By: Ted Dabrowski

Illinois has announced $2 billion more in additional borrowing from the Federal Reserve Bank’s Municipal Liquidity Facility (MLF). Gov. J.B. Pritzker has informed the Fed of the state’s intention to borrow the funds before the facility expires at the end of December. The facility was put in place by the CARES act as a backstop for governments hit by financial market disruptions due to COVID.

While the presence of the Fed facility is credited with bringing stability to the municipal markets, the reality is only one state or city in the entire country has borrowed from the facility since its inception: the state of Illinois. All others have successfully raised billions from the traditional markets during the pandemic.*

Illinois’ increased reliance on borrowing follows the public’s rejection of a $3.1 billion tax hike referendum on Nov. 3. More debt, in the absence of major spending reforms, means a junk rating is increasingly likely for Illinois. No state in modern history has ever been rated junk.

Illinois’ legislature authorized in the spring up to $5 billion in borrowings from the Fed to cover the state’s 2021 shortfalls, but Gov. Pritzker recently said:

“I am very reluctant to saddle our state with that large amount of short-term debt. I believe it would be irresponsible to borrow that entire amount, given the persistent fiscal pain it would cause over the next three years, as we would struggle to repay that entire amount. Our collective intention is to repay this line of credit as early as possible, after either the awarding of stimulus by Congress or a sufficient recovery of state revenues.”

Said another way, $5 billion in additional debt, with such a short repayment period, would likely trigger the credit rating agencies to act sooner than later. Moody’s recently said in an October report, “[Illinois’] ability to weather the coronavirus pandemic without hurting its credit quality will require keeping growth of its long-term liabilities within its capacity to pay.”

All three agencies rate Illinois just one notch above junk and all have a negative outlook on the state. In fact, Illinois bonds have already been trading at junk-level interest rates for some time.

Illinois already tapped the MLF once in June after the state was unsuccessful in raising $1.2 billion from the municipal market at favorable conditions. The $2 billion will be the state’s second borrowing from the MLF.

The state’s budget hole in 2021 is reportedly at $4 billion, while its unpaid bills currently total $7 billion. That’s on top of a Moody’s-estimated $261 billion shortfall for Illinois’ five state-run pension plans, and $56 billion in unfunded state retiree health insurance obligations.

Since the rejection of the progressive tax hike by the public, state officials have yet to put together a financial plan that shows how it will deal with its short-term financial needs. The state’s planned legislative sessions in November and December were cancelled due to COVID, meaning nothing will get done before year end.

The governor and the legislature have also shown no inclination to deal with the larger pension crisis. The governor earlier this year even went as far as to call the pursuit of a pension amendment and pension reform a “fantasy,” saying any reforms would be struck down at the federal level. The governor is likely unaware that both Rhode Island and Arizona have successfully reformed their pensions in recent years, with neither running afoul of the federal Contracts Clause. Wirepoints has covered the legality of reforms, including details of the reforms in both states, in its recent report: Solving Illinois’ Pension Problem: Why Pension Reform is Legal. (Other parts of Wirepoints’ reform plan are at the site Pension Solutions.) 

Moody’s has also said it would regard pension holidays and reamortizations as a credit negative: “Underfunding pensions again could lead to further credit deterioration, depending on the degree of underfunding, the state’s other financial strategies and the performance of its pension investments.”

With the options to borrow, tax and postpone debt repayments being taken away from them, Gov. Pritzker and the legislature must begin to realize they can no longer avoid real reforms, starting with a push for a pension amendment. Sure, another stimulus round may provide some temporary relief, but it will do nothing to fix Illinois’ structural problems and to avoid an eventual junk rating.

Reforms in Illinois were once seen as impossible, but they are quickly becoming inevitable.

*New York’s Metropolitan Transit Authority is the only other government in the country to borrow from the MLF.

Read more about Illinois’ financial crisis:

 

73 Comments
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Alphabet Soup
1 month ago

Spineless politicians lacking the political will to make the difficult decisions towards solving Illinois’ fiscal problems. Easier to borrow and kick the can down the road. Pity the next generation…

NoHope4Illinois
1 month ago

I thought this was useful reading on the MLF:

https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2020/10/the-municipal-liquidity-facility-how-it-works

Illinois is a real outlier. I suspect MLF default of some sort.

Tim Rinchiuso
1 month ago

What is insanity? doing the same thing over and over again and getting the same bad results. In other words putting the same old corrupt people in office and getting the same results. The laws are written by corrupt lawyers such as Mike Madigan and then circumnavigated by those same corrupt lawyers. Does anybody remember Operation Graylord? corrupt lawyers and judges on the take. Anyone with half a brain realizes that Illinois is bankrupt because of the public sector unions .For example there is a school superintendent in Ford Heights [a garbage pit in Illinois} that is making over three… Read more »

Glen
1 month ago

Not one mention of cost cutting

Governor of Alderaan
1 month ago
Reply to  Glen

The Dictator was planning to borrow $10 billion, but by borrowing only $5 billion he’s already made a 50% cut

Old Spartan
1 month ago

Too bad this is so complicated that the average Illinoisan cant comprehend this. The seventh paragraph is the key– if it walks like junk, and quacks like junk and looks like junk– it is junk. The ratings don’t recognize reality because the rating agencies are all paid by the state of Illinois. But the market is smarter than that– they trade the junk duck like it should be traded. And the fact that the State of Illinois is the only state to borrow–twice — from the feds, should also be a huge story.

Shar
1 month ago

Illinois politicians have a spending problem. Period. 2 years ago all of Illinois financial problems were going to be solved when marijuana was legalized. (Cue Pritzker family business profits). Forcing business to close because of covid and keeping people focused on covid (cue Pritzker family business profits) isn’t helping Illinois residents financially. And don’t blame the vote against progressive tax increases as the cause of any of this. Changing the Illinois constitution to allow crooked politicians free and inverted access to raise taxes was insulting to the hard working people of Illinois. Stop “reporting” what you are being spoon fed… Read more »

Tony
1 month ago

This is truly sad that they don’t want to cut anything but keep increasing their budget , they have a elephant on the capital floor that keeps bleeding profusely oh that’s right it’s the pension that they can’t keep up with . Maybe one day they’ll see democrats just like spending and increasing taxes. Or the state becomes a ghost town.

1 month ago

General Assistance would curve homelessness poor people could purchase necessary winter clothing

DazzleMe
1 month ago
Reply to  IDA SIMPSON

Hold the democrats in Chicago responsible for that problem!

Thee Jabroni
1 month ago

Its interesting reading all these comments,most of which i agree with,but,next state election cycle will be mostly democrats voted into office.The people in this state either like being over taxed and over regulated,or they’re about the dumbests mofos in the country,which is it people!?

James
1 month ago
Reply to  Thee Jabroni

Or, maybe their priorities in life are different than yours.

Thee Jabroni
1 month ago
Reply to  James

Yea,i guess youre right,if priorities are to constantly pay more and more taxes and nothing is done to make necessary cuts to the state budget and pension problem,then yes,i guess my priorities are different!-duh!

Aaron
1 month ago
Reply to  Thee Jabroni

Don’t forget invent a new gender pronoun every hour, champion diversity (except diversity of thought), kill as many unborn children as possible, allow men into the ladies room, etc. . .

Heyjude
1 month ago
Reply to  James

Amazing how different priorities can be depending on if you can use other people’s money to fund those priorities.

Cj
1 month ago
Reply to  Thee Jabroni

Nah they are just really crooked, nobody votes this stuff in it just gets passed. The amount of under the table deals in Illinois is sickening, all the politicians are for themselves that’s why.

DazzleMe
1 month ago
Reply to  Thee Jabroni

Amen to that, I’m a transplant from Mississippi and we never had the crookedness that Illinois has, and I know politics are all crooked.

Deborah Wright
1 month ago

Big question if illinois legal use of recreational pot, In the first week made 3 million in sales! Where is that money going to??? How can other states with this same law be in the black and doing good.. where lllinois is still in the red!!! Unless as usual the over paid politicians are dipping their hands in the till. Someone needs to find out who is tracking these funds. Bet you would find a surplus that is miss used.

Cj
1 month ago
Reply to  Deborah Wright

None of the money from taxes or tollways goes towards anything useful except for politicians pockets in Illinois. Now you just get to see it first hand.

Tony
1 month ago
Reply to  Deborah Wright

Poorly budgeted

Riverbender
1 month ago
Reply to  Deborah Wright

Speaking of funds what about the new funds from online sales that Ebay, Amazon and the rest collect and send to the state? I haven’t heard anything about those funds from the budgeters and assume that, like so many things, fell in to a deep hole somewhere.

Bet
1 month ago

The funds should not be the problem. They raised our license plate taxes to raise millions. The added majauania plants and made selling it and doing it legal to raise billions. Which sales are beyond expectations. Property taxes double every damn year too. So again, why cant you work within your budgets? The interstate tolls were put in to pay for the road construction. Oh, that was a money maker so you kept them there. Great but the roads are crap all over Illinois. So where is all that money for roads going? Make a budget using 1 million LESS… Read more »

DazzleMe
1 month ago
Reply to  Bet

Amen Bet

Bet
1 month ago

Maybe it’s time to dissolve the state of Illinois entirely. They cannot get uncorrupt politicians to run and get voted into office at the Governor level. How many now have been put into jail???The state parks are falling apart. They are taxed to death. Income, gas, local, and food not to mention, entertainment and luxury taxes to name a small few. The answer is always raise taxes. Families in Illinois have to stay within their budgets all the time. Why cant the damn government do the same? The answer is not raise taxes. Look at the exodus of people moving… Read more »

DazzleMe
1 month ago
Reply to  Bet

Well said

Edward
1 month ago

Would love to know when somebody is just going to take a bat and break his teeth out or better yet how is this motherfucker still being elected

Last edited 1 month ago by Edward
MsEvan
1 month ago
Reply to  Edward

Wouldn’t it be better to do that to the people that voted for him? Seriously, start implementing your plan to leave Illinois. You’ll feel so much better.

Cj
1 month ago
Reply to  Edward

not really, everywhere sucks, ive lefr Illinois but it doesn’t make you feel any better, that’s why I came back and bought a house here. I have a really cheap house here and I don’t want to go anywhere else because they’re more expensive to be honest. Cost of living here is so cheap but the taxes are ridiculous.

The Truth Hurts
1 month ago
Reply to  Cj

So you left Illinois and came back because even with high taxes it was an overall value? Interesting. Seems to me you are in the camp that believes taxes are not the only thing that influence where we live. You are a unicorn on this site. Most people go on and on about how they are leaving the state any moment. Of course most of them never do. At least you tried but then realized that your overall cost of living was much better in the land of Lincoln.

Just curious, where did you move to when leaving Illinois?

James
1 month ago
Reply to  Cj

One of the things you learn as your own personal odometer keeps rolling along is that no matter where you think life is better it comes with its own set of problems as well as benefits. You simply leave one set of problems to inherit another set, maybe a point of regret or not depending upon how seriously you take each set.

Indy
1 month ago
Reply to  Cj

Keep telling yourself that nonsense.
Meanwhile onward to financial ruin you go.

Wally
1 month ago

Be careful what you wish for. Remember Pritzker calling Rod? Can I be Senator? Or Attorney General? Just give me a position? So he goes and spends a ton of money to run for the most hopeless position in US. Governor of IL. Why do you think Lisa Madigan never ran? Any smart Democrat knows that unless you fix the pension mess, IL is doomed and no Democrat can buck the public sector unions. So Pritzker got his job, his fair tax lost, and the virus doubled his problems. Think he has regrets? Got what he wanted, just turns out… Read more »

Justin
1 month ago

The Solution (while extremely difficult to do) is to kick out the Chicago area out of IL (Cook County for sure) or for most of IL (the Southern part, in particular) to form their own state.

Scott Hess
1 month ago

Illinois has the Fattest Laziest Governor in the World
Illinois HATES you jb

Martin OGrady
1 month ago

Lovely. Just what the heck does a “facility” have to do with financial liquidity?🤐

Joseph
1 month ago

Some of us residing at the Veterans home in Manteno IL hope nothing happens to us. It seems like a number of states are in dire financial straits.

Indy
1 month ago
Reply to  Joseph

Indiana isn’t.

Must know the economics
1 month ago

This is crazy- these money ain’t goin to people- these money go to politics to play there freaking games, Illinois must file the bankruptcy as AR did in late 30’s and start all over again cause Pritzker plans don’t work you crazy people!!!

Sally
1 month ago

Wth Pritzker??? Im thinking your being a douche on purpose. Illinois has such high marijuana sales that this state should be in the green by now. Your running our state into the ground. Why we pay so much more than every other state? Ill tell ya why… Cuz ur a douche and cant run a state right to save your fat ass.

Donna K Scott
1 month ago

What happened to all the billions of dollors coming from legal pot?

Roger Kempa
1 month ago

Gov. P cites only two ways of debt repayment: (1) awarding of stimulus by Congress or (2) a sufficient recovery of state revenues.” State of ILL must cut all the following: Spending, Costs, Pay, and Number of Employees. If ILL borrows $5 Billion from the Fed, anyone believe it will be repaid?

Thee Jabroni
1 month ago

Illinois and the people that run this state are a borrow,tax and spend joke!-Im convinced these bone heads couldnt run a lemonade stand without screwing it up in 1 months time!-Pritzker ,youre a joke!

A taxpayer
1 month ago

This is the same state government who spent $150,000 per door on the state capitol! Let’s borrow more money when there’s not enough to spend! This has been going on for decades here

Cheryl Rascon
1 month ago

Why not renegotiate pension fund contract, cut spending and take a pay cut? Why not balance the budget and cut wasteful spending and programs. Pritzker surely doesn’t run all of his businesses in the same manner he run this state. A billionaire who doesn’t pay his fair share of taxes.

Jeannie
1 month ago

Time to formalize the situation here in IL by filing for bankruptcy. Will the legacy pensions take a hit? Yes: the rest of us (non-gov workers) had our pensions lose TWICE, half their value since 2001, yet the government workers were exempt as we who lost our pensions, or lost jobs, had to continue to cough up for theirs. No more. File bankruptcy and vote out the party that has drained this state continuously for over 100 years.

charlie says
1 month ago
Reply to  Jeannie

states cant file for bankruptcy genius you`re probably one of the fools who voted these people in

Riverbender
1 month ago
Reply to  charlie says

Despite your negative comment rating you are correct. Unfortunately most Illinoisans’ dont understand that.

James
1 month ago
Reply to  Jeannie

Jeannie, you’ll have a tough time doing that in the near term. IL politics is divided between the rural Republicans and the larger number of urban/suburban Democrats and has been that way for a number of decades. IL may go your way eventually and likely will for the reasons you’ve cited, but its not happening yet. It may be the next presidential election cycle or the one following that, but your wish likely will come true within the next 4-8 years, I’d bet, barring some miraculous federal bailouts. Assuming no such luck there its likely all parties having a beneficial… Read more »

Stevet
1 month ago

IL is broke folks and bankrupt

Douglas
1 month ago

Here is what IL government is thinking, and why they could be right. Biden will be taking over the white house and as such, the bad behavior and bad decisions of IL will be taken care of in the form of a “covid19 relief package.”

Joey Zamboni
1 month ago
Reply to  Douglas

I believe you are 100% correct…

IL is banking on a bail-out…

Admin
1 month ago
Reply to  Joey Zamboni

Much of the establishment says that expressly in private. They call it “federalizing” all state and local problems. We have it on good authority that Rahm, among others, said that in private some years ago.

Dr Common Apathy
1 month ago
Reply to  Mark Glennon

Mark,

The key to getting a bailout is not being the first to fail. Once Lehman Brothers failed, and the Feds saw the damage caused by it, they bailed out the banks. The same will be true for poorly run states. As always, these bailouts will come with strings attached.

Assuming IL can survive long enough to be the second state to fail, we will get our bailout.

Juicy Smollier
1 month ago
Reply to  Mark Glennon

They can say all they want. There is no way out. No, the Dems don’t care about the Fed making the dollar worthless either, but many people still do. There will be inflation to “help” and a lot of kicking the can (check out the MLF as we’ve talked about) but there will be no bailout. It’s mathematically impossible. Throw moral hazard of the millennium on there, and it’s BS to even talk about.

R Komo
1 month ago
Reply to  Joey Zamboni

The Republicans are likely to maintain control of the Senate. That bailout will not happen, and should not happen. Force these dopes to revamp the pension structure.

Land of Delusion
1 month ago
Reply to  Douglas

Problem with that is Biden has no power to issue a relief package. If Democrats fail to take the Senate it is no more likely a bailout will occur then it was under Trump.

Ex Illini
1 month ago

People have to stop believing in what the see and hear from the main stream media. Biden can’t just approve a bailout. And any executive order the Republicans don’t like will be challenged all the way to a very conservative Supreme Court. There is no appetite for a large bailout of states like Illinois. Sorry JB.

Juicy Smollier
1 month ago
Reply to  Ex Illini

Yes, just like the pipe dream of student bailout, even to 50k. No way that gets through a court. Nice try. When Joe Schmoe political talked about all this stuff, you know it was a bunch of hooey.

DazzleMe
1 month ago
Reply to  Douglas

Yes, I agree, if Xiden gets in, government will bail out IL.

Ex Illini
1 month ago

What choice does JB have? He is hoping that he can get away with stiffing the Fed down the road. He’s a can kicker like so many others in this state.

NB-Chicago
1 month ago

Ted–isn’t Illinois (as well as a lot of other states) also borrowing billions from feds to cover their underfunded unemployment compensation funds?

Joan
1 month ago
Reply to  NB-Chicago

Yes, 2.8 billion so far. Wirepoints has an article by Bloomberg posted on that now.

LessonLearned
1 month ago

Caution… You may not like this comment !!!

What is it going to take for you Illinois residents to get off your bottoms and leave? Do you like to be abused?

John Malone
1 month ago
Reply to  LessonLearned

Grandkids are the anchor.

DazzleMe
1 month ago
Reply to  John Malone

And established small businesses!

Paul R
1 month ago
Reply to  LessonLearned

Once kids are off to college/on their own, we’re out of this crap hole state. Illinois has nothing to offer and it’s only getting worse.

Illinois sucks ass
1 month ago
Reply to  LessonLearned

One more year here, then we’re out! We wanted to go somewhere warmer anyhow.

Mark
1 month ago
Reply to  LessonLearned

That’s my course of action. As soon as possible its FL bound for this IL resident

Juicy Smollier
1 month ago

An avalanche is coming at the end of 2021 and into Q1 2022. We are moments away.

willowglen
1 month ago
Reply to  Juicy Smollier

This is one time where I wished a I spent a legal career in finance instead of technology law. Mark Glennon, what level of priority do the Feds have? As a complete guess, I would think that the Feds being the Feds with the power of the purse practically speaking has priority. But just a guess.

Admin
1 month ago
Reply to  willowglen

Willowglen, I am aware of no lien or security the Fed has so in theory it would get the same, low level of priority as general unsecured creditors. The only things with priority are those that are secured by liens, like some bonds, and the funded portion of pensions could never be touched. In addition, state bonds have a contractual payment priority, whereby the state basically promised it will pay those bonds first, hell or high water. Of course, there is no state bankruptcy law now. If Congress ever passed one they could set whatever priorities they want, though they… Read more »

Last edited 1 month ago by Mark Glennon
Ex Illini
1 month ago
Reply to  Mark Glennon

One thing is certain, if a state bankruptcy law was ever enacted, Illinois would be first in line.

JimBob
1 month ago
Reply to  Mark Glennon

Legal/enforceable? [yes/no/maybe] ?? — In consideration of $X cash plus the [PBGC’s] assumption of of [State / municipality]’s pension obligation in the amount of $X per month for my remaining lifetime, I hereby irrevocably waive any and all claims against such government entity [or trustee etc.] for any further pension, health or other benefit whatsoever from the XYZ pension system, on my behalf and on behalf of my heirs and assigns. [Might also need to get spouse waiver.] It is my understanding and intent to extinguish all liability of the system for such benefits and to release any and all… Read more »