By: Ted Dabrowski

Illinois has abandoned hopes of affordably raising $1.2 billion from the bond market and has turned, instead, to a new Federal Reserve lending program known as the Municipal Liquidity Facility. Illinois will raise the money for one year from the Fed at a rate of 3.83 percent. The funds are meant to cover some of the expenses due to the economic shutdown and the postponement of income tax collections.

Illinois will be the first state to tap the new facility at the Fed, which is meant to be a lender of last resort

From the Federal Reserve’s FAQ on the lending facility:

The Federal Reserve must obtain evidence that participants in the MLF are unable to secure adequate credit accommodations from other banking institutions. In certifying whether the issuer is unable to secure adequate credit accommodations from other banking institutions, issuers may consider economic or market conditions in the market intended to be addressed by the MLF as compared to normal conditions, including the availability and price of credit. Lack of adequate credit does not mean that no credit is available. Lending may be available, but at prices or on conditions that are inconsistent with a normal, well-functioning market.

The state originally attempted to raise the $1.2 billion from the bond market in May, but it could not find acceptable terms. The deal was postponed and then put on a day-to-day basis. The state announced yesterday that it would close the deal with the Federal Reserve on Friday.

The move to tap the fed is likely to be seen as another desperate move by the state. Last month Illinois passed a budget that relies on up to $5 billion in federal loans and grants to cover a $6.1 billion deficit. The budget, which S&P criticized as  “structurally misaligned,” included no cuts or spending reforms on its way to spending $42.9 billion, a record amount for the state. 

And back in April, State Senate President Don Harmon and the Democratic caucus asked the federal government for a direct bailout. The caucus used the negative impact of the coronavirus to plead for $42 billion in funds, including $20 billion for pensions. That in turn prompted U.S. Senate President Mitch McConnell to suggest bankruptcy as an alternate solution for states like Illinois.

Illinois’ debt has already been trading at junk levels, as we recently covered in Trading at junk levels: Illinois borrowing costs 5 times higher than AAA-rated states. Illinois’ penalty rate – how much more the state pays compared to AAA-rated states – recently jumped to a high of 4.50 percentage points. 

Keep an eye on the Fed facility to see what other states use it as a source of funding. Expect few to use it. Illinois might find itself in a lonely spot.

Read more about Illinois’ fiscal crisis:

79 Comments
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Aaron
1 month ago

Illinois could tax income at 100% for one hundred years and never pay off what has already been spent because Illinois would just spend more and more and more.

Poor Taxpayer
1 month ago

PONZI SCHEEME.
Let the next generation of honest hard working poor taxpayers get screwed.

Doug
2 months ago

Just opens the door to more Mike Madigan spending

Susan
2 months ago

Why isn’t graduated property tax rate proposed to generate immediate revenue?
Same arguments apply (“fair share” and so forth).
Businesses and income are portable, property is not.
Income tax revenue generators can flee Illinois to evade onerous taxation, but Astor St. mansions cannot. Why should underassessed Astor st. mansions pay the same tax rate as overassessed south side homes?
Is that question different than asking why Illinois governor’s Texas trust sheltered income tax rate is lower than minimum wage Illinois workers”?

Poor Taxpayer
2 months ago

They are going to steal Taxpayers money.
Plain and simple these people are CROOKS.
I hope the go to Jail.
If they will steal from the Federal Government They will steal for the Honest Hard working poor taxpayer.
Illinois “Land of Slavery”

Kimbart
2 months ago

Do they really think Illinois plans to repay this loan? They’ll never see this money again. Maybe a condition should be that Illinois postpone $261 million in state raises first.

S and P 500
2 months ago

Everybody says we need to come together. Good luck getting voters to come together to see who gets to pay the bill for trillions of dollars of state debt and unfunded pensions. I’m not going to pay.

Mike in Madison
2 months ago

Are there any expectations that IL will pay back this $? No, seriously, are there any ?????

S and P 500
2 months ago

The feds won’t get their money back but they are sending a message to every other city, school and state that no bail-out is coming and if you want to borrow money you are going to be treated in the most humiliating manner possible. The money isn’t coming with any urgency, either. If states want to play a game of chicken, we’re all in.

Poor Taxpayer
1 month ago
Reply to  S and P 500

Like Illinois has any shame.
You can put a camera in the bathroom as long as you bring money.

Freddy
2 months ago

Maybe Illinois pols are not making cuts or reforms of any kind because they are banking on inflation or even hyperinflation in the future. With all the money that is being printed (trillions) and more in the works money could become worthless just as finances in Illinois are. Zimbabwe printed $100 trillion notes. I can buy one of those notes on Ebay for about $40 and pay off Illinois debt and get change back for about $99.7 trillion. I’m sure there’s room for that in the next budget.

James
2 months ago
Reply to  Freddy

It wouldn’t surprise me a bit. That’s one way out of debt problems at all governmental levels—simply hand out worthless dollars to all creditors.

Mark Felt
2 months ago

The state of Illinois is praying for a Democratic president that will bail them out next year. Otherwise Illinois will dig itself deeper into the financial hole it is already in.

UnclePugsly
2 months ago
Reply to  Mark Felt

That’s what they thought with Obama, but McConnell said NO.

ConcernedExpat
2 months ago
Reply to  Mark Felt

Even if Biden wins, it is highly unlikely they flip the senate. Blue state bail out is DOA.

NB-Chicago
2 months ago
Reply to  ConcernedExpat

Sorry, disagree–Unfortunatally, the senate is a tossup at this point…the dems only need to flip 4 seats..and the covid / floyd pandemics playing right into dems hands by keepen the state & country in 24/7 crisis mode till November. Thats what its all about

accept reality
2 months ago

Well, the treasury can kiss that money goodbye!

John
2 months ago

The state is borrowing money. The unions and the politicians are getting pay raises. No cuts by state government. Any word on Com Ed/Exelon and the threat to close Illinois power plants?

Gemini
2 months ago

Chicago needs billions from the federal government and all Lightfoot wants to do is poke Trump in the eye. That’s a special kind of stoooopid.

taxpaying citizen
2 months ago
Reply to  Gemini

Play stupid games, win stupid prizes

daves
2 months ago

I will celebrate when IL goes bankrupt, which it is now on the verge of doing.

debtsor
2 months ago
Reply to  daves

IL will never go bankruptcy – only insolvent. And as the truth hurts frequently implies, that insolvency will result in every obligation the state owes going unpaid – except pensions. It will always, forever be about the pensions.

Ben
2 months ago
Reply to  debtsor

That isn’t going to happen – as that is not realistic at all. State bankruptcy allowance would happen before that. Almost everyone would leave the state if that did happen, and then of course the pensions crash and burn anyway. Not to mention basic services MUST be met or Federal laws are broken. Get real here. The Truth Hurts is a Cap Fax idiot with a pension, so of course he would say that. If that idiot responds to this, I am not responding back because he is a total waste of time. He is biased, and as I just… Read more »

The Truth Hurts
2 months ago
Reply to  Ben

So someone has a different opinion than you and they are biased? Debtsor is absolutely right. The state will be insolvent well before bankruptcy. Also, the feds can’t force bankruptcy. At best they could make it an available option. The state will continue to raise taxes to pay for all of its’ spending. When they no longer are able to increase taxes then maybe the state will seek bankruptcy protection. In the meantime, here is what you can expect.   Progressive income tax amendment in November. If this doesn’t pass the flat tax rate will increase. Another attempt at the… Read more »

Ben
2 months ago

You are an idiot Truth. You assume that somehow as more and more people leave that increasing taxes will do anything other than make more and more people leave. You ARE an idiot, and you DO get a pension. You are RNUG on Cap Fax.   You are a liar who says you do not get a pension when you really do. I know this.Your real estate tax will NEVER happen, and is illegal if they tried. Most people with high property taxes could NEVER pay a flat rate of 10% or more income tax in this state, so that… Read more »

Last edited 2 months ago by Ben
debtsor
2 months ago
Reply to  Ben

Ben, you got to visit a cannabis dispensary. Chill out. The Truth Hurts is ON THE SAME SIDE AS YOU! He or she just differs in how quickly the state’s finances will collapse. You think they will collapse quickly, he thinks they will collapse slower, because there are still revenue generating options left. And he’s right: the state has options left to raise revenue.   However, a few months back, I agreed with the Truth hurts, but in today’s environment, raising taxes during the state’s crisis seems toxic. In fact, now the gimme gimme crowd is even talking about making… Read more »

Last edited 2 months ago by debtsor
Ben
2 months ago
Reply to  debtsor

The Truth Hurts gets a pension, so no, he is not on the same side as people who know math and reality always win. He acts like taxes can be raised to the moon and people won’t just move out more and more, which is what will actually happen.   He is having a hard time facing that his pension is doomed, and that is just too bad. No matter what, I will be gone within three years, and anyone with a pension from Illinois will have their lives ruined in short order.   The Lies Hurt will keep coming… Read more »

Last edited 2 months ago by Ben
The Truth Hurts
2 months ago
Reply to  Ben

I don’t have a pension benny boy. I’ve had a matching 401k, a cash balance plan, stock options, long term stock incentives, etc…I’m not having a hard time at all. A public pension would be a downgrade for my savings.   I believe that the state has several options still available, including raising taxes. You are so filled with rage that you are hoping that teachers, firefighters, and police are left destitute without a pension. I have news for you benny boy, even with a constitutional reform pensions will remain the largest expenditure for the state. Pensioners may only see… Read more »

Ben
2 months ago

You wouldn’t be wasting your time with these comments that mean nothing defending doomed pensions if you didn’t get a pension, and you do. I don’t get a pension, but you do, your pension will get cut, but I won’t have to worry about that.
 
Yes, it is easy to see where this is heading: bankruptcy. Taxes cannot and will not go up forever, and they can’t go up much more in an already very high tax state. Enjoy the cut and the ditch.

Riverbender
2 months ago

Bingo! Raise taxes. Who would have thought?

debtsor
2 months ago
Reply to  Ben

Ben, can’t reason with you. You need to work on your reading comprehension skills. he says taxes will go up. People will leave. less money comes in, so they raise taxes again. He’s just saying that the spiral will take quite a bit longer than you think. And that’s a legitimate disagreement. You or he could be right. I tend to take your side, but looking back historically, he is right. I think things might be different this time, but I could be wrong.

Ben
2 months ago
Reply to  debtsor

I can read just fine. He is not facing reality. Taxes in Illinois simply cannot go up much more – that is reality. He is not facing that reality. He gets a pension and is a liar, and I hope he gets the virus and drops dead from it.

The Truth Hurts
2 months ago
Reply to  Ben

My family will be fine benny boy. I am heavily invested in tech and you may have noticed that the nasdaq is back to prior pandemic levels. I have been saving since my early 20’s. Saved heavy early before kids and have consistently invested throughout my life. I have treated savings as something that was not optional. I would much rather have what I saved vs. a public pension.   The only liar is you. “If that idiot responds to this, I am not responding back”   Yet you responded. Living rent free inside your head benny boy. The only… Read more »

Ben
2 months ago

I just stated all the reasons why you are wrong in previous posts, which you ignored of course. I am angry because you are a liar and an idiot. The future is me not being in Illinois and your pension being cut. 🙂 I responded because your post was extra dumb today. Enjoy the ditch.
 
 

Last edited 2 months ago by Ben
debtsor
2 months ago
Reply to  Ben

He can’t be wrong about something that might happen in the future: collapse or collapse after raising taxes?
 
 

Ben
2 months ago
Reply to  debtsor

Taxes cannot go up much more, period. Bankruptcy is all that is left other than a few tax hikes that will only make more people leave. He is wrong, because major take hikes are now impossible. Now Debstor, get a hobby and enjoy your day. All your comments mean zero, just like The Lies Hurt. Math and reality are winning more and more, and in the end, the pensions will get cut sooner than later. That is fact.

Riverbender
2 months ago
Reply to  Ben

Taxes can and will go up more. The only hope would be a change in the State Constitution regarding pensions…lol like that is gonna happen.

Ben
2 months ago
Reply to  debtsor

I am going outside and enjoying my day. No more comments for me. The pensions are doomed because math and reality always win. Enjoy!

The Truth Hurts
2 months ago
Reply to  Ben

I noticed benny boy that you like to say “math” a lot. It reminds me of liberals that can’t make a valid argument around the COVID lock down. They get so frustrated that they can’t make a valid argument that they just keep repeating “science”.
 
Don’t worry about it benny boy. You go outside and play. No more screen time for you.

The Truth Hurts
2 months ago
Reply to  Ben

“Your real estate tax will NEVER happen, and is illegal if they tried”
 
New Jersey already does this. Not sure what your source is regarding legality.

Illinois Entrepreneur
2 months ago

I love watching you guys go at it.   But The Truth Hurts has a reasonable post here (on predictions for taxes). This is all about Illinois voters, in that if they had the political will to fix these things, it would have been long done already. Heck, Illinois had a great governor in Bruce Rauner, who was willing to fight the media, the public employee unions, The Machine and the Progressives — but the voters gave up on him when he just needed more time. If he was voted back in, the Machine would have had to capitulate, and… Read more »

Tom Paine's Ghost
2 months ago

I believe that you are correct as much as I dislike your points. You are correct that The Truth Hurts. The problem with bankruptcy for IL politicians is that someone other than them (a Federal Bankruptcy Board) decides how to spend the states money and can invalidate all of the pension contracts. With insolvency, the IL politicians can still spend the state’s money (mostly on pensions) and stiff everyone else. IL politicians and Public Sector Unions are joined like Siamese twins. If one dies the other also dies. So in order to stay alive as long as possible IL politicians… Read more »

daves
2 months ago
Reply to  debtsor

disagree with you, respectfully, on that. IL will be bankrupt when the bills continue to go unpaid. IL pensions % revenue stream is already at 33% of revenues…the right of the people to a democratic based government is a constitutional right, which means we get police, firemen, roads, schools, and basic services. If it goes much higher to the pensions, there will be a lawsuit going to the USA Supreme Court that our rights to that government, any government, are being violated.
 

Last edited 2 months ago by daves
Ben
2 months ago
Reply to  daves

Yep. It would violate FEDERAL LAW to have no services and not be able to protect citizens. The Fed would FORCE pension reduction if it ever gets near that bad. Period.

ConcernedExpat
2 months ago
Reply to  Ben

The point is eventually insolvency leads to a “structured bankruptcy” like Puerto Rico. It is basically a timing difference. There will be shared sacrifices across bond holders and pensions alike. Basic services will not take a hit, I’m sorry. The question becomes who is higher in the capital stack, bond holders or pension holders? I suspect bond holders will when out at the end of the day sadly.

Ben
2 months ago
Reply to  ConcernedExpat

The Dumb Hurts is outnumbered here, but that is good, because he is a biased, blithering fool.

Tom Paine's Ghost
2 months ago
Reply to  Ben

I won’t say that he is a blithering fool. I understand your disgust at Public Sector Union members and their 75 year criminal collusion with IL Politicians. I dream of stepping over destitute AFSCME, SEIU, CTU and IFT members in the street. Truly. But not the cops and firefighters. Historically, cops and firefighters have NOT supported the IL politician’s criminal collusion and for that reason they have largely unfunded pensions. At election time it isn’t a cop or firefighter pounding on your door and demanding that you vote for a Democrat slimeball. Its an SEIU or AFSCME member. Remember the… Read more »

Last edited 2 months ago by Tom Paine's Ghost
debtsor
2 months ago
Reply to  daves

Supreme Court? Depends on which president replaces Thomas and RBG. Obama put some really left wing nutjobs on the court. Biden will put the total crazies in there too. Theres no way they would ever go against a union.

UnclePugsly
2 months ago

Doesn’t BBB imply a ‘stable outlook’? How could anyone in risk assessment conclude Illinois is stable when Illinois has applied for a emergency ‘loan’ from a borrower of last resort, and is pleading for a bailout?

2 months ago
Reply to  UnclePugsly

Illinois is now BBB- from all three rating agencies, just one notch away from a junk rating. All three have a negative outlook on Illinois, which means the next move will be a downgrade to junk unless something changes. For clarity, the current rating is still what they call “investment grade.”   Your second question is a good one, especially when you add up the state’s total pension debts, add to that the Sen. Harmon $42B bailout request, the need to tap Fed for the $1.2 B, the reliance on more than $5 B from the Feds to balance the… Read more »

Tom Paine's Ghost
2 months ago
Reply to  ted dabrowski

Ted, What is preventing the Rating Agencies from downgrading Illinois debt as junk? If they can’t rate Illinois properly in the face of such overwhelming information then how can any of their ratings be believed? What market forces are compelling them to hesitate in this? Is there other Illinois business for Fitch, Moody’s, Standard & Poors etc that t will be jeopardized if IL rated by them as junk? And since they refuse to properly rate IL Bonds are these agencies thereby liable for investor losses? Please help the Finance and Debt rating ignorant like myslef to understand this.

Mike
2 months ago
Reply to  UnclePugsly

Any rating can have a stable or negative outlook attached to it.
 
The rating and outlook are two distinct metrics.

Hank Scorpio
2 months ago

You would think this would cause the ratings agencies to officially downgrade IL to junk, that is if they weren’t already co-opted…

Rick
2 months ago

The fed must know that there is no way in hell Illinois will EVER pay this back to them, right?

This loan program will, I predict, become the basis for federal bailouts of deadbeat states, at the expense of healthy states. When you owe the bank $1,000 its your problem, but when you owe the bank $1,000,000 its the banks problem. Illinois just handed the stupid fed a whole lotta problem! They aint getting a cent of this back.

ConcernedExpat
2 months ago
Reply to  Rick

Precisely. It creates a conflict of interest within the vertical separation of powers. Of course IL will jump head first into this program.

UnclePugsly
2 months ago
Reply to  ConcernedExpat

It seems like this MLF should be challenged in court – The Federal Reserve is an unelected, unaccountable agency creating debts for states now.

ConcernedExpat
2 months ago

I don’t support this program whatsoever from the Fed. This will create a conflict of interest or agency problem. The funds being allocated to the Fed to backstop this come from Congress, no? What happens when Mitch McConnell draws a line in the sand and says states need to declare BK or now, knowing that the Fed has $1.5bln in IL paper will he be reluctant to do that? What happens when the IL debt that the federal reserve is holding falls into default? These are questions we need to be asking. The beauty of the TARP program was that… Read more »

daves
2 months ago
Reply to  ConcernedExpat

unelected bureaucrats are running the country now, case on point.

DantheMan
2 months ago

I’m so glad the face of Illinois is Pritzker. It’s seems only fitting this perfect example of liberal foolishness is out front and center as his state crumbles. I was shopping for a new home using Zillow recently, focused on Tennessee, and a few homes from neighboring Georgia caught my eye. The Georgia homes were impressive, but then I remembered Stacy Abrams almost won their last election for governor, and I immediately ruled out moving to Georgia. Now imagine someone shopping for a home in the midwest and how they would react when they remember the Illinois governor. Conservatives and… Read more »

2 months ago
Reply to  DantheMan

I think it’s one of the most overlooked issues in Illinois. Everyone is aware by now of the flight from Illinois. But the lack of incoming residents will be just as damaging. People have and will stop coming here. Why would they move to Illinois to help pay down all the debt that’s been racked up. It would be like taking out another mortgage for nothing. As more people leave and fewer come in, the debt load on those who remain will be unpayable. (It already is).
 

Last edited 2 months ago by Ted Dabrowski
UnclePugsly
2 months ago
Reply to  ted dabrowski

Some people are coming into Illinois if they can get a really good job. But they usually say they are just passing through.

Ben
2 months ago
Reply to  ted dabrowski

You mean un-payable. And yes, it already is. Reform or bankruptcy – that is all that is left within five years or less.

UnclePugsly
2 months ago
Reply to  DantheMan

Look into Chattanooga.

DantheMan
2 months ago
Reply to  UnclePugsly

Thanks Uncle. So far I’ve focused on Clarksville and Knoxville areas. I like Clarksville because it’s an easier drive back to visit Illinois relatives. I like the Knoxville area because it appears to be most conservative, slightly lower real estate taxes, and a generally prettier part of the state.

When it comes to Chattanooga, the name itself always makes me smile.

UnclePugsly
2 months ago
Reply to  DantheMan

Great areas to look. Chattanooga is basically a distant suburb of Atlanta, but w/o the risk of a lunatic Leftist Democrat getting control. Past associate moved to mountain lake in Knoxville area – loves it! Pays his property tax bill out of his pocket when it comes due.

Ben
2 months ago
Reply to  DantheMan

Can anyone tell me the best places to look for warehousing jobs out of state in well-run states? Thank you ahead of time. I am now planning my move. I will watch the pensions collapse from another state!

MikeH
2 months ago
Reply to  Ben

I’d check Indianapolis first.

Ben
2 months ago
Reply to  MikeH

Thanks. I would really rather live in a more rural area though – maybe half an hour from a city. So I guess I could just live somewhere outside Indy. I am planning to be out of here within three years, so I have time.

MikeH
2 months ago
Reply to  Ben

Yeah, there are a lot of small bedroom communities around the greater Indianapolis area. And it’s easy to get into town because the city grew up around the interstate, not vice-versa. (Looking at you, St. Louis)

Ben
2 months ago
Reply to  MikeH

Thanks. I am also looking at Tenn and Wisconsin. Taxes in Iowa and Wisconsin are pretty high. Property taxes in Iowa are actually fairly bad from what I have seen.

Ben
2 months ago
Reply to  Mike

Thank you.

Indy
2 months ago
Reply to  Ben

Indiana has tons of warehousing jobs. Especially around Indianapolis, Louisville & South Bend.

Riverbender
2 months ago
Reply to  Ben

Have you checked Springfield Missouri? Plenty of rural area, close to entertainment City of Branson, Table Rock lake and a population with totally different political alignments compared to the typical Illinois voter.

Ben
2 months ago
Reply to  Riverbender

I actually used to go to Brandon as a kid. I liked that area. I will check where you said out too. Thanks. I have three years of planning here, so it is no rush. I hate Illinois, but I also just would like to be somewhere new anyway. You only live once!

#RecallPritzger
2 months ago

Dearest JB,   You do realize this eventuality is an embarrassment to our state? Also, you must be aware of how it looks for the current leader of an august family (yours, you tool) of business people to have to run to Uncle Sam and scream “Help me, help me!” You are the chief executive of this state and all you have done is ask someone else to solve your problem. You are not a businessman, nor are you fit to govern on anyone’s behalf. You are simply a failure – another in the never-ending list of Democrats who, while… Read more »

UnclePugsly
2 months ago

The Federal Reserve had best send Illinois to the IMF, where defaults for Banana Republics is common.

debtsor
2 months ago

Grab the popcorn!

long gone
2 months ago
Reply to  debtsor

If you are looking for a new state, you may want to look at Tennessee. No state tax, fully funded small state government, with one billion in the bank. Nashville is in trouble, but just south is real nice. Amazon is building 5 big buildings, all in all, a great economy. I moved here 2 years ago from central Illinois.