Taxpayers won’t have to fork over millions to banks because of the state’s poor credit rating after Gov. Bruce Rauner said a reworked deal has been struck on bond debt he inherited from a previous administration.
Interest-rate swaps on government bonds are like adjustable rate mortgages for homeowners -- a variable rate takes the place of a fixed rate.
Illinois’ 2003 bond interest-rate swap deal included a credit-rating trigger that would lead to the banks terminating the bonds and forcing repayment. Credit-rating agency S&P downgraded Illinois to BBB Friday, one rating above what would have triggered full payment with penalties in the bond agreement. The Rauner administration announced a deal Tuesday that it said has been in the works for months that lowered the credit-rating threshold.
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Ninth Street Advisors Managing Director Mark Glennon applauded the announcement, saying it will save taxpayers from paying the banks more than necessary, “but it’s not a panacea for the state’s problems, and it’s not necessarily an indication that anybody did anything wrong or irrational.”
A coalition of labor groups applauded the reworked deal. Nathan Ryan of Grassroots Collaborative said it’s a good move, but he hasn’t seen all of the details. Ryan said they “call on the governor to immediately release the terms of the agreement and commit to invest any savings into our human services, education and higher education.”
Dr. David Merriman, professor of public economics at the University of Illinois Chicago, said the money is not new revenue, it’s a bill that would have been due.
“The insurance claim that was going to be against you is now canceled, so you get to keep the money you would have spent.”
The Governor’s Office said the deal will allow the state to direct limited resource to education and human services, instead of a large bill to the banks.