Back in July, the state of Illinois narrowly avoided a junk bond rating with a last minute budget deal that included a 32% in hike in income taxes. Republican Governor Bruce Rauner vetoed the budget and called it a "disaster," but both houses of the state legislature voted to override his veto. Meanwhile, S&P and Moody's were apparently both convinced that the budget deal was sufficient for the state to remain an investment grade credit and all lived happily ever after, if just for a few months. Per CNN:
Illinois narrowly avoided becoming the first U.S. state ever slapped with a "junk" credit rating from S&P Global Ratings after it passed its first budget in more than two years.
The ratings firm removed the threat of an imminent downgrade for the fifth most populous state in the country on Wednesday, ruling that the Illinois budget deal has lowered the risk of a "liquidity crisis." Now the state is rated one-notch above "junk" territory, and S&P said the odds of a downgrade within the next year have "substantially diminished."
Back in July, S&P defended its IG rating by saying that the budget package brought the state's revenue and spending closer to parity and "reduced the near-term uncertainty that had come to characterize its financial operations."
Of course, if that's true, then someone is going to have to explain to us why the state's unpaid payables balance continues to balloon higher with each passing day and now stands at a record $16,046,145,423.20 according the comptroller's office...
...which is only a 3-fold increase over the past two years.
But, if you're a resident of Illinois, or worse yet a pensioner in one of the state's massively underfunded pension plans, Democratic Comptroller Susana Mendoza would like for you to know that there is no reason for concern as she has the perfect solution to the state's debt problem: $6 billion in more debt. Per Reuters:
The bill backlog is growing despite the enactment of a fiscal 2018 spending plan and income tax increase in July that ended a budget impasse between Illinois’ Republican governor and Democrats who control the legislature.
“What is going to take this backlog down is the borrowing,” said Abdon Pallasch, spokesman for Democratic state Comptroller Susana Mendoza.
A provision in the budget enacted by lawmakers over the vetoes of Governor Bruce Rauner authorized the sale of up to $6 billion of general obligation bonds to pay bills from vendors and service providers that are accruing late payment penalties of as much as 12 percent.
That said, Republican Governor Bruce Rauner points out that there is a small problem with Mendoza's magical $6 billion debt cure-all, namely that there is no funding available to pay 12 years worth of interest payments.
But on Monday, the governor told reporters that the bonds do not solve any problem because lawmakers failed to set aside money to make principal and interest payments over the 12 years the debt would be outstanding.
“We need to come up with roughly half a billion (dollars) of cuts just to be able to service a bond offering,” he said, adding that he planned to meet with legislative leaders for discussion.
That said, we're almost certain that if bondholders didn't care about that near-bankruptcy experience back in July, they're also not going to have any problem underwriting another $6 billion worth of debt that has no shot of ever being repaid.
And we're pretty sure these guys won't care either...