
==If you don’t miss a debt service payment under those circumstances, when would you?==

I truly don’t disagree with your analysis of the State’s ability to cover its short-term obligations. My question, though: If these agencies are just completely wrong, then what’s going on? Are they just using bad assumptions that are widespread in the industry, and a different rating agency with a different methodology could more accurately capture the credit ratings of government entities? Does the whole model just break down for governments? Or are you suggesting the approach is an insidious one meant to destabilize trust in the stability of government finances, either for economic or political ends? Why is this phenomenon happening, and why do news agencies rely on the rating agencies rather than call them out?

Comment by Chris Widger Thursday, Jun 28, 18 @ 11:15 am
There’s that free market principled,fiscal conservative governor again

Comment by BlueDogDem Thursday, Jun 28, 18 @ 11:18 am
–My question, though: If these agencies are just completely wrong, then what’s going on? –

I don’t know. They rate the fiscal practices of government entities and not the actual risk of default.

They are not one and the same, but they sell it that way.

The great Steve Schnorf said it was crazy that any private paper could carry a AAA rating while the SOI, a going concern with sovereign taxing power and an unblemished record of payment on bonds, would be rated lower.

He was proven right many times, of course, most famously with subprime MBS.

Old Schnorf was right most of the time. Geez, I miss that cat.

Comment by wordslinger Thursday, Jun 28, 18 @ 11:53 am
–My question, though: If these agencies are just completely wrong, then what’s going on? –

I don’t know. –

I enjoyed your analysis, and agree largely about the relatively small impact that bonds have on SoI’s fiscal health. But bonds aren’t the only out-of-control financial expense incurred by the State. The true issue, as we all know, is in the pension system. Bond payments are regular and easy to plan for, while pension payments depend upon both revenues (amounts paid in by current employees), expenses (the pension paid out by the fund), as well as investment returns on pots of money. The final piece of of great importance, as the SoI currently estimates that the return on pension portfolios will be 7%. This rate was common pre-recession, but has been difficult to consistently achieve since then. By assuming a rate of reinvestment much higher than will (probably) be obtained, the SoI minimizes the pension problem. As pension payments go up over time (see revenue, expense, return discussion above), these payments can crowd out other governmental priorities, and even create a vicious cycle where disinvestment leads to lower state revenues, leads to more crowding out, leads to etc. etc. Not saying it’s gonna happen, but the ratings agencies have definitely been weighing this heavily in their models.

Comment by DarkDante Thursday, Jun 28, 18 @ 12:13 pm
DD, I’m familiar with the Gospel According to Ty. Still has nothing to do with bond creditworthiness today.

By the way, how many times has the state been late on pension checks? When are you estimating the pension funds will go broke. Twenty years? Thirty years? Never?

Pension mania is a fiscal issue like Janus is a free speech issue. You can sell it to the weak, but I ain’t buying.

Comment by wordslinger Thursday, Jun 28, 18 @ 12:46 pm
–My question, though: If these agencies are just completely wrong, then what’s going on? –

They rated Enron and subprimes AAA because some paid them to do it.
Is GRTC & Co buying IL GO bonds?

Comment by Deadbeat Conservative (Blocked Yet?) Thursday, Jun 28, 18 @ 12:59 pm