Hey, Bruce: head for New York and soothe the credit rating agencies threatening to slap a junk-bond status on Illinois.
Such a quest is one of five steps Illinois Treasurer Michael Frerichs said Gov. Bruce Rauner must take to fend off that dreaded “junk” label.
“The governor must travel to New York and speak directly with the three rating agencies and convince them that he embraces the decisions of the legislature and will implement the budget agreement,” Frerichs, a downstate Democrat, said Monday at a Thompson Center news conference.
Those agencies — Fitch Ratings, Standard & Poor’s and Moody’s Investor’s — all may yet lower Illinois bonds to the below-investment-grade rating typically referred to as “junk” status. Illinois would be the first state to get such a rating on the bonds it sells to finance state operations.
Frerichs said the governor also must:
- Take visible steps to implement his $6 billion in bonding authority and use the money to pay down a backlog of overdue bills.
- Sign off on a school-funding model to ensure schools open on time.
- Clearly communicate new tax rates with Illinois employers to eliminate any confusion that could jeopardize the timely filling of state coffers.
- Quit spewing divisive rhetoric that is “impairing our state from moving forward” and “counters the bipartisan cooperation that the rating agencies want to see.”
Frerichs insisted the issue is financial, not partisan.
“I don’t pretend any of these will be easy for this governor, but if these steps are not followed, Illinois will be plunged into junk status,” he said. “As the state’s chief investment officer, whose primary responsibility it is to manage money and investments, I’m advising the governor to take these five steps.”
He said he had outlined the plan a letter to the governor, but hasn’t heard back.
Frerichs credited Rauner’s private sector business acumen, but said it hasn’t translated to success in government.
“The nuance of legislation, was, is and remains foreign to him,” Frerichs said.
A Rauner spokeswoman said the problem is the legislation lawmakers passed — what it does, and what it doesn’t do.
“The low rating from the rating agencies is reflective of the fact that Madigan’s 32 percent permanent tax increase will not solve the problems created by decades of unbalanced budgets, unfunded pension liabilities, borrowing and high debt,” Eleni Demertzis said.
“Even with the tax increase, this budget remains $2 billion out of balance for fiscal year 2018. The best thing we can do is to work collaboratively to pass truly balanced budgets that pay down our debt, reform our pension system, and make the changes necessary to drive economic growth in our state.”
Frerich’s said the state “remains a good bet” because its debt “is backed by the full faith and credit of the state of Illinois. We have the ability to tax and pay. But it’s clear that investors out there are spooked.”
Asked why no demands Rauner has been pushing — such as workers compensation reform, term limits and a property tax freeze — were included on the must-do list, Frerichs said those items are not what credit agencies are most concerned about, though he acknowledged the need for more negotiation.