The Daily Herald reported today on Illinois Treasurer Mike Frerichs boasting about his purchase of a new issue of Kane County forest district bonds using taxpayer money.
Those particular bonds may be quite safe; I’m not questioning that. And Frerichs might have paid a fair price, but the circumstances and his comments suggest he might not have.
According to the article, Kane County Forest Preserve District officials fretted about Illinois’ budget chaos as they prepared to take $50 million of bonds to the market in July. The state’s financial woes added uncertainty that could have resulted in greater costs to local taxpayers to borrow the money. Frerichs says it was a good buy, which he made after the budget passed, but he also says “we understand its value in providing immediate capital support to a local community. It’s a win-win for the state, providing both our offices with an opportunity to contribute more to our constituents.” [Emphasis added.]
Hold on there. Wouldn’t another buyer have bought the bonds for the same price? If so, then his claim that he helped the district is false. Alternatively, if somebody else would only have bought at a lower price, then Frerichs overpaid with state money. It’s one or the other.
It’s certainly possible Frerichs is just bragging about something he doesn’t understand.
But it’s also possible he thinks it’s his place to use his investment authority to help Illinois municipalities unload their bonds at better prices than the market will bear. That would be a wrong path to go down, especially with Mike Frerichs in charge. I have no confidence in him or the bond ratings he relies on. Taken further, the Treasurer’s investment authority could be used as a back-door bailout or for political favoritism.
–Mark Glennon is founder of Wirepoints. Opinions expressed are his own.