CHICAGO – Illinois will take competitive bids on $550 million of new money general obligation bonds next week as the state barrels toward its second fiscal year without a budget.
The sale will "provide funds to finance capital projects under the state's capital program," the sale notice says. The fixed-rate bonds will carry a final maturity in 2041.
FirstSouthwest is advising the state.
The state notifies potential investors that the General Assembly closed out its spring session at the end of May without passage of a fiscal 2016 or 2017 budget.
Debt service on state GO and sales tax bonds remains current under continuing appropriations for debt service, and about 90% of government funding continues under such appropriations, court orders, consent decrees, and legislation that has been signed by Gov. Bruce Rauner, leaving social service providers that rely on state payments to bear the brunt of the budget deadlock. The state is on pace to close out the current fiscal year with a $10 billion unpaid bill backlog.
With Rauner and his fellow GOP lawmakers at loggerheads with the legislature's Democratic majority, the state tells potential investors in a presentation that the governor is backing a "bridge" spending plan. It's designed to get the state through the November election with the goal of then reaching agreement in January on a budget and Rauner's proposed governance and policy proposals.
Rauner's refusal to consider a tax hike to tackle the state's red ink without passage of some of his reform proposals and Democratic opposition to those changes has driven the year-old budget stalemate.
"It is expected that the legislature and governor will continue to meet to discuss authorizing some level of appropriations, but the amounts and timing are not known at this time," the state presentation says. "It is expected that any appropriations, if enacted, would authorize partial spending for part of the fiscal year."
Democrats have suggested they are open to such a plan, but it's unclear how soon an agreement might be brokered as both sides continue to trade heated barbs.
Rauner has amplified his attacks on Democrats over the last week, offering highly critical comments of House Speaker Michael Madigan, D-Chicago, Senate President John Cullerton, D-Chicago, and Chicago Mayor Rahm Emanuel.
He blasted Madigan Tuesday for cancelling a Wednesday session which the speaker's office said was due to ongoing budget talks.
"They want a crisis in the schools. They want a crisis in the government to leverage a Chicago bailout and leverage a big tax hike without any reforms," Rauner said.
Last year, Rauner signed the education appropriation and vetoed the rest of the fiscal 2016 budget approved by Democrats. This year, the session ended without passage of any version of a fiscal 2017 budget.
Democrats have proposed extra funding for high poverty districts that would benefit districts like Chicago Public Schools as well as help with CPS pension payments. CPS and some other districts have warned they can't open without a fiscal 2017 appropriation, but CPS needs additional funding beyond what Rauner has proposed.
During a speech Tuesday former Gov. Jim Edgar, a Republican, reiterated his warning that the state is its worst shape in at least five decades and continued to suggest that the budget be tackled alone as Democrats have demanded.
The state has suffered ratings erosion that may continue unless it makes strides in tackling its budget and pension ills.
Fitch Ratings dropped Illinois one notch to BBB-plus over the last year, assigning a stable outlook, while Moody's Investors Service lowered its rating to Baa1 with a negative outlook. Standard & Poor's rates the state A-minus with a negative outlook.
The state's 10-year GO paper has been trading at a 180 basis point spread to the Municipal Market Data's top-rated benchmark.
The state last sold debt in January after a 20-month absence from the primary market. Illinois' 10-year maturity paid a yield of 3.33%, 155 basis points over the top-rated MMD benchmark and 61 basis points over the triple-B benchmark. The deal's long 25-year bond paid a yield of 4.27%, 161 basis points over the top rating benchmark and 73 basis points over the triple-B.