An Illinois Supreme Court opinion that could settle a nearly two-year-old challenge to the validity of about $14 billion of outstanding general obligation bonds is expected Thursday.
The court faces two questions in John Tillman v. Gov. J.B. Pritzker et al, so the outcome remains unclear, according to several market participants following the case who noted that justices provided little indication of their leanings during oral arguments in March.
The court could render an opinion deciding the entire lawsuit, or simply settle the ground rules on which the case will continue to be fought.
The opinion is listed on the court’s website among those “anticipated” to be released Thursday by the clerk's office in Chicago and Springfield and posted on the website by 9:30 A.M. Central time, although court spokesman Christopher Bonjean cautioned there is sometimes a delay with some opinions being released the following day and not all posting by 9:30 A.M.
One question before the court asks it to clarify the rules that lower courts should apply in deciding whether to allow a taxpayer status action to proceed.
In that event, the range of outcomes would be from tossing out the case launched in July 2019 by the John Tillman, head of the conservative Illinois Policy Institute to, sending it back to the circuit court where it could proceed and its legal merits aired there.
The justices could also go further as requested by Attorney General Kwame Raoul and settle the more sweeping question about whether the state’s $10 billion pension bond deal in 2003 and $6 billion in borrowing from two deals to pay down the state's overdue bills in 2017 violated the Illinois constitution.
If the court opts to settle the constitutional question, the opinion would have a broad reach that extends to future debt practices.
The question over debt rules is “of great significance to the state’s ability to engage in financial operations including the issuance of debt” that extends beyond the $14.3 billion still owed on the deals to future state debt issuances, an assistant attorney general representing the state told the justices.
Tillman’s attorney countered that it’s too early for such a decision as the constitutional questions haven’t yet been litigated and the Supreme Court should narrowly rule on questions that govern taxpayer lawsuits and decide only whether the case can go back to the circuit court level to proceed.
Tillman filed suit in July 2019 seeking permission to move forward with a taxpayer action that contends the deals violated the “specific purposes” language in the state’s debt clause because they failed to meet the threshold for establishing a specific purpose because some was used for general operating expenses and so amounted to deficit financings, which Tillman argues is not a permitted use.
Sangamon County Circuit Court Judge Jack D. Davis II in Springfield denied the petition to proceed after concluding the state had met the legal requirement on outlining the specific purposes.
Tillman appealed, arguing the judge should only have considered whether the case was “frivolous” or “malicious” — language applied in past rulings — in deciding whether to allow it to proceed as a taxpayer action.
The Fourth District Appellate Court
Market participants are closely following the case and many believe given the state’s legal review process in advance of issuing the debt that the bond issues will pass muster and that if voided the state would find a way to make good on the debt.
But there’s also an undertow of doubt that has in the past influenced secondary bond market prices for Illinois debt; nothing is certain where the judicial branch is involved and until the case is resolved the state can’t borrow to pay down bills.
With revenues recovering from the COVID-19 pandemic’s blows and the infusion of $8.1 billion of federal dollars and heavy appetites for yield, Illinois bonds are trading at spreads not seen since before its two-year budget impasse began in 2017.
The 10-year was trading at about a 85 basis point spread to the Municipal Market Data-Refinitiv AAA benchmark compared 90 bps at the start of May, 100 bps at the start of April, and 197 bps at the start of the year. With the state’s 10-year at a 1.87 % yield, it’s closer to the BBB benchmark that was at 1.73% Monday. Illinois carries ratings all at the BBB-minus/Baa3 level.
