By: Mark Glennon*
You might remember when the capitol lights almost were shut off a couple years ago because the bill wasn’t getting paid. That was avoided but, figuratively, the lights are off.
Consider what the story of House Bill 2584 says about how our General Assembly works. The bill would give a massive windfall to existing bondholders that they didn’t bargain for. But the real story is about how such a bad bill could get as far as it has, unquestioned, and what that shows about how Illinois operates.
The bill would retroactively slap a blanket mortgage on all future tax revenue and fee income to secure repayment of all bonds issued by Illinois towns and cities, both bonds already issued and those to be issued in the future. Why is that important? Because every cent of your local tax money will go to bondholders if needed to pay bonds, not towards government services. And for countless Illinois municipalities that are insolvent or headed that way, bondholders indeed may have to use that mortgage to seize tax dollars to get paid. For those places, if the bill passes, no tax revenue would ever be available for services until bonds get paid in full.
The bill is a bit like Senate Bill 10, which we wrote about a couple weeks ago, but worse. Senate Bill 10 is about mortgaging revenue that flows from the state to municipalities. This new bill is about tax dollars collected directly by municipalities. It’s worse because it would secure bonds already issued, including general obligation bonds that are usually unsecured. Both bills would put Illinois towns and cities at risk that any bankruptcy (whether a formal bankruptcy or not) would become an assetless bankruptcy — a hopelessly “collabered up” zombie — as we’ve described earlier. And they would give priority to bonds over unsecured creditors, which include pensioners for the unfunded portion of their pensions.
The rationale for the bill is that it would lower municipal borrowing costs because the debt would be secured. That’s no reason to secure bonds already issued, which is a pointless giveaway. In fact, securing old bonds could raise future borrowing costs because the available collateral — tax money — would have to be shared with old bondholders. Also, the bill would simply make borrowing easier. Is that really what we need — more borrowing and more mortgages on public assets? At a minimum, the bill should be limited to future borrowing and it should be optional for the municipality. As written, the mortgage is automatic and mandatory. In my view, nothing should be done to make borrowing easier unless we closely revisit borrowing caps.
The scary part is how such a bill could get so far without being questioned. It has already passed committee and two readings with no questions or objections being raised. Passage by the House is imminent.
I called the bill’s sponsor today, Rep. Anthony DeLuca (D-Chicago Heights). He had not considered the issues I’ve raised. Why not? Because, he told, me, you can reasonably assume that any valid concerns would have been raised by legislators, the press, lobbyists and committee staffs. Indeed, no objections have been raised on either side of the aisle or by the governor’s staff, I’m told. And nothing in the media.
That’s what’s so horrible. Is there nobody with some financial sense to raise the questions I have, which are obvious? But that’s how Springfield works: A lobbyist goes to a well-intentioned legislator, as I think DeLuca is, and says “here’s a bill to lower borrowing costs.” Legislator has the bill drafted and assumes somebody who understands it will fix it or critique it. Nobody does so it must be fine.
Except for one legislator, that is. I said earlier the lights are out in Springfield. Not entirely. At least one candle burns brightly — Rep. Jeanne Ives (R-Wheaton). She’s not even on the committee responsible for this bill, but she routinely sits on the House floor and actually listens to what’s going on, which almost nobody else does. She was alarmed and alerted me to the bill this afternoon.
“This happens all the time,” she told me today. “This is routine. Things get voted on that aren’t vetted and aren’t understood,” she said in exasperation.
I’m guessing the bill now will be killed or changed significantly, thanks to Ives who will fight it and maybe also to this article. But what kind of government is this? A legislator calls me, laying on my couch in my underwear with a beer, a computer and my dog, and that’s how a bad bill gets exposed?
Just kidding about the underwear and the beer. Wish I were kidding about how Springfield works.
Update 3/15/17: Word today is that the bill has at least been slowed down and is getting a closer look. Ives may have saved taxpayers billions of dollars — no exaggeration.
Mark Glennon is founder of Wirepoints. Opinions expressed are his own.