The Illinois ‘Financial Condition Penalty’ Continues to Grow

Luby, Martin J.

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https://hdl.handle.net/2142/110193 Copy

Description

Title

The Illinois ‘Financial Condition Penalty’ Continues to Grow

Author(s)

Luby, Martin J.

Issue Date

2016-06-20

Keyword(s)

• financial
• flash
• budget
• condition
• policy
• analysis
• fiscal
• penalty

Abstract

Analysis by the Fiscal Futures Project demonstrates the consequences of the state's poor credit rating. On June 16 the state of Illinois sold $550 million in General Obligation Bonds. This was the first bond issue since the state’s recent credit rating downgrades by Moody’s and Standard and Poor’s. The sale also occurred as Illinois ends FY16 without a budget, and failed to pass a budget for FY17. The analysis shows that the state received $70 million less for this bond sale than it would have received ten years ago, and $12 million less than it would have received six months ago. Future Policy Implications • The $70 and $12 million financial condition penalty estimates only relate to the June 2016 Bonds. Assuming that future debt sales will be at typical levels of about $1 billion each year, this financial condition penalty will be much larger. • Furthermore, based on recent analyses, the state will need to issue much more annual debt than in the past to address its growing infrastructure needs. A recent estimate of the annual bond amount needed to address these needs is $4 billion. At this $4 billion annual bond level, the financial condition penalty estimate will be in the hundreds of millions based on 2006 relative pricing levels and tens of millions of dollars based on the state’s relative bond prices only six months ago.

Publisher

Institute of Government & Public Affairs

Type of Resource

text

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http://hdl.handle.net/2142/110193

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