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Policy institute worries that $1.5 billion bond issue could backfire on Illinois

Politics

By Michael McGrady | Oct 16, 2017

Money759

Illinois continues to teeter on the brink of junk bond status, with an expected $1.5 billion bond issue possibly pulling it over the edge one way or the other, according to the Illinois Policy Institute.

The bond issue is part of Gov. Bruce Rauner's proposed $6 billion bond issue aimed at paying down some of the state’s $16 billion in outstanding bills.

The bond issues comes as Standard & Poor’s (S&P) Global Ratings has affirmed that the state's credit rating remains at a dismal BBB-, or right above the junk level rating, according to the institute.


S&P warned that the state’s new borrowing plan should be accompanied by fiscal reforms.

“The firm emphasized that could change if the state does nothing to fix its chronically unbalanced budgets, poor financial management and increasingly 'distressed' pension funds,” Ted Dabrowski, the institute's vice president of policy, and analyst John Klingner wrote. “Illinoisans shouldn’t be fooled into thinking the General Assembly is solving any real problems by borrowing more and taxing more.

"Instead, Illinoisans need to demand real reforms that bring down state spending to levels Illinoisans can afford.”

Ultimately, if state lawmakers decide on borrowing large amounts of money to pay down billions in debt, S&P suggested that taxpayers will be hurt the most.

Interest payments on the new loans will cost less than penalty fees from unpaid bills, so the direct result could be nearly $368 million in savings annually, S&P said

But the borrowing will further complicate the financial crisis Illinois is in.

“If the bonding plan is not paired with additional fiscal adjustments, the state could be left with a higher tax-supported debt burden and – once again – an escalating backlog of unpaid bills,” S&P said.

Dabrowski and Klingner argued that they are worried that clearing some of the backlog of bills will just let government overspend again without initiating any reforms

"S&P says that’s a problem, as Illinois is already spending more than it’s taking in this year, even with a $5 billion income tax increase," they wrote. "The 'balanced' 2018 budget lawmakers passed is already running a '$1.5 billion structural deficit,' according to the agency."

The two writers said the only way the state can dig itself out of its dire financial hole is through reforms.

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Illinois Governor Bruce Rauner

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