SPRINGFIELD, Ill. (AP) - Illinois borrowed $550 million Thursday for construction projects, taking advantage of historically low interest rates as the state approaches one full year with a budget.
Gov. Bruce Rauner's office announced the bond sale to Bank of America Merrill Lynch in a bidding process that offered Illinois a 3.74 percent interest rate — the lowest in Illinois history for similarly situated general obligation bonds, a spokeswoman said.
A bond expert noted the entire market is operating amid all-time low interest rates and Illinois could have done better were it in better fiscal shape.
What's worse, much of the loan — $330 million earmarked for mass transit improvements, $200 million for road construction, and $20 million for other brick-and-mortar projects — can't be spent without legislative authorization. The Republican governor and Democrats who hold majorities in both houses of the General Assembly haven't agreed on an overall spending plan for a year.
The state has overdue bills of more than $7 billion and climbing, as well as a multibillion-dollar deficit worsened by court-ordered and other spending that exceeds revenue. Rauner wants a budget deal to include business-friendly laws and political reform. Democrats say those can wait until after both sides agree to spending cuts and a tax increase to handle the financial hole.
Rauner's transportation secretary warned last week that without legislation to approve at least stopgap funding, even construction jobs that are now underway will be shut down July 1.
Rauner spokeswoman Catherine Kelly pointed out that the 3.74 percent interest rate outdid the 4 percent availed in January on a $480 million sale.
Within the last week, two major credit-rating houses dinged Illinois' worst-in-the-nation rating even further. Moody's Investors Service downgraded Illinois to two levels above "junk" status and S&P Global Ratings knocked it down a level, citing financial "mismanagement."
"It's clear from today's bond sale that investors realize Illinois now has a governor that is trying to turn the state around and right its fiscal ship," Kelly said in a statement.
Martin Luby, a DePaul University professor and a bond expert for the Institute of Government and Public Affairs at the University of Illinois, had not completed an analysis of the numbers Thursday afternoon. He observed that interest rates are low across the market and had a state with the highest credit rating issued bonds Thursday, the interest rate would have been closer to 2 percent.
"On a relative basis, the state's interest rate would have been even lower if its credit did not deteriorate," Luby said. "The relative analysis is important."
Both Moody's and S&P's downgrades last week put Illinois eight credit-risk levels lower than their top "AAA" rating.
Kelly said some of the bond proceeds can be spent using appropriation authority approved for the current fiscal year. But she repeated the governor's message that no budget means idling construction equipment and the 25,000 people who operate them.
Rauner was asked this week how he can justify borrowing money for buildings when taxpayers relying on unfunded human services are suffering. He said borrowing should not be done to pay for operations, but it's "good financial management" to take out loans for concrete and steel.
"We can't have a healthy economy, we can't create jobs unless we invest in our infrastructure," Rauner said. "Long-term projects with long-term payback using long-term financing is the right thing to do."
Contact Political Writer John O'Connor at https://twitter.com/apoconnor . His work can be found at http://bigstory.ap.org/content/john-oconnor .