 Quinn's budget director, David Vaught, says investors were willing
to buy up to $5 billion worth of Illinois' tobacco bonds, and
investment firms gave the state's offering close to top marks.
Illinois ended up offering just $1.5 billion worth of bonds. The
bonds are guaranteed by payments from the 1998 settlement agreement
between several tobacco companies and more than 40 states to cover
health-related costs associated with tobacco use.Vaught said
other states offered similar bonds but did not get the interest, or
the interest rate, that Illinois got.
"This is really good news for Illinois." Vaught said. "Tobacco
bonds have been issued by other states. They're generally rated BBB,
and these are rated A by S&P on the short notes and A-minus on the
longer terms. So we got a very good rating -- the highest rating on
any tobacco bond issue since 2001."
Vaught said Virginia, California and Ohio are all paying more for
their bonds -- proof, he contends, that Illinois' economy is
improving.
"We're still a strong state. We've got a few problems that we'll
be able to solve. When investors buy long-terms bonds ... they're
looking at what the state is going to do long-term. And they're
expressing some confidence in our ability to solve our problems,"
Vaught said.
Almost all of the money from the bond sale, nearly $1.3 billion,
will go to pay bills Illinois was supposed to pay last summer.
Lawmakers gave Gov. Quinn extraordinary flexibility to pay past-due
bills. Illinois extended its lapse-period spending authority to six
months into the new budget year. That means lawmakers have until the
end of December to pay bills that were supposed to be paid by the
end of June.
Critics of the bond sale do not like Illinois’ strategy of
selling state resources to pay the bills.
Republican Treasurer-elect Dan Rutherford, R-Chenoa, said it's
good to think outside of the box, but Illinois has to live within
its means.
"Bonding the tobacco settlement -- that will take a revenue
stream out of the income of the state for an 18-year period and go
for one-time expenditures," Rutherford said. "Those are not the
kinds of decisions that I think are good for sustainability in the
kind of economy and budget we need in the state. That said, I am all
about creative ways of thinking."
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Rutherford has already said he will not give the Quinn
administration a blank check for borrowing. He's pledging to work
with the Democratic governor and Democratic Legislature, but only if
he thinks the use of state debt is responsible.
Vaught said there will be more use of state debt and likely more
debt that will go toward paying bills. The budget director, though,
said it will be a strategic use of short-term borrowing.
"We'll be able to pay our Medicaid bills with the cash we have
now in December; that gets a 62 percent match," Vaught said.
"Starting in January that match drops to 59; starting in April it
drops to 57; in July it drops to 50. ... Each time that percentage
drops, you want to make sure you pay all your bills at the higher
percentage. And if that requires some short-term borrowing in March
or April or June, that would be very strategic."
Rutherford said if the governor has a way to pay back those
loans, and can tell him when, that might be a possibility.
"Look at any company, look at your own household. There are times
when you do short-term borrowing. ... But you do it when you have a
means to pay for it, you know how much it's going to cost you, and
the time frame that you're going to pay it back. I see government in
the same way."
[Illinois
Statehouse News; By BENJAMIN YOUNT]
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