State to sell bonds, cannot tap all the proceeds
By Dave McKinney & Karen Pierog
CHICAGO – Illinois will sell $550 million of bonds on Thursday but lacks authority from the state legislature to spend all of the proceeds due to an ongoing budget impasse.
“The General Assembly needs to grant appropriation authority to fully expend the proceeds from the bond sale, although existing FY16 appropriations could be used to expend a portion of them,” Catherine Kelly, a spokeswoman for Governor Bruce Rauner, said on Wednesday.
Her statement followed a news conference earlier on Wednesday with the Republican governor and his transportation department head, who warned of the imminent shutdown of hundreds of construction projects if the Democrat-controlled legislature does not approve Rauner’s temporary budget plan.
All but $20 million of the state’s general obligation bond issue is earmarked for mass transit and road construction projects.
The odd timing of the announcement on the eve of the state bond sale handed Rauner’s Democratic rivals in the state legislature fodder to question the first-term governor’s actions.
“We’re hoping none of his activities or staff work is going to drive up borrowing costs like it did for the Chicago Public Schools in February,” said Steve Brown, spokesman for Democratic House Speaker Michael Madigan.
The school district delayed, then downsized its bond sale, after Rauner threatened a state takeover of CPS and said the system was headed for bankruptcy, comments Chicago Mayor Rahm Emanuel called “shameful” because of their possible impact on the bond sale.
Rauner on Wednesday pleaded with Democratic lawmakers to return to session to pass a spending plan that would keep the state operating until January and fully fund K-12 schools.
“Allowing the crisis to continue is wrong,” Rauner said, referring to the ongoing impasse that has left Illinois as the only state without a fiscal 2016 budget.
Illinois has been dependent on court orders and a muddle of ongoing and stopgap appropriations to continue operating and lawmakers have not reached any agreement on a budget for the fiscal year that begins July 1.
The state’s GO bonds trade at wide spreads over Municipal Market Data’s benchmark triple-A yield scale. But Illinois’ upcoming debt issue will likely benefit from yields in the municipal market that are at or near record lows as cash-heavy investors chase scarce supply of bonds issued by states, cities, schools and other issuers.
Illinois’ already low credit ratings were downgraded last week ahead of the sale.