From the Gov's Bureau of the Budget, April 10, 2014
Bank of America/Merrill Lynch
made the winning bid of 4.08% (true interest cost) for $250 million in General
Obligation State of Illinois bonds Wednesday. The money will be used to fund
construction of roads, schools, bridges and other capital projects under the
Illinois Jobs Now! infrastructure program.
The rate is the third-lowest
secured by the state since Gov. Pat Quinn took office five years ago and
compares to a rate of 4.46% the state obtained on its most recent $1 billion
bond sale in February – before Gov. Quinn proposed his FY 2015 budget – and
5.05% on our $1.3 billion offer in June, prior to the state’s passage of
comprehensive pension reform.
That means Illinois taxpayers
will pay about $10 million less over the life of the bonds compared to the
state’s costs under the most recent rate in February.
Part of the better rate can be
explained by movement in the markets over the past few months, but much of the
improvement also is owed to the market’s approval – as expressed in the bond
rating agencies’ reviews over the past week – of Gov. Quinn’s proposed FY 2015
budget, which includes maintaining the current state tax rates to provide
long-term stability and properly fund education, Illinois’ Director of Capital
Markets John Sinsheimer said.
“The market has spoken today and
clearly investors feel, as the ratings agency has said in recent days, that Gov.
Quinn’s budget ‘provides a basis for the state to achieve fiscal balance,’”
Acting Budget Director Jerry Stermer said. “The rating agencies also have noted
the positive steps our administration and the General Assembly have made in
passing a comprehensive pension reform bill and paying down the backlog of
bills.”
Eight bidders made offers on the
25-year tax-exempt bonds Thursday.
In recent days the three major
bond rating agencies have released the following assessments of Gov. Quinn’s
proposed budget and Illinois’ financial health:
Standard &
Poor’s:
“We believe that the
not-recommended budget could weaken structural alignment for Illinois … The
recommended budget could contribute to enhanced structural alignment due to less
severe spending reductions needed to achieve balance…”
“Per-capita personal income in
2013 was $46,780, or 105% of the U.S. average, ranking the state 15th nationally
and first among the Great Lakes states.”
“Structural budget alignment
improved in fiscal 2013 and 2014 due to economic and revenue recovery, revenue
enhancement, and spending restraint and reform. Illinois generated a surplus in
fiscal 2013 and forecasts another for fiscal 2014, which has lowered the general
fund deficit and payables outstanding on a budgetary basis. This reduction is
positive, in our view…”
“We view the pension reform as a
significant accomplishment that could lead to improved pension funding levels,
greater pension plan sustainability, and improved prospects for budget
stability. We consider the reform to be comprehensive, addressing a range of
areas that we believe should significantly reduce
liabilities.”
“A developing outlook indicates
that we could raise, lower, or affirm the rating during the two-year outlook
horizon. The outlook reflects our view of the consensus reached on pension
reform, which we believe could contribute to a sustainable path to fiscal
stability … If pension reform moves forward and Illinois takes credible action
to achieve structural budget balance beginning in fiscal 2015, we believe a
higher rating would be warranted.”
