CHICAGO – Illinois Democrats are keeping the pressure on Illinois Gov. Bruce Rauner’s administration to tap the up to $6 billion of borrowing authority included in the Democratic-led fiscal 2018 budget package to cut mounting interest on the state’s $15 billion bill backlog.
State Sen. Donne Trotter, D-Chicago, armed with a review he commissioned from the legislature’s non-partisan Commission on Government Forecasting and Accountability on the potential savings of the debt restructuring, called on Rauner to act.
“It’s critical that we get the state’s backlog of overdue payments under control,” said Trotter, who sponsored the borrowing authority. “This analysis proves the point that we can lower interest payments, save money and bring financial relief to providers and vendors who do business with the state.”
The state is so far delinquent on about $5.5 billion of the backlog that it’s paying 9% to 12% interest on the bills. Trotter asked the commission to look at various scenarios on the interest costs of issuing bonds compared to leaving the $6 billion authorization untapped.
Interest payments could reach between $6 billion and $8 billion over the next 12 years if the backlog is not paid down under a “rough estimate,” the commission found. Interest on a $6 billion GO borrowing using a 12-year term would carry interests of about $1.76 billion to $2.54 billion based depending on the market reception.
“I urge the governor to take action, so together we can move the state forward toward financial stability,” Trotter said.
Rauner has resisted tapping the authority. He has said borrowing without a more specific means to repay is not the answer. His administration has said he is reviewing the borrowing authority and would consider it and other alternatives, but the clock is ticking because the current authority expires Dec. 31.
“The governor is finalizing a budget implementation plan for fiscal year 2018, including the possibility of issuing bonds to refinance the high-cost of the state’s bill backlog debt. The bond authorization expires December 31, 2017. The bond issuance process generally takes 2 to 3 months before a sale is closed,” Rauner spokesman Jason Schaumburg said in an email Wednesday.
State comptroller Susana Mendoza has warned the current backlog carries an $800 million interest tab this year and interest is accruing at $2 million per day.
The $36.1 billion fiscal 2018 budget package approved by the General Assembly’s Democratic majority in July with the help of some GOP members who broke with Rauner authorized the sale of up to $6 billion in 12-year GO bonds. The approved plan, however, only supports $3 billion of GOs by earmarking a $356 million end of the year surplus to cover the first year of debt service.
S&P Global Ratings late last month said paying off some of its backlog with general obligation bonds could aid Illinois’ strained liquidity. “Given that its budget reserve remains depleted, we believe that foregoing the opportunity to replenish some of this implicit cash flow borrowing capacity would leave the state's liquidity profile subject to heightened vulnerability,” S&P wrote.
Passage of the budget in July bolstered by $5 billion in new annual tax revenues also eased mounting pressures that threatened to sink the state’s ratings to junk territory. Fitch Ratings and S&P took their respective BBB and BBB-minus ratings off watch, with Fitch assigning a negative outlook and S&P a stable outlook. Moody’s Investors Service concluded a downgrade review by leaving the state’s rating at Baa3 with a negative outlook.