Support the Wall Street Examiner! Choose your level of support to receive a free proprietary report as my thanks. Click the button below to see your options. Become a Patron!

Illinois: The Puerto Rico of the Plains (State Finances in “Crisis Mode” as PowerBall and MegaMillions Pull Out)

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

Ah, Illinois. Once known as “The Land of Lincoln,” it is now known as  “The Puerto Rico of the Plains.”

Liquidity moves markets!

Follow the money. Find the profits! 

Illinois has the distinction of having the lowest municipal bond rating of any state. Only Puerto Rico, which is NOT a state, has a lower municipal bond rating (S&P rates them as ‘D’ since Puerto Rico has defaulted on the debt). S&P has downgraded Illinois to BBB-.

The yield on 10-year Illinois General Obligation bonds BBB-rated is almost 5% while the AAA-rate GO bond yields in Illinois is at 2.28%. BBB-rated Illinois GO bonds are yielding over 2x the AAA-rated yield. And remember, the Illinois GO bonds are tax-exempt. For comparison, the fully-taxed US Treasury yield is 2.15% at the 10-year maturity. So, tax-exempt Illinois bonds (both AAA and BBB-rated) have a higher yield that the fully taxed US Treasury 10 year note. 

In addition to credit ratings, another similarity between Illinois and Puerto Rico is that both have declining populations. But Illlinois has four times the population of Puerto Rico.

The Illinois state legislature has not passed a state budget in three years in what basically boils down to Chicago versus the rest of the state.

Rick Moran at PJMedia has cobbled together a few of the consequences of not having a state budget.

  • If there is no state budget by June 30, 2017, the Illinois Department of Transportation announced that they would be forced to halt all state projects that could cost 30,000 jobs.
  • The Illinois Lottery faces threats of removal from the Powerball and Mega Millions if there is no budget by June 30, 2017.
  • Illinois owes school districts more than $1.1 billion in categorical payments for special education, transportation, bilingual and early childhood services.
  • Illinois’ backlog of unpaid bills stood at record $14.5 billion as of May 31, according to Comptroller Susana Mendoza.
  • The state’s Medicaid managed care organizations are owed $2 billion.
  • Centerstone, a non-profit behavioral health organization that helps 16,000 clients in southern Illinois and the metro-east region, has shuttered offices and cut services amid the budget impasse, affecting 700 clients and 39 staff members throughout the state.
  • The Wells Center, a drug treatment facility in downstate Jacksonville that has been operating for 50 years, was forced to shut down operations because of the budget impasse.
  • Illinois’ unpaid bill backlog could hit $25 billion by FY 2019 if the state continues without a budget.
  • Students and parents are looking to out-of-state colleges due to the unstable climate within Illinois’ higher education system.
  • More than 1,500 employees have been laid off at public universities and community colleges throughout the state.
  • The two multi-state lotteries — Powerball and Mega Millions — announced that if there was no budget agreement by June 30, 2017, they would drop Illinois from the games.
  • Additionally, the state currently has $130 billion in unfunded pension obligations, annual payments of which could be cut if a deal isn’t struck; a scenario that Moody’s warned would be a negative credit event for bondholders.

Of course, unlike California where Governor Jerry “Moonbeam” Brown has a super-majority in the state legislature, Illinois is divided politically. The pressure of passing a budget (even a stopgap budget) is enormous, but which side will blink first?

It reminds me of “The Chicken Run” from the James Dean film “Rebel Without a Cause.” 

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. I may receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

Try Lee Adler's Technical Trader risk free for 90 days! Follow the money. Find the profits!

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.