Late CAFR gives Illinois' bond buyers pause, causes speculation, Wirepoints founder says
Illinois' tardy fiscal 2018 comprehensive annual financial report (CAFR) has to be making would-be state bond investors thinking again, according to the founder of an online news outlet.
"Anybody considering buying an Illinois bond undoubtedly must wonder whether there's a material problem they don't know about," Wirepoints Founder and Executive Editor Mark Glennon told Prairie State Wire. "But it goes beyond that. They probably also wonder whether, when the time comes to sell the bond, the buyers then will likewise hesitate because they don’t have timely financials."
Bond-rating agencies certainly have noticed, Glennon said.
"The ratings agencies have said this problem is not sufficient in itself to cause a downgrade, but that doesn't mean the markets won't dish out their own punishment," he said. "It's hard to tell for sure what that impact is, but what's for sure is the problem should get fixed."
The late Illinois CAFR is, however, no surprise, as dysfunction has been the norm through the governorships of Rod Blagojevich, Pat Quinn and Bruce Rauner, and appears to be the same under current governor J.B. Pritzker, Glennon said.
"I think this is just another example of how the back-office functionality of the state has been crumbling," he said. "It's possible [Illinois Comptroller Susana A.] Mendoza and other current officeholders bear no blame and inherited the problems. But Rauner inherited dysfunctional systems, too. So did Quinn before him, and Blagojevich before that. Mendoza’s predecessor as comptroller said the same things. The state has huge numbers of antiquated accounting and computer systems in different offices that are a mess, we've long been told."
Illinois has not yet published its fiscal 2018 CAFR and is the only state in the nation that has not yet done so, according to a story earlier this week by the online market-industry publication The Bond Buyer.
"The absence of a CAFR is a blot on the credit of the nation's lowest-rated state, though it was able to adopt a budget on time this year and releases other reports and updates about its finances," The Bond Buyer article said.
While no market consequences are expected, state officials responsible for managing the state's CAFR publishing process don't know when to expect the report to be released, according to The Bond Buyer.
"Unfortunately, we are unable to discuss ongoing audits and we are also unable to project release dates for our ongoing audits," the office of Illinois' long-embattled Auditor General Frank Mautino was quoted in The Bond Buyer.
The late Illinois CAFR raises broader questions besides the fact it is overdue, Glennon said.
"What caused the lateness and what's being done to fix it?" he said. "Those are the most important questions to ask, and we can't really trust elected officials for those answers. It seems very odd that the CAFRs were completed much earlier over the past two years. What changed? The claim that the Rauner Administration bears part of the blame is therefore very suspicious because he was in office then. So, we don't really know what's going on."
The state's antiquated accounting and computer systems may be only part of the problem, Glennon said.
"It's possible, too, that new accounting rules for the state's retiree health care liabilities are causing problems," Glennon said. "They are new this year, and they are likely to show that the state is in significantly worse shape than previous CAFRs showed."