Bailing out bankers and encouraging broke municipalities to borrow beyond their means is no way to unburden Illinoisans, the conservative-leaning lllinois Policy Institute argued recently.
Michael Lucci writes on the institute's website that while Democrats are pushing for a "privilege tax" on one hand, on the other they are prodding legislators to approve several bills that would make sure banks and bondholders are paid if loans they make to local governments go into default.
"Banks and local governments should bear the cost of their own mistakes," Lucci argues. "But the proposed legislation would bail them out if things turn south."
One piece of legislation, Senate Bill 10, allows for home-rule cities to borrow from lenders at a lower interest rate. Lucci argues that while this seems like a positive thing for taxpayers, the problem arises when a home-rule city runs out of funds. That city would then see the money in its Local Government Distributive Fund seized by bondholders -- an action that could prevent cities from being able to pay for vital services.
Perhaps in counterpoint, HB 278 would boost the amount of state revenue paid into Local Government Distributive Funds by $300 million per year. But while that might help in the short term, it would not prevent seizure. It would in fact give bondholders or banks the right to future tax revenue, Lucci argues.
“This is a huge giveaway to bondholders – it even gives the bondholders a statutory first lien on future tax dollars for bonds that were issued in the past under different terms,” he writes.
Also of concern to Lucci is House Bill 3004, which provides a legal way for the state treasury to help the Chicago Transit Authority (CTA) and the Regional Transit Authority (RTA) borrow more money over a longer period. The legislation lets the state treasury buy the bad debts of the transportation giants if needed, then take tax payments if necessary. HB 3004 also triples the amount the RTA is allowed to take out as credit. Currently the RTA’s lines of credit are capped at $100 million.
Another measure, House Bill 3005, would allow the state treasurer’s office to purchase the bonds of broke local governments. Unfortunately, Lucci argues, this also means that the treasury would be repaid before money is available to local governments for services, pension payments or other important needs.
What all of these bills boil down to is a bailout for bondholders and financially unstable governments, Lucci writes. The legislation, which might seem promising on its surface, would ultimately result in banks and bondholders receiving their payments at the cost of individual taxpayers.
“These bailout bills would turn Illinois’ immense debt problems into guaranteed profits for banks and bondholders and a lower standard of living for other Illinoisans,” Lucci concludes.
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