Gov. Bruce Rauner’s administration borrowed $1.5 billion on the bond market Tuesday as part of a larger plan to whittle away at the state’s about $16 billion pile of unpaid bills and save money on interest costs.
The state received an overall interest rate of 3.5 percent on the bonds. That’s compared to as much as 12 percent per year in interest the state pays to contractors who have waited months to be compensated for their work because of Illinois’ cash crunch. The last time the state borrowed money, in November 2016, it received an interest rate of just less than 4.25 percent for $480 million in bonds.
The administration plans to return to the market next week to borrow an additional $4.5 billion as it seeks to refinance more debt.
“The state received strong bids today for its bonds and is pleased with the market’s favorable reception of the sale,” said Scott Harry, director of the Governor’s Office of Management and Budget. “This bodes well for the state’s financing coming next week.”
Buyers for Tuesday’s bond sale include Bank of America Merrill Lynch and J.P. Morgan Securities.
The state’s nearly $16 billion backlog of bills is triple the amount when Rauner took office in January 2015. Though the state went two years without a budget amid fighting between the Republican governor and Democrats who control the legislature, government continued to spend money and rack up debt. A series of laws, one-time agreements and court orders meant money kept going out the door. And the Rauner administration continued to sign contracts, whether or not the money was there to pay for them.
Under state law, unpaid bills can accrue from 9 percent to 12 percent interest a year. The bipartisan Commission on Government Forecasting and Accountability has estimated that could cost the state as much as $2 million a day.
Comptroller Susana Mendoza, a Democrat who accused Rauner of dragging his feet on the borrowing, said the rate Illinois received Tuesday “will serve state taxpayers much better than the interest rates of up to 12 percent the state pays on parts of its bill backlog now.”
Mendoza said once borrowing is complete next week, her office will be able to use federal money to make the unpaid bill pile smaller. Rauner’s budget office estimates it could shrink to $7.5 billion by June 30, 2018. But administration officials warn that without further budget cuts in the coming years, the backlog could once again skyrocket to nearly $14 billion by 2023.
That analysis was echoed by S&P Global Ratings, which said refinancing the state’s bill backlog with long-term bonds “entails some risk.”
“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,” the ratings agency said in a report issued last week.
The administration also plans to borrow an additional $750 million by the end of the year to help finance construction projects.
Twitter @moniquegarcia
RELATED
.galleries:after {
content: ”;
display: block;
background-color: #144A7C;
margin: 16px auto 0;
height: 5px;
width: 100px;
More Top Picks Best Under Desk Bikes
}
.galleries:before {
content: “Latest Politics Video”;
display: block;
font: 700 23px/25px Georgia,serif;
text-align: center;
color: #1e1e1e;
var playlist = ‘chi_clout_street’,
layout = ‘autoblurb’,
iu = ‘%2F4011%2Ftrb.chicagotribune%2Fnews%2Fpolitics’;