Illinois prepares $5.27 billion in pension and school borrowing
Illinois, which has the fifth-highest tax-supported debt among U.S. states, is preparing to sell about $5.27 billion of bonds to fund pension payments, school construction and other capital projects as it prepares to resolve a $10 billion budget deficit.
Officials plan to issue about $530 million of tax-exempt debt this month to fund capital projects under the state's Build Illinois program, said John Sinsheimer, state director of capital markets. The debt will be sold in part through negotiation with underwriters led by Cabrera Capital Markets LLC and partly through competitive bidding. Fitch Ratings on Dec. 3 gave the debt AA ratings, its third-highest level.
"This is a great issue," Sinsheimer, 57, said in an interview in Bloomberg's Chicago bureau. "It's a revenue bond backed by sales tax."
Illinois ranked seventh in per-capita net tax-supported debt in a Moody's Investors Service report and was among nine states cited by the Pew Center for the States as dealing with problems similar to those that left California on the brink of insolvency. The Pew study issued Nov. 11 by the Washington, D.C.-based public policy research group said the states confront declining tax revenue, resurgent deficits and increasing unemployment and home foreclosure rates.
Illinois faces skepticism about budget gaps that Sinsheimer, hired Oct. 19, said hurt pricing in recent bond sales. Governor Pat Quinn is working with other state leaders to develop a plan to address the deficit that Sinsheimer expects by May.
Pension Funds
About $3.5 billion of bonds to accommodate state pension funding for the current fiscal year is anticipated during the week of Jan. 12, Sinsheimer said. Illinois, which doesn't have authority to borrow to fund deficits, might consider it, though such a sale, like all state borrowings, would require approval of a super-majority of state lawmakers.
"It's not out of the question, but you'd need special legislation to authorize it," Sinsheimer said.
The state also is preparing to sell as much as $488 million of Qualified School Construction Bonds in January and $500 million to $750 million of Build America Bonds for road and bridge construction and repairs.
While other government bodies in Illinois have issued Build America debt, it would be the state's first issue of the obligations authorized under President Barack Obama's economic stimulus package. Interest on the taxable debt is 35 percent paid by the federal government. Qualified School Construction Bonds provide federal tax credits in lieu of most interest payments.
The final size of the bond issues will depend on what projects get included for funding, Sinsheimer said.