Illinois debt watch

[limabeanactuary]

Originally Posted by glassjaws

Yeah, I wonder what's going to happen. I don't think they'll let us crumble like they should.

I think they think the feds are going to run in to rescue the bonholders of Illinois/union members working for the state.

I'm not sure the feds have enough money without currency devaluation. Don't think the bondholders will like that much.

[campbell]

http://m.dailyherald.com/dailyherald...l=true#display

Illinois, facing the worst financial crisis in its history, received a negative outlook on $25 billion of general obligation bonds from Moody's Investors Service after failing to address a deficit that almost tripled in one year.

A negative outlook may indicate another cut to the state's rating, which was lowered to A1, fifth-highest, on June 4, Moody's said today in a release. Lower ratings can increase the cost of borrowing as investors demand higher returns to compensate for increased risk.

"We see risks that could trigger a downgrade in the next 18 months to two years," Ted Hampton, an analyst with Moody's, said in an interview from New York. "In June these risks were less apparent."

[campbell]

http://www.bloomberg.com/news/2010-1...-overseas.html

Illinois capital-markets director John Sinsheimer and Citigroup Inc. bankers took a globe-girdling trip from the U.K. to China in June to persuade investors that the state’s $900 million of Build America Bonds were a bargain.

The seven-country visit worked. The state sold one-fifth of the federally subsidized securities abroad the next month, tapping investors who are the fastest-growing source of borrowed cash for U.S. municipalities. Illinois, with the lowest credit rating of any state from Moody’s Investors Service, dangled yields higher than Mexico, which defaulted on debt in 1982, and Portugal, which costs more to insure against missed payments.

“U.S. states are among the cheapest sovereign credits in the world,” said Patrick Brett, a Citigroup banker who marketed the Illinois securities overseas. “You’re actually picking up a good amount of spread for arguably better credits relative to equivalently rated corporates and sovereigns.”
....
Illinois turned overseas amid financial strains at home. With California, it has the lowest credit rating of any state from Moody’s, which put $25 billion of general-obligation bonds on negative outlook on Sept. 23. That indicates Moody’s may again cut the state’s A1 rating, the fifth-highest grade, after a one-level reduction June 4.

The state’s budget deficit almost tripled in 2009 to $7.7 billion, Moody’s said. Its pension fund had assets to cover just 50.6 percent of promised benefits last year, the lowest so- called funded ratio of any state in data compiled by Bloomberg.

Going abroad saved Illinois about $30 million because of appetite for its debt there, said Sinsheimer, the capital- markets director, based on where final yields were set compared with initial expectations. The state paid a top yield of 7.35 percent on the 25-year debt in the July sale, more than the 20- year yield of Peru, which didn’t exceed 7.1 percent in the month.

Other states/munis show up in that article... NY, CA, of course.

[campbell]

Not being able to buy bullets is a bad sign:
http://m.herald-review.com/business/...bbd01eaae.html

Illinois' precarious budget situation has again triggered a company to stop doing business with the state.

Records show the Illinois Department of Corrections was forced to scramble this week when a vendor refused to deliver foam food trays to Menard Correctional Center because it hadn't been paid.

Industrial Soap Co., which holds the master contract for the foam trays, "will not deliver due to delinquent invoices," prison officials noted.
....
Earlier this year, a company that provides ammunition to help train new guards stopped delivering bullets because it was owed money. Another company that supplies eyeglass lenses also stopped shipping the stock until it was paid.

[silverfox]

From the insurance side, some cities are self-insuring because of cashflow issues... Not necessarily Illinois.

[limabeanactuary]

Originally Posted by silverfox

From the insurance side, some cities are self-insuring because of cashflow issues... Not necessarily Illinois.

Well, that's always fun.

[limabeanactuary]

http://www.bloomberg.com/news/2010-1...ays.html#share

Illinois, which has the worst-funded pension system among U.S. states, may see it deteriorate more even if it sells bonds to close the gap, Moody’s Investors Service said.

Moody’s issued its report today after the state last week sold $1.5 billion of bonds backed by payments it receives from a 1998 settlement with tobacco companies. The proceeds will go to pay $1.18 billion of bills for fiscal 2010, which ended June 30, Moody’s said.

Lawmakers recessed until January without approving Governor Pat Quinn’s plan to sell $3.7 billion of bonds to fund this year’s contribution to state pension plans. About $1.7 billion of a $5.3 billion backlog of bills for fiscal 2011 is owed to pensions, Moody’s said. Contributions are below the amount needed to cover unfunded liabilities, Moody’s said.

“The successful execution of this sale is credit positive, even though deficit financings typically are negative,” Moody’s said in the report by analyst Ted Hampton.

“While issuing bonds for operating costs underscores Illinois’s financial weakness,” Moody’s said, selling the pension bonds “would at least limit deterioration in the funded status of the state’s pensions.”

Lawmakers may approve the pension borrowing during sessions scheduled for Jan. 1 to Jan. 12, Moody’s said.

[campbell]

http://www.bloomberg.com/news/2011-0...o-produce.html

Illinois lawmakers will try this week to accomplish in a few days what they have been unable to do in the past two years -- resolve the state’s worst financial crisis.

The legislative session that began today as the House convened will take aim at a budget deficit of at least $13 billion, including a backlog of more than $6 billion in unpaid bills and almost $4 billion in missed payments to underfunded state pensions.
....
Hynes, 42, predicted the deficit might rise to $15 billion by midyear, and that prospect has come with a price tag. The cost of insuring Illinois debt against default rose to a five- month high last week as the state headed into this year without a plan to finance a $3.7 billion pension-fund contribution.

Insuring $10 million of Illinois debt against default cost $350,000 a year on Dec. 29, more than California’s $298,000, according to data compiled by Bloomberg. Illinois and Arizona were the weakest states in a Dec. 30 financial-strength index report from the Chicago office of BMO Capital Markets, a financial services company.

Lawmakers meeting in Springfield will consider spending cuts, an expansion of casino gambling and a proposal from Democratic Governor Pat Quinn to borrow $15 billion to pay overdue bills and help fill the budget hole.

http://mobile.chicagotribune.com/wap...&title=Opinion

The state of Illinois' debts and unfunded liabilities now total a future-killing $160 billion. A habit of "faster growth in expenditures than in revenues" will do that.
This week, many of the lawmakers who engineered Illinois' spectacular record of failure are returning to Springfield for a final few days of last year's legislative session — and they're in a rush to grab gobs of new revenue. Plans are afoot to raise the 3 percent state income tax to either 4 percent or 5 percent. To vastly expand legal gambling at casinos and racetracks. To borrow $3.7 billion for state employees' pensions. Or to blow well beyond that unjustifiable new debt and instead borrow a total of $15 billion to feed the pension beast and also pay down a backlog of bills.
.....
Your state is in dreadful shape financially — well on its way to being New Michigan or, worse, New California. … The list of money-saving moves private companies long ago would have made goes on and on. One result of the pols' chronic refusal to respect the public's money as if it was their own: Officials of this state, and too many county governments, deliver greater loyalty and more secure futures to their public employees than they deliver to the citizens who pay their salaries. That's unjust. Illinois pols cannot ask for more in taxes until they reform how they spend the tens of billions they already collect each year.… Another loopy preconception that needs to be jettisoned: That Illinois can sustain itself by continuing to borrow.
Well, since you read that passage, your Illinois lawmakers have:
• Managed to drive the state's credit rating to the worst — yes, below Michigan's and California's — in the nation. And Moody's certainly appears as if it's plotting yet another costly downgrade of Illinois bonds.
• Appeased the public employees unions by refusing to modify future pension benefits earned by current workers.
• Continued to borrow and borrow and borrow, burying our children and grandchildren even deeper in our debts.

[limabeanactuary]

http://www.investmentnews.com/articl...FREE/110109986

Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co. in Newport Beach, California, said Illinois was one of the states whose debt he would avoid.

“Illinois is probably in the worst shape,” Gross said in a Dec. 28 interview on CNBC.

The widening gap between Illinois's expenses and revenue drew criticism from Moody's. The disparity underscored the state's “chronic unwillingness to confront a long-term, structural budget deficit,” it said in a Dec. 29 study.

The worst financial crisis since the Great Depression and politicians' unwillingness to cut budgets explain the descent since 2008, said Tom Johnson, president of the nonpartisan Taxpayers' Federation of Illinois. Annual sales and income-tax revenue fell for the first time in modern history, he said.

“The state was hoping for a quick recovery or inflation, and they didn't get it,” Johnson said in a telephone interview. “And there was no appetite to reduce the escalating costs of spending.”

[silverfox]

How can income tax revenue fall in the year they increase the rate from 2% to 3%. I call shenanigans.