By: Mark Glennon*
Guess what was hidden in the 756-page Budget Implementation Bill that just became law in Illinois?
It’s roughly the same as the “bill that must be stopped,” as we called it earlier. That was Senate Bill 10, the bill about which I wrote this:
When I practiced law I taught secured lending and bankruptcy as an adjunct at the University of Texas Law School. I can imagine giving an assignment like this: “Draft a bill to make bondholders supreme by stiffing the public and taxpayers.” If somebody handed in Senate Bill 10, they’d get an A+.
It’s a naked asset grab at the expense of citizens designed to allow municipalities to kick the can by borrowing more and giving first dibs to municipal bondholders on public assets.
It’s the ticket to an assetless bankruptcy, which is the worst of all conceivable outcomes for broke Illinois towns and cities, including Chicago.
It’s Section 8-13-10, “Assignment of receipts,” in the implementation bill. It is intended to eliminate the risk of mortgages being undone and assure that bondholders come first, hell or high water, regardless of the need for essential government service. It would do that by forcing (not just authorizing) municipalities that want to use, as collateral, funds that come to them from the state to transfer complete ownership of that money to a new, separate entity created solely to pay bondholders.
By doing that, the bill would create a form of mortgage that would be bulletproof even in bankruptcy. The bill would apply to all home rule muncipalities (which are all towns and cities with more than 25,000 residents plus those that have voted to become home rule).
Worse, it binds the state itself to “non-impairment.” That means the state would be required by statute to refrain from doing the very things it should already be doing — working to undo mortgages that prioritize bondholders over the public. And it prohibits municipalities from mortgaging their state money in any way other than the bulletproof manner created by the bill.
We’ll no doubt be finding more bombshells in the hundreds and hundreds of budget and tax bills dumped on the General Assembly just prior to their vote, which few members ever reviewed and the public doesn’t know about.
The muni bond industry is going all out to keep raising the credit card limit and sucking every ounce of blood out to ensure it gets repaid.
*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.