CHICAGO – New Illinois laws pave the way for the use of state investment funds to pay down its $7.7 billion bill backlog and for the Illinois Finance Authority to aid up to $2 billion in local projects through a commercial Property Assessed Clean Energy financing program.
Another new law signed recently by Gov. Bruce Rauner requires the administration to account in its proposed budgets for the interest costs on the bill backlog.
“With this new law, we have created a tool to help pay down the bill back log more quickly while increasing our investment returns,” Frerichs said in a statement Monday.
The state would receive an interest rate set at a variable market rate tied to Libor or the federal funds rate. The rate is higher than the treasurer’s office currently receives on its permissible investments, so it earns a higher rate of return but it’s much lower than 9% to 12%, so the interest tab on the backlog is reduced.
Frerichs estimated savings of $35 million to $100 million annually. The comptroller’s office has previously reported the interest tab during the state’s more than two year budget impasse at $1 billion as the backlog rose to a record $16.7 billion. The backlog is one of a several deep strains on the state's credit profile along with its $129 billion unfunded pension liability burden.
The legislation allows for the investment through an intergovernmental agreement that outlines investment procedures, the terms and time frames, and which of the more than 700 state funds could be used for the investment. The details will be posted on the treasurer’s website.
The bill passed with bipartisan support in 49‑1 Senate vote and 115-0 House vote, but it has critics in municipal market.
“The transaction could optically lower the state’s headline-producing bill backlog” and “could reduce interest costs” but longer term “it also could be the start of a shell game that saddles the treasurer with less liquid, politically charged investments, defers real progress on addressing the bill-backlog, and could amplify Illinois’ fiscal woes if its finances continue to deteriorate,” Lisa Washburn, a managing director at Municipal Market Analytics, wrote in a report on the legislation
Rauner also signed Senate Bill 2661 which strikes language on the books limiting the treasurer’s local government debt purchases to at a price not to exceed par. The ability to purchase municipal bonds above par provides for upside benefits and downside protection in a changing interest rate environment, the treasurer’s office said.
Rauner signed on Friday a package of bills pushed by Mendoza that requires governors to include in their budget proposals how the state would pay late payment interest penalties. “Up to now, governors have ignored these liabilities in their budget proposals,” said a statement from Mendoza.
Several other codify in state law the state’s vendor payment program, requiring state auditor general reviews, and more disclosure on the qualified purchasers and their backers. The program utilizes private investors to purchase overdue bills easing the burden on social service agencies and other vendors waiting on state payment.
The IFA, the state’s lead conduit agency, is now marketing its newly established C-PACE financing program to local cities, village, and counties as a means to lower their financing costs and simplify the process to promote commercial based clean energy, renewable, energy efficiency and water conservation projects. The IFA has up to $2 billion of bonding authorization for the program.
“Illinois commercial and industrial property owners now can access more affordable financing for their energy improvements, and local governments have the option to help them do so more efficiently and economically,” IFA executive director Christopher Meister said after Rauner signed the legislation, adding it’s the first state-support model for C-PACE funding.
The IFA C-PACE financing program allows for economies of scale through the pooling of C-PACE projects for purposes of bond financing. Projects that might not qualify for upfront bond financing could tap interim funding.
“Functioning as a warehouse lender, IFA will utilize its balance sheet to interim fund small, qualifying projects in anticipation of bond financing,” IFA documents say.
The interest rate would be set at the Federal Reserve Bank of New York’s Daily Secured Overnight Financing Rate + 1/8%, according to IFA documents. “Upon economies of scale being attained, the assessment contracts are pooled and IFA issues taxable municipal bonds which are purchased by a capital provider.”
Alternatively, if a qualifying standalone project itself is economical for purposes of bond financing, IFA could issue a stand-alone taxable municipal bonds on behalf of the local unit of government.
“DuPage County is proud to be one of the first participants in the C-PACE program as it helps us achieve our own business growth and environmental sustainability goals,” said county board chairman Dan Cronin.
