Analysis Finds State Financial Woes Raised Borrowing Costs

Credit Institute of Government and Public Affairs

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Institute of Government and Public Affairs

  The administration of Governor BruceRauneris touting the low interest rate Illinois got in last week’s bond sale. But at least one public finance expert says that’s not the full story. 

Brian Mackey interviews Martin Luby, whose analysis shows Illinois' poor financial condition led to a steep penalty in a recent bond sale.

Given Illinois’ low credit rating and ongoing fiscal disaster, it was expected the state would have to promise a bigger payday in order to attract investors to its bond sale.

Instead, Illinois got a historically low interest rate — which the Rauner administration wasted no time in touting.

But MartinLuby, with the University of Illinois’ Institute of Government and Public Affairs, says that leaves out important context.

"Relatively speaking, the state actually paid higher interest rates than what its paid in the past. It’s just that the overall level of interest rates for the whole market have gone down, and the state was a beneficiary of that," Luby said.

Lubysays if Illinois still had the relatively strong credit rating it did a decade ago, the state would have paid an even lower rate on the bonds —ultimately worth $70 million to taxpayers.

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