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  #811  
Old 09-28-2018, 04:48 PM
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https://fixedincome.fidelity.com/ftg..._110.1#new_tab

Quote:
Candidates have few answers in Chicago and Illinois

Spoiler:
CHICAGO – With Illinois’ statewide election fast approaching in November and Chicago right behind in February, candidates have offered few specifics about how they would tackle the pension strains that have dragged down city and state bond ratings and hold a vice grip on future spending.

“The major candidates -- they are not talking about the pension crisis but it looms enormously on the horizon" for the state and Chicago, Chicago Civic Federation President Laurence Msall said Sept. 13 during a panel discussion at the University of Illinois at Chicago’s Urban Forum conference on pensions, debt, and government services.


“I haven’t heard anyone basically identify this shared pain that will be necessary to stabilize the state or city’s finances going forward,” Msall added in an interview. “The question is are we going to election people who are going to address the problem."

Gov. Bruce Rauner, a Republican who is seeking a second term, faces J.B. Pritzker, a Democrat, in the Nov. 6 contest.

Chicago Mayor Rahm Emanuel rocked the local political landscape earlier this month when he announced he would not seek a third term.

Chicago with a collective pension funded ratio of 26.5% and Illinois with a collective funded ratio of 39.9% are far behind their peers, Chris Morrill, executive director of the Government Finance Officers Association, said during the panel discussion with Msall. He said the national aggregate ratio on public pensions has held steady at just over 70% in recent years.

Chicago and the state should aim for measures that represent “best practices” by taking a long view with the payoff down the road because pushing off the pain just adds to the strains, Morrill said.

Future action taken by the city and state stands to impact future ratings, Msall added. Both are tarnished – Illinois carries the distinction of being the lowest rated state in the nation with two ratings at the final notch above junk and Chicago has one junk level rating.

Illinois is saddled with a $129 billion unfunded tab and Chicago with $28 billion in net pension liabilities. An Illinois Department of Insurance report on fiscal 2016 pension data put the total statewide tab at $185.2 billion for a collective funded ratio of 47.9%.

“Any solution is going to require sacrifice by all involved parties,” Msall said. The Civic Federation has recommended fund consolidation and pursuing a constitutional amendment that would ease strict constitutional restrictions that bar any benefit cuts.

Such a change could allow for the state to modify benefits, including lowering the 3% automatic cost-of-living increases some retirees enjoy. Union lawyers say they would challenge any attempt to cut benefits promised to retirees or long-time employees.

Illinois pension contributions consume more than 20% of its general fund and are on the rise while Chicago has raised property taxes, imposed a water/sewer surcharge, and raised the emergency 9-1-1 call fee to cover rising contributions.

ILLINOIS

Pritzker called the pension crisis a “high priority." He believes a statewide fix is needed but has offered few specifics.

“This challenge exists for Chicago and … for municipalities and counties across the state so it’s not isolated,” Pritzker said during a recent appearance at the City Club of Chicago. “We need to have a dialogue with all at the table to understand what we need to do in individual cases.”


“I’ve been very clear about ideas” about how to deal with pensions and fund critical services, he said. “We are talking about revenue, we are talking about efficiencies in government.”

Pritzker said during a NBC5 Chicago debate with Rauner and the two other longshots in the race – Libertarian candidate Kash Jackson and Conservative candidate Sam McCann – he supports funneling more money upfront to the state’s pension system and then re-amortizing the 1995 funding schedule now in place.

He has not said how the state would come up with the cash needed to raise funding.

During the debate, Rauner reiterated his support for the Democratic Senate President’s proposed “consideration” model that asks employees to accept some cuts in exchange for upfront perks and the continued counting of pay raises toward pensionable salaries.

It could shave about $1 billion off the state’s $7 billion to $8 billion annual pension contribution but unions have vowed a constitutional fight. Rauner has previously proposed that the savings from the reforms should go to roll back a portion of the 2017 income tax hike.

Pritzker supports shifting from a flat income tax rate to a graduated system that would require higher earners to pay more.

Rauner is a staunch critic of such a move and counters it would end up costing the middle class more and would come on top of the hike – to a 4.95% rate from 3.75% -- approved over his objections in 2017.

Because moving away from a flat tax rate would require a voter-approved constitutional amendment, Pritzker has said he would seek an “artificial” graduated tax by raising the overall rate while increasing various tax credits and exemptions that benefit people with lower incomes and the middle class. Pritzker refused during the debate to be pinned down on prospective rates saying they would be negotiated with lawmakers.

Pritzker has also endorsed “refinancing” the state’s overdue bill backlog that currently stands at $8 billion but has not provided details on what form the refinancing would take. He has endorsed legalizing marijuana and has said legalizing sports betting provides another potential revenue option.

During the debate, both Rauner and Pritzker said they oppose other new revenue sources that are widely used by other states such as taxing some retirement income and extending the sales tax to some services.


In a recent speech reflecting on his tumultuous first term and goals for a second, Rauner acknowledged the painful impact of the two-year budget impasse that was driven by political differences with Democrats.

“The disruption, the arguments, the negotiations of the past four years have laid the groundwork for real and necessary change. We can build on the bipartisan successes to move our state forward,” Rauner said. “The pillars of this work remain the same: reducing taxes, growing jobs, and ending corruption in state government.”

All House seats are up for election in November, along with one-third of Senate seats. Democrats currently hold a three-fifths supermajority in the Senate and a simple majority in the House.

CHICAGO

At least 17 candidates have formally announced their run for the mayor’s seat, including a handful of higher-profile candidates that jumped in after Emanuel said he wouldn't seek a third term. If no one candidate wins a majority in February, an April run-off is held.

Recent entrants include Cook County Board President Toni Preckwinkle, former Chicago Board of Education chairman Gery Chico, and former banker Bill Daley, the brother of former Mayor Richard M. Daley, who was Commerce secretary under Bill Clinton and chief of staff to President Obama.

A handful of others including state Comptroller Susana Mendoza, city Treasurer Kurt Summers and Cook County Commissioner Jesus “Chuy” Garcia, who ran against Emanuel four years ago, are eyeing a run.

Few have offered a fiscal roadmap for the city or said whether they support new revenue streams from business, such as a financial transaction tax or expanded gambling. Any profits from a new Chicago casino would go to public safety pensions. Bill Daley has said in recent interviews he would seek state help under a potential Pritzker administration and that the pain must be shared, a theme many have used without offering specifics.

How much revenue the next mayor must come up with quickly is not yet known. Emanuel’s administration has yet to identify how the city will fully cover looming spikes in actuarial funding requirements for pensions. The city will see a $170 million and $110 million respective increase in 2021 for police and fire funds and a $277 million and $33 million respective jump for municipal and laborers’ funds in 2023.

Chicago continues to explore a possible $10 billion pension bond issue that would ease the spike, but its prospects dimmed after Emanuel’s announcement because investors are more uncertain over the city’s future fiscal direction and market rates continue to rise, which reduces any benefit from a pension borrowing. If it proceeds, the administration has warned new revenue would still be needed.

The Civic Federation is withholding judgment on the pension bond until a formal proposal is laid out, but Msall suggested he’s skeptical given the interest rate risks. The group wants the city to lay out a broad plan that addresses the pension woes of sister agencies as all depend on the same tax base.

“Potentially adding more debt to an already highly leveraged city or state better fix the problem as part of a comprehensive solution rather than buy some more time,” Msall said. Chicago’s chief financial officer, Carole Brown, told The Bond Buyer in a recent interview if the city moves forward it’s likely to be with a standalone financing plan.



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  #812  
Old 10-08-2018, 02:26 PM
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STATE PROPERTY TAX

https://willcountygazette.com/storie...y-tax-proposal


Quote:
Manley won’t oppose statewide residential property tax proposal

Spoiler:
Since it was announced in May, a plan floated by the Chicago Federal Reserve to create a statewide residential property tax-- adding another $2,500 per year to the bill of a $250,000 Illinois home-- has been furiously, publicly opposed by Republicans across the state.

But Democrats have remained non-committal, holding their criticism of the tax hike proposal and strongly suggesting they would support it in 2019, when they expect to have unfettered control of the state, with super-majorities in the legislature and a J.B. Pritzker gubernatorial administration.

That includes state Rep. Natalie Manley (D-Joliet), who has yet to issue a public statement about the statewide property tax and who, when asked their position by the Will County Gazette, has repeatedly declined comment.

Alyssia Benford, Manley's opponent in the 98th House District, has campaigned against a statewide property tax, saying; "I do not support a property tax hike at this time. We have homes in the south suburbs that are underwater and a tax hike will make it harder to sell homes that are already undervalued. It just passes more of the financial burden onto the taxpayer.”

Homes cannot leave Illinois

The Fed’s statewide residential property tax proposal was floated as the only way to effectively raise enough money to pay off the state’s several hundred billion dollar pension debt.

That’s without instituting reforms that would eliminate the debt, like ending pension double-dipping, raising the retirement age, ending the automatic 3 percent cost of living increase, or requiring public pensioners to contribute more to their own retirements.

Currently, Illinois state workers, who save on average just $3 of every $100 they collect in retirement, can retire in their early 50s with a guaranteed starting pension of 80 percent of their salary. Cost of living increases mean all earn more in retirement than they ever did working.

The authors of the Fed proposal point out politicians like Manley, who support paying the pension debt in full are, by default, advocating massive tax hikes of one kind or another.

They argue they have only one option to raise the revenue: a statewide property tax.

“Assuming that the state can’t reduce its current pension obligations and that it wants to maintain its current level of services, Illinois residents are going to have to pay higher taxes,” wrote Fed authors Thomas Haasl, Rick Mattoon and Thomas Walstrum. ”Because the debt is so large, it’s unrealistic to think that new taxes (such as a tax on legalized marijuana or financial transactions) or increases that affect only a narrow segment of the population will be enough.”

Wealthy taxpayers can avoid higher Illinois state income taxes by moving out of the state, the Fed argued. Confiscating a portion of home equity from everyone who cannot pick up and leave is the only way.

The Fed projected it would take 40 years of a statewide property tax to pay off $130 billion worth of state pension debt, assuming property values triple over the same time period.

Property values in Illinois are 27 percent lower today than they were in 2008, according to Zillow.com. Many blame soaring property taxes for the home value decline.


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  #813  
Old 10-12-2018, 09:26 AM
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http://www.wirepoints.com/jp-morgan-...option-needed/

Quote:
JP Morgan Expert: True Debt, Pension, Healthcare Payments Would Consume Half of Illinois Revenue, Bankruptcy Option Needed
Spoiler:
Michael Cembalest is Chairman of Market and Investment Strategy at J.P. Morgan Asset Management.

His report released yesterday, The ARC and the Covenants, updates his earlier research comparing the percentage of state revenues needed to pay interest on general obligation debt, and meet all future pension and retiree healthcare obligations.

Most states, he concludes, have manageable burdens (which he defines as 15% or less).

Not Illinois, which is far worst among the states. By his calculations, 51% of state revenue would have to go towards debt, pensions and retiree healthcare to reach full funding, and that would take 30 years. He assumes all pensions will earn 6% per year on invested assets. His comparison chart is below.



For the worst off states, particularly Illinois and New Jersey, Cembalest says a solution based on tax increases or higher employee contributions is probably neither economically or politically viable.

Hence, the bankruptcy option:

I participated in a seminar at Harvard’s Kennedy School last year, and there was a sense that the US should use the Promesa legislation for Puerto Rico as a dry run for creating state-level bankruptcy rules, just in case. I think the expansion of Chapter 9 legislation for states makes sense, and I’m not the only one.

He cites former FDIC Chairman William M. Isaac, who earlier wrote:

The city of Chicago and the state of Illinois should act now to restructure their liabilities and put the fiscal mess behind them. This can be accomplished by utilizing Chapter 9 and other tools Congress just gave Puerto Rico. The process would entail about two years of unpleasant headlines, but the city and the state will rebound far sooner and less painfully than if t hey stay on their current paths. (Our article on those comments by Isaac is linked here.)

The analysis states that it represents the views and estimates of the author, Michael Cembalest, only, and should not be treated as J.P. Morgan Research. Note, however, that the chart above showing the 51% and comparison to other states is from J.P. Morgan Asset Management.

Cembalest concludes with this:

Public sector workers form a critical part of our civil society. They risk their lives to protect us when we’re in danger; they make our lives safer, cleaner and more efficient; they educate our children; they enforce the rule of law and provide remedies when laws are broken; they ensure access to clean air, water and food; and they heal us when we’re sick. The legal, medical, environmental and educational problems sometimes found in other countries are a reminder of what life might be like without them. They have earned the benefits they accrued and which were granted by state legislatures, and have the right to expect them to be paid

*Mark Glennon is founder and executive editor of Wirepoints.


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  #814  
Old 10-12-2018, 09:27 AM
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https://www.pantagraph.com/news/stat...#twill#new_tab

Quote:
Taxpayer advocate says pensions are 'bankrupting' Illinois

Spoiler:
PEORIA -- The state of Illinois is bankrupt and many communities across the state need to be allowed to declare bankruptcy, themselves.

The problem is pensions, said Jim Tobin, president of Chicago-based Taxpayers United of America. "Most people have no idea that over 19,000 government retirees are receiving pensions over $100,000 a year," he said, speaking in Peoria on Tuesday.

"You're going to have to use all the property taxes to pay pensions, then you don't have money to pay police and fire, the services we need now. The pension system has bankrupted the state of Illinois," said Tobin.

Peoria City Manager Patrick Urich has said that the city could face a $6 million shortfall in its 2019 budget, citing rising pension costs as one of the biggest expenses. Urich warned members of the Peoria City Council last month that reductions in the city's fire and police departments could be necessary unless new revenue streams are found.

Tobin calls for Illinois to reform its pension system "before it collapses."

"There's no way to tax ourselves out of this mess. The higher the taxes, the more people leave Illinois. We've lead the country four years in a row in outmigration," said Tobin, adding that Peoria has also seen its population decline for four consecutive years.

"The pension data speaks for itself. The average Peoria taxpayer's Social Security pension is about $17,000 and is funded completely with private money from taxpayers and their employers," he said.

"It's ridiculous that taxpayers have to work into their 70s and 80s to fund generous government employees, many of whom start collecting pensions in their 50s," said Tobin, pointing out that many state pensions increase by 3 percent per year.

Tobin, who toured the city releasing the names of government retirees receiving the largest pensions, provided lists of those who held government posts or teaching jobs in the Peoria area with the largest pensions.

He pointed to two employees of the Peoria public school system with annual pensions over $200,000 each: Francis Hilton II, $211,087, and Annette Smith, $201,663.

"Illinois Central College retiree, Thomas Thomas (former ICC president), tops our Peoria pensions at $218,517 this year," said Tobin.

Topping the list of a group that Tobin referred to as "pension millionaires" was Leslie Heffez, a Chicago-area retiree whose current pension is $598,664. A complete list of Illinois pensions can be found at www.taxpayersunited.org.

Tobin suggested a series of moves to reform the Illinois system. "First, stop hiring government employees with new pensions. Switch new hires over to 401(k) plans. I've been recommending this for 10 years," he said.

"Next, the General Assembly needs to allow local governments to declare bankruptcy, allowing those communities to reorganize their finances," said Tobin, adding that Washington needs to allow states like Illinois to declare bankruptcy.

"We also need a constitutional amendment to allow local governments to cut pensions," said Tobin, who said the November election might bring more bad news for Illinois taxpayers.

"If J.B. Pritzker gets elected (governor), he and Illinois tyrant Mike Madigan will see to it that these lavish pensions are continued. They bring in thousands of union and government employee votes," he said.

On the campaign trail, Gov. Rauner has talked of a bill to allow municipal bankruptcy while Pritzker has addressed of paying off some of the state's pension debt through his graduated income tax idea but as yet hasn't provided details of the plan.


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  #815  
Old 10-12-2018, 11:49 AM
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https://www.bloomberg.com/news/artic...om-cut-to-junk

Quote:
Investors Just Want an Illinois Governor Who Will Avoid a Junk Rating
By Elizabeth Campbell
October 11, 2018, 9:29 AM EDT
Bondholders want next governor to pass budgets, fix pensions
Rauner, Pritzker vie to lead state that’s one step above junk

Spoiler:
Illinois investors are endorsing fiscal stability this election.

No matter who wins the gubernatorial race next month, bondholders want the next chief executive to avoid a repeat of the longest budget impasse in U.S. history, one that put Illinois on the brink of becoming the first junk-rated state. That gridlock -- the result of a two-year standoff between Republican Governor Bruce Rauner and the Democrat-run legislature -- drove unpaid bills to a record $16.7 billion, forced cuts in social services, and sent borrowing costs to multi-year highs.




The fiasco also kept the state’s leaders from making any real progress on fixing its biggest challenge -- the government worker pension plans that are falling deeper into the red while consuming more and more tax dollars.

“We don’t care if it’s a Democrat or Republican, we just want to make sure that whoever is in the office knows how much new taxes and revenue increases are needed to make those hard decisions of trying to deal with pensions,” said Dora Lee, vice president at Belle Haven Investments, which manages about $7.5 billion in municipal bonds, including Illinois debt. “We just need someone who has the vision and the political capital to make those hard choices because time is kind of running out.”

Prolonged Stalemate
Rauner, a former private-equity executive and multimillionaire, is running for re-election against Democrat J.B. Pritzker, the billionaire Hyatt hotel heir. Rauner took office in January 2015 as the state confronted a deficit amid expiring income-tax hikes. Rauner refused to raise taxes unless lawmakers agreed to an agenda that included property-tax cuts, limits on unions and changes to worker-compensation laws. Democrats balked. The stalemate didn’t end until July 2017, when lawmakers, including members of his own party, overrode his veto to enact a spending plan that raised income levies.

Rauner is calling for reforms and says more tax hikes won’t solve the state’s problems. Pritzker is campaigning for a graduated income tax -- instead of the current flat tax -- that he argues will lower those on the middle class. That would require a constitutional amendment.

Pritzker held a 20-point lead over Rauner among likely voters, according to an Ipsos, Reuters and University of Virginia Center for Politics poll released Wednesday. Likely voters favored Pritzker 50 percent, compared to 30 percent for Rauner, the poll showed.

One party rule has worked to ease impasses in other places. California Governor Jerry Brown, a term-limited Democrat, is leaving office after amassing a surplus of about $9 billion compared to the $27 billion deficit when he took over for his Republican predecessor in 2011. But single-party control is no guarantee. New Jersey’s leaders have yet to right the state’s finances since Republican Governor Chris Christie exited office in January, with Governor Phil Murphy and fellow Democrats struggling to find common ground.

Beyond Gridlock
Even though Rauner pushed for fiscal reforms that would have cut costs, none of those were enacted, said John Miller, head of municipals at Nuveen, which holds more than $140 billion in state and local debt, including Illinois bonds.


“The concept that there could be a better, maybe a more productive dialogue where you could actually pass some fiscal changes that require legislation, that’s got to be considered better than gridlock," Miller said. "I actually think the bond market would respond more positively to a change,” said Miller, who noted that his comments were from a revenue, expenses and budgeting point of view and not a political perspective.

Investors have long punished Illinois for its fiscal woes. Yields on Illinois’s 10-year general-obligation bonds jumped to as much as 3.4 percentage points above benchmark in June 2017 as credit-rating companies warned that Illinois could lose investment-grade status if the impasse wasn’t resolved. That gap has since fallen to 1.8 percentage points but is still the highest among the 20 U.S. states tracked by Bloomberg.

“If there’s unified government, whether you view that favorably or unfavorably, it does mitigate appropriation risk and decreases the chance of a government shutdown, and it also mitigates the risk of not having a budget passed,” said Dennis Derby, a portfolio manager at Wells Fargo Asset Management, which holds $39 billion of municipal debt, including Illinois bonds. “No matter who wins, going forward, we would want to see balanced budgets, attempts at pension reform and a reduction in the payables backlog.”


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  #816  
Old 10-12-2018, 03:15 PM
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https://fixedincome.fidelity.com/ftg..._110.1#new_tab

Quote:
Illinois puts its best credit foot forward with sales tax bond deal

Spoiler:
CHICAGO – Illinois hits the market next week with $250 million of sales-tax backed Build Illinois bonds, its first issue since losing some of their ratings' luster due to the state’s tainted general obligation credit profile.

Ahead of Tuesday's competitive sale, Fitch Ratings affirmed the program’s A-minus rating and S&P Global Ratings affirmed its AA-minus rating. Both rating agencies hit the program with downgrades tightening the link between the Build Illinois credit and the state’s battered GO ratings, and it could face further erosion when S&P releases revised credit criteria later this month.


Kroll Bond Rating Agency assigned a first-time rating of AA-plus. It does not rate the state’s GOs and a state official said the administration of Gov. Bruce Rauner has not decided to add Kroll to its GO rating agencies. Moody’s Investors Service which gives the Build Illinois program the same Baa3 rating as the state’s GOs, was not asked to rate the new bonds.

"The ratings reflect our view of the state's deep and diverse economic base and above-average income levels supporting sales tax collections; very strong debt service coverage; and strong credit structure that we believe largely insulates bondholders from economic and revenue volatility, with an additional bonds test that significantly constrains future leverage," said S&P analyst Gabriel Petek.

The state’s weak general credit quality offsets the strengths, Petek added.

Kroll said its views “the legal framework of the Build Illinois Bonds program, the broad and diverse state-wide economic base which generates sales tax revenues, and the extraordinary pro forma MADS coverage of outstanding senior and subordinate obligations as supporting the rating assignment.”

Kroll’s rating is based on its U.S. Special Tax Revenue Bond Rating Methodology. “The stable outlook reflects KBRA’s expectation that pledged sales tax revenues will continue to grow at a modest pace and coverage of Build Illinois Bond obligations will remain extraordinary,” Kroll said.

With $1 billion in GO borrowing not planned until later in the fiscal year, the deal is Illinois' last ahead of the November 6 election that will decide the governor's and the makeup of the legislature.

The deal is divided into three series for $115 million, $125 million, and a taxable C tranche for $10 million. The fixed-rate bonds are being issued under the junior lien obligation with the first two series maturing in 25 years and featuring a 10-year call and the third maturing in 10 years.

All three are secured by the state’s share of sales taxes but the B and C tranches are further secured by a pledge of the state’s capital projects fund.

Acacia Financial Group Inc. is financial advisor. Katten Muchin Rosenman LLP and Charity & Associates PC are bond counsel.

Rauner’s finance team highlights the program’s strengths in a recorded investor presentation.

“The Build Illinois program boasts a conservative debt profile that is 100% fixed rate and amortizes rapidly” with strong legal protections from a continuing debt service appropriation, strong sales tax collections that provided 27 times coverage last year, and strict limits on future issuance, said capital markets director Kelly Hutchinson.

To issue additional senior lien bonds, collections of the state’s 5% share of its 6.25% tax – with the other 1.25% going to local governments -- must provide 20 times coverage of maximum debt service and 10.2 times on the junior lien. Coverage has ranged from 22.8 times to 27 times over the last seven years. Sales tax collections were $8.7 billion last year.

The state has $2.3 billion outstanding including $1.3 billion under the senior lien and $1 billion under the junior lien and has nearly exhausted the $6.25 billion of issuance authority as $5.6 billion has been sold since the program was launched in 1985.

Build Illinois bonds in the seven to 12 year range have traded recently between 75 basis points to 85 bps over the Municipal Market Data’s top-rated benchmark, said Dan Berger, senior market strategist at MMD. That’s in line with a BBB spread to the AAA that’s currently at about 80 bps on the 10-year. The state’s 10-year GO is trading at about a 180 bp spread.

The 10-year in the state’s last Build Illinois sale for $549 million in August 2016 landed at 1.88%, a 47 bp spread to MMD. A 10-year taxable bond landed at 2.62%, a 104 bp spread to comparable Treasuries.

The bonds remain appealing as a stronger Illinois credit with a sturdy backing, said Brian Battle, director of trading at Chicago-based Performance Trust Capital Partners.

“It’s a sales tax revenue so it’s immune to what’s going on with the budget and general fund issues and the market is smart enough to discern that and likes that the coverage ratios are superior and might not be reflected in the ratings,” Battle said.

Extra yield will also prove a draw as the Illinois name results in a penalty especially among retail buyers. Adding Kroll’s higher rating may not help keep the spread in check but it was a good move as it provides “another data point” for investors, Battle said.

Future risks include exposure to an economic downturn in sales tax collections and the risk that future leaders may dilute the sales tax strengths. The program's authorizing legislation so far restricts its use to financing capital and infrastructure projects.

“In our view, the inability to prohibit future lawmakers from taking such action, combined with the state's unresolved fiscal imbalances, links the credit quality of the Build Illinois sales tax revenue bonds to that of the state's general creditworthiness,” Petek wrote.

S&P dropped the rating to AA-minus from AAA in June 2017 over concerns that the state’s budget woes amplified the risk of potential interference with the flow of pledged revenues. The action came ahead of the end to a two year budget stalemate a month later.

A further S&P hit could loom when S&P publishes its revised criteria for assigning ratings and related credit products to priority-lien tax revenue debt issued by municipal governments, state governments, or other U.S. public finance obligors where the pledged revenue stream is limited.

On Wednesday, S&P released its Advance Notice of Proposed Criteria Change indicating it intends to publish the changes October 22. The state posted a supplement to its offering statement to reflect the report.

“In a prior published statement S&P indicated that it is considering a revised criteria for priority lien tax revenue debt that would formally link the rating on priority-lien tax secured debt issues to the general creditworthiness of the obligor,” the supplement reads. S&P rates Illinois GOs BBB-minus.

Fitch dropped the Build Illinois rating five notches to A-minus from AA-plus in May to reflect its criteria change for state dedicated tax bonds. It assigns a negative outlook.

“In Fitch's opinion, the Build Illinois bond structure warrants a rating two notches higher than the state's issuer default rating given the narrowing of the dedicated revenues through the additional bonds tests and the specific nature of the borrowing program,” Fitch said.


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