Update on Illinois Short-Term Debt

June 26, 2020

Since the Civic Federation published a blog on short-term debt in Illinois on May 22, 2020, there have been two significant updates to report.

Illinois Issues $1.2 Billion in Short Term Debt via the Federal Reserve’s Municipal Liquidity Facility

As noted in a recent Civic Federation blog on the Illinois State budget, the State plans to rely on short-term cash flow borrowing from the Federal Reserve Bank’s Municipal Liquidity Facility (MLF) to balance its FY2020 and FY2021 budgets. The State changed a provision in the Short Term Borrowing Act to allow bonds to be sold through a negotiated process, rather than by sealed bid. Subsequently, it borrowed $1.2 billion to close its COVID-19 related FY2020 budget deficit. The deficit was caused in part by the State following the federal government in extending the deadline to pay 2019 income taxes due to July 15. The State also plans to borrow up to $5.0 billion in short-term certificates from the MLF for cash flow purposes in FY2021.

On June 5, 2020, Illinois became the first government in the nation to access the MLF, when it sold a total of $1.2 billion in tax exempt certificates.[1] The maturity date for the certificates is June 5, 2021 and the interest rate is 3.82%. As noted, these funds will be used to meet the State’s failure of revenues in FY2020. The certificates are general obligations of the State and were issued pursuant to Section 9(d) of Article IX of the Illinois Constitution and the State’s Short Term Borrowing Act. The credit ratings on the certificates were: Moody’s: Baa3; Standard & Poor’s: BBB-; and Fitch: BBB-.

Expansion in Entities Eligible to Access the Municipal Liquidity Facility

On June 3, 2020, the Federal Reserve Board announced a change in the number and type of entities eligible to access the Municipal Liquidity Facility.[2]

All states will now be able to designate one or two cities or counties to directly issue notes to the MLF, regardless of the size of those governments’ populations. In states where the Governor can designate one city or county, this action expands access to cities with populations less than 250,000 or counties with populations less than 500,000. In states where governors can designate two entities, they can using any of the following combinations:

• The most populous city and most populous county;
• The most populous city and second-most populous city; or
• The most populous county and second-most populous county.

Governors will also be able to designate two revenue bond issuers in their jurisdictions whose revenues are primarily derived from operating government activities. The Mayor of the District of Columbia will be authorized to designate one issuer. Eligible issuers include public transit agencies, airports and toll facilities.

 

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