Comptroller asks for upgrade to Illinois’ worst-in-nation credit

Link:https://www.thecentersquare.com/illinois/comptroller-asks-for-upgrade-to-illinois-worst-in-nation-credit/article_464a70c6-8862-11ec-b879-afe32c50f8c6.html utm_term=0_3386e99c24-8d6a8659cc-71461060

Excerpt:

Illinois Comptroller Susana Mendoza is asking the credit ratings agencies to upgrade Illinois’ worst-in-the-nation status.

S&P Global has Illinois at BBB. Moody’s has the state at Baa2. That’s after upgrades from the agencies last year. Fitch has Illinois at BBB-.

“My office is doing everything possible to manage the current backlog of bills and address Illinois’ finances head-on,” Mendoza said in a letter to the agencies that her office announced Monday. “The Illinois Office of Comptroller urges you to consider these positive factors and progress made in strengthening Illinois’ financial position when evaluating Illinois’ creditworthiness.”

Mendoza said in the letter she has paid back recent borrowing from a federal program. Illinois was the only state to borrow from the Federal Reserve’s Municipal Liquidity Fund for a total of $2.6 billion.

Author(s): Greg Bishop

Publication Date: 8 Feb 2022

Publication Site: The Center Square

Investors Sour on Muni Funds

Link:https://www.wsj.com/articles/investors-sour-on-muni-funds-11643568253

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Excerpt:

Investors pulled $1.4 billion from municipal-bond funds in the week ended last Wednesday, the biggest weekly outflow since the early days of the pandemic, according to Refinitiv Lipper.

Municipal-bond yields, which rise as prices fall, climbed last week after the Federal Reserve signaled it would begin steadily raising interest rates in mid-March, reducing the appeal of outstanding debt. Yields on the highest-rated state and local bonds jumped to 1.55% Monday from 1.34% last Tuesday, according to Refinitiv MMD.

Returns on the S&P Municipal Bond Index have fallen to minus 2.33% this year through Jan. 28, counting price changes and interest payments, the lowest year-to-date returns in at least 16 years.

Author(s): Heather Gillers

Publication Date: 31 Jan 2022

Publication Site: WSJ

Puerto Rico Released From Bankruptcy as Economic Problems Persist

Link:https://www.wsj.com/articles/puerto-rico-released-from-bankruptcy-as-economic-problems-persist-11642537090

Excerpt:

Puerto Rico received court approval to leave bankruptcy through the largest restructuring of U.S. municipal debt ever, ending years of conflict with creditors as the U.S. territory confronts other stubborn economic problems.

Tuesday’s court ruling approved a write-down of $30.5 billion in public debts built up during an economic decline marked by high joblessness, outward migration and unsustainable borrowing that tipped Puerto Rico into bankruptcy in 2017. The restructuring plan calms tension between Puerto Rico and its Wall Street creditors dating to its debt default, the largest ever on bonds backed by the full faith and credit of a U.S. municipality.

….

The territory entered bankruptcy with $74 billion in bond debt and a $55 billion gap between the pension benefits promised to employees and retirees and the funding set aside to pay for them. Public agencies were beset by cronyism and failed for years to draw up accurate budgets or account for expenses, according to a 2018 investigation commissioned by the board.

Sprawling bureaucracy and a high cost of doing business discouraged investment, especially after the expiration of some corporate tax breaks in 2006 pushed some pharmaceutical and other manufacturers to depart. To make up for a shrinking tax base, officials borrowed to paper over deficits and skimped on pension contributions.

Many residents of Puerto Rico, political leaders, and some investors have called for an independent audit of how the huge debt was built up, according to Judge Swain’s decision.

Author(s): Andrew Scurria and Soma Biswas

Publication Date: 18 Jan 2022

Publication Site: WSJ

Chicago school district finds buyers after offering higher yields

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202201141507SM______BNDBUYER_0000017e-59c7-de0b-a77f-dbef44d30001_110.1#new_tab

Excerpt:

Chicago Public Schools’ $872 million of junk-rated paper met with a more fickle high-yield audience this week, underscoring the district?s vulnerability to market volatility even as it inches closer to investment grade status.

At attractive spreads that offered a healthy yield kick with many maturities offering 4% coupons, the bonds were 2.2 times oversubscribed, CPS said in a statement. More than 40 institutional investors placed orders including some in excess of $150 million each.

The district will pay a true interest cost of 3.51% that ranks among the lowest paid by the Chicago Board of Education over the last two decades. The sale provides $500 million of new money for capital projects and the remainder refunds 2011 bonds.

Author(s): Yvette Shields

Publication Date: 14 Jan 2022

Publication Site: Fidelity Fixed Income

CT to borrow over $1.3 billion to fund a long list of state, local projects

Link:https://ctmirror.org/2021/12/21/ct-to-borrow-over-1-3-billion-to-fund-a-long-list-of-state-local-projects/

Excerpt:

Gov. Ned Lamont helped to hand out more than $1.3 billion on Tuesday by voting to have the state borrow money to pay for various infrastructure projects, state grant programs, improvements at a mental health center in Bridgeport and a new train station in Enfield.

In total, the State Bond Commission, which Lamont leads, agreed to fund more than 50 different projects, programs and initiatives — some of which were championed by state lawmakers who are heading into a campaign season next year and are eager to bring home financial wins to their district.

….

The more than $1 billion in spending that was approved Tuesday will be financed through state revenue and general obligation bonds, which Connecticut officials market to Wall Street investors and will eventually need to repay with interest.

Connecticut frequently relies on that type of borrowing capacity to finance school construction efforts, capital projects at state universities, transportation upgrades, building maintenance projects, land preservation deals and the smaller community projects that often benefit state legislators. This week’s meeting marked the third bond commission gathering this year.

State legislators largely control the first step in the borrowing process by adopting a two-year bond package, but after that, the governor and the executive branch get to decide what gets funded and when.

Author(s): Andrew Brown

Publication Date: 21 Dec 2021

Publication Site: CT Mirror

The muni market: How two big changes could impact government borrowing

Link:https://lizfarmer.substack.com/p/municipal-market-trends-outlook

Excerpt:

The pandemic created a lot of uncertainty around state and local government revenues for much of 2020. That was a big reason for the dramatic boost in the rate of bonds issued with insurance that year: In total, $34.45 billion in new bonds carried insurance — the highest since the Great Recession ended in 2009. Even with the economic stabilization this year, insurance is still going strong. Through October 2021, wrapped municipal bond issuance totaled $31.5 billion, according to RBC Capital Markets.

Looking ahead, the chatter about municipal climate risk has been increasing in recent years. Extreme weather events linked to climate change have called into question the preparedness and resiliency of utilities and other government issuers, while studies point to the potential long-term economic effect. One BlackRock Investment Institute report estimated that some vulnerable cities could see economic losses of up to 10% of GDP without decisive action.

The bottom line: Insurance provided safety for muni market investors during the pandemic and its continued use indicates that investors and issuers are both finding it attractive in situations where there might be a little more long-term uncertainty. Climate risk plays right into this notion. While no one expects bond insurance to dominate the market as it once did, it’s likely that the pandemic spike in usage is here to stay.

Author(s): Liz Farmer

Publication Date: 8 Dec 2021

Publication Site: Long Story Short at substack

Biden’s Falling Approval Ratings Are Bad News For The Municipal Market

Link:https://www.forbes.com/sites/lizfarmer/2021/10/16/bidens-falling-approval-ratings-are-bad-news-for-the-municipal-market/?sh=7c3aed496a80

Excerpt:

Advanced refunding bonds allowed governments to refinance debt earlier, thus letting them take advantage of lower interest rates years sooner and save taxpayer money. The 2017 tax reform eliminated their tax-exempt status which effectively nixed their cost-saving value for governments. But the move increased federal government revenues by billions of dollars each year. Reinstating the bonds, according to a report from the Joint Committee on Taxation (JCT), would cost $11 billion over the next five years.

A federally subsidized taxable bond — what market watchers are calling BABs 2.0 — works differently. Unlike tax-exempt municipal bonds, BABs are taxable, and, as a result, open up the municipal market to new investors, such as pension funds or those living abroad. More buyers is a good thing, but BABs are also more expensive for governments. So to defray the added cost, the federal government in 2009 offered a direct subsidy of 35% of state and local governments’ interest payments on BABs.

That is, until sequestration in 2013 dramatically cut the subsidy and left state and local governments scrambling to fill the void.

BABs 2.0 would work similarly, but also lock in the federal subsidy — a much better deal for governments. They’re expected to cost the federal government more than $22.5 billion between 2022 and 2031, according to estimates from the JCT. 

Author(s): Liz Farmer

Publication Date: 16 Oct 2021

Publication Site: Forbes

Editorial | When it comes to Illinois bond ratings, up definitely better than down

Link: https://www.news-gazette.com/opinion/editorials/editorial-when-it-comes-to-illinois-bond-ratings-up-definitely-better-than-down/article_d17d487c-5ff3-5da1-a958-60d7edd5c3e6.html

Excerpt:

Citing a “material improvement in state finances,” Moody’s Investor Services recently raised the state’s bond rating by one notch — up to Baa2 from Baa3.

Ordinary mortals won’t know what that means. But Illinois has climbed the ladder from being one notch above junk bond status to two notches.

It’s the first time Illinois’ bond rating has been raised in 20 years. The improvement comes after a steady spiral downward.

Author(s): Editorial Board

Publication Date: 4 July 2021

Publication Site: The News-Gazette

Op-ed: Illinois gets its first credit upgrade in 20 years, thanks to $138 billion in federal relief

Link: https://www.chicagotribune.com/opinion/commentary/ct-edit-illinois-credit-upgrade-federal-bailout-20210701-mccvijig6fbuzpuhmc4eorkobm-story.html

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Excerpt:

The ratings firm Moody’s Investors Service this week upgraded Illinois’ credit rating one notch to Baa2, a level two notches above junk. It’s a major turnaround given that just one year ago Illinois faced the prospect of becoming the first state to ever be rated junk. In mid-2020, shutdowns ravaged the state’s tax base, Sen. Don Harmon asked for a $42 billion bailout from Congress and the state projected billions in multi-year budget shortfalls.

What changed so dramatically in such a short period of time? Ignore the claims by Illinois lawmakers of their heroic acts of “balanced budgets,” “fiscal discipline” and the like. Even if those claims were true – and they are not – they couldn’t by themselves create such a swing in Illinois’ short-term fortunes.

Credit, instead, the massive $138 billion in federal funds from the multiple COVID relief and stimulus packages – as compiled by the Committee for Responsible Federal Budget – that are now flooding Illinois’ public and private sectors. Those billions have significantly reduced the probability of a bond default – which is ultimately what Moody’s really cares about. 

Author(s): Ted Dabrowski, John Klingner

Publication Date: 1 July 2021

Publication Site: Chicago Tribune

Illinois targets coal plant closures before all bonds retire

Link: https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202106071513SM______BNDBUYER_00000179-e7af-dd1a-ab7d-efefe4190001_110.1

Excerpt:

A proposed mandate to shutter the $5 billion Prairie State coal energy campus and a Springfield, Illinois? plant by 2035 would hit local ratepayers with the double burden of funding new energy sources while still paying down project bonds, a bipartisan group of state lawmakers warn.

Gov. J.B. Pritzker backs a state mandate to end coal generation by 2035 to meet de-carbonation targets included in pending energy legislation. The package stalled during the General Assembly?s spring session that ended last week, but Pritzker said he expects lawmakers will return in the coming weeks for a vote.

…..

Retiring Prairie State early would mark the latest headache for some of the nine public utilities in Illinois, Indiana, Kentucky, Missouri, and Ohio that issued $4.5 billion of debt, some it under the federal Build America Bond program, to finance their ownership in project.

Peabody Energy Inc. initially sponsored the project in Washington County promoting it as an affordable source of energy with an adjacent mine and a cleaner one given its state-of-the-art technology at the time. Bechtel Power Corp. built it. It initially carried a $2 billion price tag that rose to a $4 billion fixed cost under the 2010 contract with utilities but cost overruns drove the price tag up to $5 billion.

Author(s): Yvette Shields

Publication Date: 7 June 2021

Publication Site: Fidelity Fixed Income

The SEC’s job is bigger than just protecting the investors, Mr. Gensler

Link: https://www.truthinaccounting.org/news/detail/the-secs-job-is-bigger-than-just-protecting-the-investors-mr-gensler

Excerpt:

Unlike FASB, the SEC has no control over GASB. But the Commission is obligated “to protect investors in the municipal markets from fraud, including misleading disclosures [emphasis added].” Taken together, the SEC’s own statements make a strong case that it is obligated to prevent fraud in state and local governments’ financial reports, which are confusing and obfuscate the truth. 

The state and local governments’ annual financial reports are based on shoddy accounting practices. If confusing and misleading disclosures are considered fraud, then annual reports produce fraudulent disclosures.

It is confusing and misleading that the GASB requires state and local governments to keep two sets of books. Annual financial reports include governmental fund statements that are prepared using an accounting basis called the “modified accrual basis,” which in essence uses short-sighted cash accounting, while the consolidated financial statements are prepared using accrual accounting standards similar to those used by corporations. 

Author(s): Sheila Weinberg

Publication Date: 20 May 2021

Publication Site: Truth in Accounting

Did IL state lawmakers unconstitutionally borrow billions of dollars? IL Supreme Court to decide

Link: https://cookcountyrecord.com/stories/580283019-did-il-state-lawmakers-unconstitutionally-borrow-billions-of-dollars-il-supreme-court-to-decide

Excerpt:

Tillman, of suburban Golf, centered his claims on Article IX Section 9(b) of the Illinois state constitution. Tillman argued that provision of the state constitution limits the state’s ability to borrow money.

The complaint particularly focuses on text requiring lawmakers to identify “specific purposes” for debt when issuing new long-term bonds. Tillman argues that “specific purposes” clause should be read to forbid state lawmakers from borrowing money to finance deficits or “plug holes” in the state’s budget, such as the shortfall faced by the state when funding pension obligations.

Tillman has argued lawmakers in both 2003 and 2017 failed to identify “specific purposes” when it issued bonds, and then unconstitutionally assigned to the state comptroller the power to decide how the borrowed money was spent.

Author(s): Jonathan Bilyk

Publication Date: 19 March 2021

Publication Site: Cook County Record