Quinn wants to borrow $5 billion – but how?
CHICAGO – While laying out his budget plan, Gov. Pat Quinn sounded less like the leader of a state facing a $13 billion deficit than a guy looking to find a credit card with a better interest rate.
When the state fails to pay public schools, colleges and social service agencies on time, he explained in his budget address this week, it must pay 12 percent annual interest on late payments. Instead, Quinn wants to borrow $4.7 billion at “reasonable market interest rates” to help pay overdue bills.
But big questions remain: Where will the money come from? What kind of deal can the state get when its bond rating is lower than every state in the country except California? And is the state taking steps that might help its bottom line now but hurt in years to come?
There are several avenues that the state might take:
Borrowing from itself: Among those who might lend Illinois money is the state itself. Budget Director David Vaught said there were various state funds, including the tourism funds, that the government could borrow from for a short time, maybe six months. Then, the state could get short-term loans, as it did when it borrowed $1.25 billion last August at an interest rate of just over 1 percent.
Selling tobacco-settlement shares: The administration could approach investors with an offer to sell them a chunk of the $300 million Illinois receives every year as part of a multistate settlement with the tobacco industry.
But the state would be giving up a long-term revenue stream for a quick influx of cash, much like the way the city of Chicago gave up future income when it sold its parking meter operation to a private company.
Selling bonds: States often sell bonds to finance things such as building roads and other capital-improvement projects, and it could try to do the same to raise money to pay its bills.
The bonds would be put on the market, with institutional investors or retail investors buying them. Such a move addresses the immediate need for money but then adds costs because it adds debt service to the cost.
Illinois’ bond rating is “A, Rating Watch Negative,” according to Karen Krop, an analyst with Fitch Ratings.
Republican lawmakers aren’t having any of it, starting with the call for a tax increase. Sen. Pamela Althoff, R-McHenry, for example, said not only would such an increase drive businesses from the state, it could prompt those that remain to cut jobs.
She and others said that reining in spending on state pensions and Medicaid – something they said Quinn and other Democrats have resisted – must be done before they even talk about raising taxes.
And that may add up to bad news for the state, which has to show it is serious about balancing its budget.
“The political climate is very difficult there and there doesn’t seem to be a lot of appetite for measures that would bring this budget into balance,” said Krop.
