The state of Illinois has taken another step toward improving its financial situation, selling $1.5 billion in bonds to help pay down the backlog of overdue bills.
Because Illinois went two years without a budget, it’s piled up nearly $16 billion in unpaid bills. That money is owed to hospitals, electric utilities, drug rehab centers — basically any entity that has a contract with state government.
The thing is, there are late-payment penalties on a lot of that debt — ranging from 9 to 12 percent a year. Comptroller Susana Mendoza's office estimates Illinois' late-payment interest penalties total about $900 million.
So it makes sense to effectively refinance. Hence the bond sale.
According to the Governor's Office of Management and Budget, Illinois managed to get an interest rate of 3.5 percent.
“The state received strong bids today for its bonds and is pleased with the market’s favorable reception of the sale,” Scott Harry, budget director for Gov. Bruce Rauner, said in a statement. “This bodes well for the state’s financing coming next week.”
The interest rate is pretty high compared to other states, but Illinois has to pay more to investors because it has the lowest credit rating in the country. Analysts have blamed that on a “dysfunctional” government.
Illinois won’t get the money from this bond sale right away — first the state has another $4.5 billion worth of bonds to sell next week.
Still, Rauner’s budget office says the backlog of bills could be cut "approximately in half" by June 2018.