State of Illinois General Obligation Bonds Rating Agency - - PowerPoint PPT Presentation
State of Illinois General Obligation Bonds Rating Agency Presentation Information Summary October 2 and 3, 2017 Table of Contents 1. Illinois Strong and Diverse Economy 3 2. FY 2018 Budget Update 9 3. Pensions 14 4. Debt Overview 18
General Obligation Bonds Rating Agency Presentation Information Summary October 2 and 3, 2017
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Table of Contents
Kim Fowler Chief Legal Counsel Alexis Sturm Chief of Staff Kelly Hutchinson Director of Capital Markets Scott Harry Director
Presentation Participants – Governor’s Office of Management and Budget
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Charlie Weikel Director – Governor's Office of Policy & Operations
Passage of fiscal year 2018 Budget Permanent increase in personal income tax and corporate income tax rates to 4.95% and 7.00% respectively Passage of Tier 3 Pension Plan and funding changes Passage of Senate Bill 1947 remedied education funding disparities Reauthorization of Edge Tax Credits to allow the State to compete for major economic development projects Reduced risk to swap counterparties by renegotiating rating triggers Sovereign State with significant revenue flexibility Illinois’ economy is the 5th largest in the United States and 18th largest worldwide Statutory provisions gives priority to debt service
GO Bond debt service has a continuing appropriation Debt service is limited to no more than 7% of General Funds and Road Fund Appropriations, without a waiver from the Treasurer and Comptroller Debt service requirements decline by over $978 million after FY 2019 due to pension bonds maturing, providing significant flexibility Issuance of the General Obligation Bonds will pay off approximately $6.0 billion of outstanding bills and is expected to result in the receipt of additional federal funds By the end of fiscal year 2018, the bill backlog is expected to be approximately $7.5 billion, a nearly 50% reduction
Recent Developments Inherent Credit Strengths
Note: Amounts related to the plan of finance and bill backlog are estimates
The State’s Credit Fundamentals Have Improved Significantly
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Illinois is home to 36 Fortune 500 companies – Only New York, California and Texas have more The City of Chicago was named “top metro for corporate relocation(s)” for the 4th year in a row3 – Recent major relocations to Illinois include Mars and Conagra Chicago’s diversified economy is a major attraction for workers and recent graduates across the nation, bringing educated and skilled workers into the State Illinois has a strong economy with a diverse workforce similar to the nation Broad employment base with no industry accounting for more than 20% The State is well-positioned for long-term stability through economic cycles Fortune 500 Companies Headquartered in Illinois2 Illinois Non-Farm Employment by Industry1
2016 Rank 2015 Rank Company Industry Category 17 19 Walgreens Boots Alliance Food and Drug Stores 24 24 Boeing Aerrospace & Defense 33 35 State Farm Insurance Cos. Insurance: Property and Casualty (Mutual) 45 41 Archer Daniels Midland Food Production 74 59 Caterpillar Construction and Farm Machinery 83 80 United Continental Holdings Arlines 84 81 Allstate Insurance: Property and Casualty (Stock) 89 95 Exelon Utilities: Gas and Electric 105 97 Deere Construction and Farm Machinery 109 94 Mondelez International Food Consumer Products 111 123 AbbVie Health Care 112 109 McDonald's Food Services 124 122 US Foods Wholesalers: Food and Grocery 127 111 Sears Holdings General Merchandisers 135 138 Abbott Laboratories Medical Products and Equipment 197 173 Conagra Brands Food Consumer Products 199 220 CDW Information Technology Services 202 211 Illinois Tool Works Industrial Machinery 277 283 Discover Financial Services Commercial Banks 281 286 Baxter International Medical Products and Equipment 283 285 W.W. Grainger Wholesalers: Diversified 304 369 LKQ Wholesalers: Diversified 322 334 Tenneco Motor Vehicles & Parts 337 281 Navistar International Construction and Farm Machinery 338 315 Univar Wholesalers: Diversified 359 391 Anixter International Wholesalers: Electronics and Office Equipment 388 258 R.R. Donnelly & Sons Publishing, Printing 391 436 Jones Lang LaSalle Real Estate 392 377 Dover Industrial Machinery 427 767 TreeHouse Foods Food Consumer Products 433 451 Motorola Solutions Network and Other Communications Equipment 439 442 Old Republic International Insurance: Property and Casualty (Stock) 450 446 Packaging Corp. of America Packaging, Containers 456 456 Ingredion Food Production 462 471 Arthur J. Gallagher Diversified Financials 487 477 Essendant Wholesalers: Electronics and Office Equipment
Trade, Transportation and Utilities 20% Professional and Business Services 16% Education and Health Services 15% Government 14% Leisure and Hospitality 10% Manufacturing 9% Financial Activities 6% Mining, Logging, Information and Other Services 6% Construction 3%
Illinois’ Strong and Diverse Economy
3 Illinois’ Strong and Diverse Economy
0.0 2.0 4.0 6.0 8.0 10.0 12.0 5,300 5,400 5,500 5,600 5,700 5,800 5,900 6,000 6,100 6,200 6,300
IL Employment IL Unemployment Rate National Unemployment Rate
$620,000 $630,000 $640,000 $650,000 $660,000 $670,000 $680,000 $690,000 $700,000 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1Q17
Median Household Income
Illinois MHI has grown 4.5% annually on average since 2011, outpacing the US (3.1%) and neighboring states (3.1%). Income as measured by both PCI and MHI remains well above national averages. Source: U.S. Department of Commerce, Bureau of Economic Analysis; Bureau of Labor Statistics 1. YTD averages 2. As of August 2017, not seasonally-adjusted and preliminary and subject to change 3. Bureau of Economic Analysis 2017, data as of 7/2017.
Per Capita Personal Income1
Illinois’ Per Capita income is ranked 4th among the 10 largest states.
Upward Trend in IL Real GDP3
In Q1 of 2017 Illinois’ economy ranked 5th in the nation and 18th in the world at $804 Billion (behind Florida and ahead of The Netherlands).
Average Non-farm Employment and Unemployment1,2
Employment increased with jobs exceeding 6.0 million in 2016. Millions of Chained 2009 Dollars
Unemployment Rate (%) Employment (Thousands)
$48,000 $50,000 $52,000 $54,000 $56,000 $58,000 $60,000 $62,000 2012 2013 2014 2015 2016 Illinois National $36,000 $38,000 $40,000 $42,000 $44,000 $46,000 $48,000 $50,000 $52,000 $54,000 2011 2012 2013 2014 2015 2016 1H2017 Illinois United States Great Lakes
Illinois’ Robust Economic Indicators
4 Illinois’ Strong and Diverse Economy
Demographics by Age
The State’s population mix by age mirrors the US but has a lower percentage of people over 65.
Source: US Census, US Bureau of Labor Statistics.
Population
Illinois is the 5th most populous state in the nation and has grown each decade through 2010 with a modest YoY decline in 2016.
Highly Educated Population
Illinois is home to top ranked universities bringing talented and educated individuals to the State. Illinois residents with college degrees is 32.3%, well above the US at 29.8% and the Great Lakes States at 26.2%.
0% 5% 10% 15% 20% 25% 30% > 65 yrs 45 to 64 25 to 44 18 to 24 under 18 U.S. Illinois 10.0 10.5 11.0 11.5 12.0 12.5 13.0 1970 1980 1990 2000 2010 2016 millions
Demographic Analysis
5 Illinois’ Strong and Diverse Economy
Illinois is a Major Hub for Both Land and Water Freight Flows
Source: US Census, US Bureau of Labor Statistics, IDOT, USDOT, World Business Chicago.
Unparalleled Air Transportation Network
The State is home to the 2nd and 25th busiest airports in the US in O’Hare and Midway. O’Hare is the Best Connected Airport in the US according to MIT’s Airport Connectivity Quality Index
Unparalleled Rail Transportation Network
Illinois is also the only state where all 7 class I railroads in the United States operate. Train transit ridership is also up nearly 54% over the past decade.
Five Major Trucking Routes Intersect in the State
Illinois’ Expansive Transportation Network
6 Illinois’ Strong and Diverse Economy
FY 2017 Budget Review
7 FY 2018 Budget Update
A full FY 2017 General Funds budget was not enacted prior to the end of the fiscal year All payments for General Obligation and Build Illinois bond debt service were made Final FY 2017 General Funds revenue totaled $29.405 billion For the General Funds budget, certain appropriations were enacted and spending
continuing appropriations, court orders and consent decrees. Such spending is estimated to total $34.0 billion in categories such as: – Elementary and secondary education – Medicaid and certain social service grant programs covered by consent decree – State employee payrolls by court order – Pension contributions – Transfers to other State funds, including for debt service – FY 2017 Appropriations in some cases were used to pay FY 2016 obligations Approximately $2.8 billion in State General Funds operational liabilities were not appropriated in FY 2017, but these may be paid from future year appropriations
budgetary adjustments. Estimated expenditures are only those processed by Comptroller via appropriation, continuing appropriation or court order/consent decree during FY 2017 and FY 2017 lapse period. 3. GOMB estimate of FY 2017 General Funds liabilities not appropriated.
General Funds Estimated Results ($millions) FY 2017 Estimated Base Resources State Sources $25,380 Transfers In1 $1,542 Total State Sources
$26,922
Federal Sources $2,483 Total Resources $29,405 Estimated Budgetary Expenditures2 $29,400 Statutory Transfers Out $2,400 Debt Service $2,235 Total Transfers $4,635 Total Expenditures $34,035 Estimated General Funds Surplus (Deficit) (4,630) Estimated FY 2017 Operational Liabilities Not Paid3
2,800
FY 2018 Budget Update
8 FY 2018 Budget Update
As of May 31, 2017, no appropriations bills for spending for Fiscal Year 2018 had passed both chambers of the General Assembly. After this date, the Illinois Constitution requires that changes in law and appropriations may be immediately effective only with the approval of 3/5ths of the members of each chamber rather than a simple majority In early July, the General Assembly passed a Fiscal Year 2018 budget package, including appropriations and revenue increases – The Governor vetoed the bills related to the budget package on July 4, 2017, citing imbalances in the proposed Fiscal Year 2018 General Funds budget – The Senate and the House of Representatives overrode the Governor’s veto of the budget package Three budget-related Public Acts went into effect on July 6, 2017 – PA 100-21 (appropriations), PA 100-22 (revenues) and PA 100-23 (the budget implementation statutory changes) Included in PA 100-22 were permanent increases in the individual income tax rate from 3.75 percent to 4.95 percent and in the corporate income tax rate from 5.25 percent to 7.0 percent, effective July 1, 2017 Other revenue changes included revisions to certain tax credits and corporate income tax deductions
FY 2018 Budget Update (continued)
9 FY 2018 Budget Update
PA 100-23, the statutory budget implementation bill, included several legislative changes: The General Assembly enacted pension funding reforms with the expectation that the revisions would reduce the amount of contributions the State is required to make during Fiscal Year 2018 For Fiscal Year 2018, there is a 10% reduction in State income and sales tax revenue sharing with local governments and transit districts, and also a shifting of this revenue sharing from a legislative transfer from the General Revenue Fund after income and sales taxes are deposited into the fund to a direct deposit Authorization for the State to issue up to $6 billion in Section 7.6 Bonds (which includes the Bonds and the Series of November 2017D Bonds) to be used to reduce the State’s accumulated unpaid bills by paying State vouchers incurred prior to July 1, 2017 Authorization for the Comptroller to reallocate in Fiscal Year 2018 up to $292.8 million from specific funds Authorization for the Comptroller to temporarily transfer balances in other State funds in State Treasury to General Funds or the Health Insurance Reserve Fund prior to December 31, 2018 – Any such interfund borrowing amounts are required to be paid back within 24 months of the borrowing under current statute – Outstanding interfund borrowing cannot at any time exceed $1.2 billion As of September 30, 2017, the Comptroller had processed fund reallocations totaling $126 million and interfund borrowing of $150 million for deposit into the General Revenue Fund
FY 2018 Estimated General Funds Revenues
10 FY 2018 Budget Update
Under current law, General Funds revenues are estimated to total $35.899 billion for FY 2018, a $6.494 billion increase, or 22.1%, from FY 2017 actual revenues – When compared to the same group of 7 funds in the revised definition, the FY 2018 revenue estimate is $5.566 billion, or 18.4% higher than in FY 2017 – The FY 2018 numbers also reflect the impact of the direct deposit of income tax and sales tax revenue sharing with local governments and transit districts, estimated to total $1.558 billion – Does not include potential revenues from interfund borrowing or fund reallocations Federal revenue receipts will depend on the amount of reimbursable Medicaid spending and the timing of the payments by the State, but payments are expected to be more timely in FY 2018. If the Bonds are used to pay Medicaid bills, additional federal revenues may be received
$millions FY 2016 FY 2017 FY 2018 $ increase % increase Actual Actual Forecast (Previous) (Previous) (Sept 2017) State Sources: Revenues Net Individual Income Taxes $12,890 $12,737 $17,250 $4,513 35.4% Net Corporate Income Taxes 1,972 1,328 1,882 554 41.7% Sales Taxes 8,063 8,043 7,970 (73)
Total, Income and Sales Taxes 22,925 22,108 27,102 4,994 22.6% Other State Revenues and Transfers 3,202 3,272 3,528 256 7.8% Transfers In1 1,581 1,542 1,713 171 11.1% Total State Sources 27,708 26,922 32,343 5,421 20.1% Federal Sources 2,665 2,483 3,556 1,073 43.2% Total Resources $30,373 $29,405 $35,899 $6,494 22.1%
expanded to include 3 additional funds (the Commitment to Human Services Fund, Fund for the Advancement of Education, and the Budget Stabilization Fund) to a total of 7 funds. FY 2017 and earlier reflects the original definition.
Estimated Spending for FY 2018 Budget Outlook
11 FY 2018 Budget Update
The estimated spending for the enacted FY 2018 General Funds budget is $37.4 billion – Estimated spending from appropriations of $33.9 billion – Debt service transfers to the GOBRI fund, including amounts needed for the Bonds, is estimated to total $2.9 billion – Transfers to other State Funds is $573 million, significantly below previous year due to the direct deposit
The State’s base spending commitments are expected to exceed forecasted revenues by approximately $1.5 billion The FY 2018 General Funds budget will likely show a surplus reporting on a reporting basis due to: – The transfer of a portion of the Bonds to the General Revenue Fund after issuance – Potential additional federal revenues above the current federal revenue estimate if a portion of the Bonds are used to pay Medicaid bills – Utilization of interfund borrowing and fund reallocations by the Comptroller in FY 2018
General Funds Expenditures1 ($billions) FY 2018 Projected Operating Budget (from Appropriations) $33.9 GO Bond Debt Service Transfers 2.9 Other Statutory Transfers 0.6 Estimated Total $37.4
Actuarial Assets as of June 30, 2016 were $81.5 billion and the Asset Market Value was $78.2 billion The State Retirement Systems, in aggregate, were funded at 39.2% as of FY 2016 based on the asset smoothing method and 37.6% using asset market value; individual percentages for each fund vary FY 2016 valuations show the impact of a reduction in funding levels due to actual returns performing at lower than assumed rates of return in FY 2016 and the reduction in the assumed investment rates of return by TRS and SERS and other SERS assumption changes FY 2017 valuations and FY 2019 contributions will be available from the systems by November
then and forwarded to the State Actuary SURS: October 19th JRS and GARS: October 20th TRS: October 26th SERS: October 31st
End of Fiscal Year 2016 Pension Status
12 Pensions
Pension Status (Continued)
History of Employer Contributions ($mm)
Source: Annual Actuarial valuations of the Retirement Systems as of June 30,
fiscal years ending June 30, 2005 through June 30, 2016. 1) Includes all State Funds 2) Fiscal Year 2016 reflects the Actuarially Determined Contribution (ADC) under GASB 67/68 instead of the ARC. All systems are using a 30-year open amortization period for calculating their ADC
Fiscal Year Amount Contributed1 ARC Per GASB2 Percentage Contributed 2005 $1,735.11 $3,084.49 56.25% 2006 1,022.70 3,085.60 33.14% 2007 1,479.40 3,665.60 40.36% 2008 2,145.00 3,729.20 57.52% 2009 2,891.90 4,076.40 70.94% 2010 4,130.90 4,786.80 86.30% 2011 4,298.57 5,906.59 72.78% 2012 5,012.82 6,609.55 75.84% 2013 5,893.87 7,015.33 84.01% 2014 6,944.73 7,751.99 89.59% 2015 7,020.06 7,896.83 88.90% 2016 7,501.89 8,388.42 89.43%
% of Plans Receiving at Least 90% of ADC
Source: NASRA FY2015 Public Fund Survey, December 2016
FY 2017 State contributions to the retirement systems totaled $7.68 billion
13 Pensions
Pension Assumptions
Investment Rate of Return Assumptions Used by the Retirement Systems
2009 2016 TRS 8.50% 7.00% SURS 8.50% 7.25% SERS 8.50% 7.00% GARS 8.00% 6.75% JRS 8.00% 6.75%
Source: Comprehensive Annual Financial Reports, Fiscal Year 2016; NASRA Issue Brief: Public Pension Plan Investment Return Assumptions, February 2017
Change in Distribution of Public Pension Investment Return Assumptions, FY 2001-2015
14 Pensions
Senate Bill 42 (P.A. 100-0023) Includes Several Reforms to Illinois’ Pension Systems
Introduction of Tier 3 Optional Hybrid Plan - Tier 3 will offer a hybrid DB and DC plan The small defined benefit has a multiplier of 1.25% of pensionable salary per years of service In addition to the defined benefit, members of Tier 3 will get a defined contribution plan Employees are to contribute a minimum of 4% of their salary and employers are to contribute no less than 2%, but no more than 6% of salary The systems do not expect to implement the Tier 3 plan within FY 2018 and are not projecting an implementation date Local Cost Shift - One key aspect of Tier 3 reforms is that school districts, universities and community colleges will assume the normal costs of benefits for their new hires upon implementation of a Tier 3 plan, regardless of whether the employee chooses a Tier 3 Optional Hybrid benefit or a more traditional Tier 2 defined benefit plan To smooth the transition to Tier 3, the State will supplement the costs of local employers by paying 2% of employee payroll through fiscal year 2020 for all members of Tier 3 Additionally, starting July 1, 2017 local employers in SURS and TRS will also assume the normal cost of benefits for the portion of benefits attributable to all members’ salaries that exceed the Governor’s salary 5-Year Smoothing of Contributions - If systems change their actuarial assumptions, P.A. 100-0023 also contains reforms to how the State realizes those changes in its contributions Beginning in FY 2018, the impact on the State's contributions from any changes each year in actuarial assumptions is smoothed over 5 years. Smoothing in FY 2018 reflects the impact of changes from FY 2014- FY 2017 The State’s FY 2018 original certified contributions in January 2017 totaled $8.843 billion of all funds, of which $7.813 billion was general funds As required by SB42, the systems will recertify the State’s FY 2018 contributions taking into account the changes made in the new legislation The recertified FY 2018 State contributions is expected to total $7.910 billion of all funds, of which $6.983 billion is general funds
Pension Update
15 Pensions
General Obligation bonds are backed by the full faith and credit of the State There is a continuing appropriation in place to ensure bond repayment without action by the General Assembly Statutory provisions give priority to debt service over other State expenditures GOBRI is a separate fund in the Treasury that can be applied to debt service payable on GO bonds and short- term debt Segregation of funds for debt service begins 12 months in advance for principal payments and 6 months in advance for interest payments Average life of all outstanding GO Bonds is approximately nine years General Obligation Debt Service2
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 $Billions Principal Interest
Current Par Outstanding Capital Improvement Bonds $13.7 billion Pension Bonds $11.0 billion Total $24.7 billion
Fixed Rate 98%
Debt service declines by $978 million once pension bonds are paid off in 2019
General Obligation Bond Overview
Hedged Variable Rate 2%
16 Debt Overview
Monies are transferred monthly to the GOBRI Fund and, by law, are used for the payment of GO Bonds issued under the Bond Act and for the payment of Short-Term Debt The Bond Act constitutes an irrevocable and continuing authority for and direction to the Treasurer and Comptroller to make the necessary transfers to the GOBRI Fund Approximately $2.816 billion in transfers from General Funds to GOBRI are estimated for FY 2018 with the balance expected to come from other State funds – In FY18, the State transfers will average approximately $250 million a month from General Funds to GOBRI after the issuance of the Bonds and the capital projects bonds – General Funds State Source Revenues available to make General Revenue Fund debt service total approximately $2.6 billion per month on average and provide approximately 10.4x coverage on the amount required to be transferred into GOBRI each month for General Funds share of debt service, after the issuance of the Bonds As of September 30, 2017, $1.387 billion was available in GOBRI
Transfers to the GOBRI Fund ($Millions)2 Fiscal Year All Fund Cash Balances1
2013 2014 2015 2016 2017 General Revenue Fund Capital Bonds $ 548.8 $ 602.9 $ 591.6 $ 556.5 $626.4 Pension Bonds 1,554.6 1,655.4 1,502.2 1,422.6 1,608.7 Road Fund 359.3 358.7 346.7 333.7 305.2 School Infra Fund 209.5 208.8 192.8 211.8 115.2 Capital Projects Fund 310.1 344.2 388.0 532.5 477.0 TOTAL $2,982.3 $3,170.0 $3,021.4 $3,057.1 $3,132.5
0.0 2.0 4.0 6.0 8.0 10.0 12.0 2012 2013 2014 2015 2016 2017 $Billions
1. Does not include Federal Trust Funds. Includes GOBRI. June 30, 2016 balances show an increase from FY 2015 due in part to the late enactment of FY 2016 appropriations for many State funds. 2. Does not include debt service transfers on short-term debt as may have been from time to time outstanding
Strength of the State’s GO Pledge
17 Debt Overview
Interest Rate Swap Agreements
In 2003, the State executed five separate interest rate exchange agreements to hedge the variable rate of all $600 million of the Series 2003B Bonds at an effective fixed rate. The State pays a fixed interest rate of 3.89% and receives variable rates as shown below In 2017, the State negotiated with the counterparties to change the agreements to have terms more favorable to the State, including lowering the ratings triggers on all of its swaps Interest Rate Exchange Agreements Swap Counterparty Current Aggregate Notional Amount Fixed Rate Paid Variable Rate Received Additional Termination Event Against Illinois Mark-to-Market as of 6/30/2017 Barclays Bank PLC1 $54,000,000 3.89% 82.7% of 1M LIBOR Below Ba1 or BB+ $(9,322,425) Barclays Bank PLC2 54,000,000 3.89% 80.82% of 1M LIBOR Below Ba1 or BB+ (9,499,002) Bank of America, N.A. 54,000,000 3.89% SIFMA3 Below Ba1 or BB+ (10,071,330) JP Morgan Chase Bank, N.A. 54,000,000 3.89% SIFMA3 Below Ba1 or BB+ (10,071,330) Deutsche Bank AG 384,000,000 3.89% SIFMA3 Below Ba1 or BB+ (71,618,343) Total $600,000,000 $(110,582,430)
Variable Rate Bonds
The letters of credit expired in November 2016. To replace those letters of credit, the State entered into direct placements The Series October 2003B Bonds were purchased on November 7, 2016 by four banks. The direct placements have a term of two years and will expire on November 7, 2018. There is no acceleration risk as a result of a downgrade, only an increase in rates Series 2003B Bonds Owner Principal Amount Interest Rate Mode Sub-series DNT Asset Trust4 $226,000,000 LIBOR 2003B-1 PNC Bank, National Association 224,000,000 LIBOR 2003B-2 State Street Public Lending Corporation5 75,000,000 LIBOR 2003B-3 RBC Municipal Products, LLC6 75,000,000 SIFMA 2003B-4 Total $600,000,000
The State Has Actively Managed Its Debt Obligations
18 Debt Overview
Debt Service - Illinois limits debt service expenditures to no more than 7 percent of General Funds and Road Fund appropriations, unless the transaction is specifically exempted by statute Capital Expenditures - The State annually forecasts and analyzes revenues available for capital expenditures The State conducts a formal capital planning process to rank projects based on specific criteria and evaluates the impact of new capital spending on the operating budget The State performs facility management and condition assessments in order to provide information and recommendations for current and future capital expenditures Strategic Fiscal Policies - the State has developed a series of fiscal priorities to help achieve a balanced
Reducing the State's pension liabilities Maintaining debt affordability processes for capital programs Funding key priorities Implementing new revenue streams that reflect the State’s economic base Investing in the economy and the State’s infrastructure Containing costs and improving efficiency of State operations, IT efficiencies, and structural changes to grow the economy
Financial Management Policies
19 Debt Overview
Security
The full faith and credit of the State is pledged for the punctual payment of principal and interest under the General Obligation Bond Act (the “Bond Act”) of the State – The State can draw from all State funds in the State Treasury that are not restricted by law to another use if needed to pay debt service on GO bonds
Statutorily Mandated Debt Service Set Asides (GOBRI)
Under the Bond Act, monthly transfers are made from various State funds to the General Obligation Bond Retirement and Interest Fund (GOBRI), in amounts sufficient to pay the next interest and principal payments when due, which effectively results in the State transferring 1/12th of the next principal payment and 1/6th of the next interest payment every month GOBRI is a separate fund in the Treasury that can be applied to debt service payable on GO bonds and short-term debt
Appropriation of Funds
The Bond Act requires the Governor to include an appropriation in each annual budget of monies in an amount necessary to pay all principal and interest due and further requires the General Assembly to make appropriations annually to pay debt service on outstanding GO Bonds from GOBRI In the absence of appropriations, the Bond Act itself constitutes an irrevocable and continuing appropriation of all amounts necessary to pay principal and interest Principal and interest on all outstanding GO Bonds must be paid even in the absence of a State budget
Additional Protection under Illinois Constitution and State Laws
The Bond Act explicitly provides bondholders the remedy to sue the State to compel payment of GO bonds The provisions of the Bond Act, pledging the full faith and credit of the State to GO bonds issued thereunder, are by their terms irrepealable to any outstanding GO bonds The Illinois Constitution contains a “non-impairment” clause that prohibits action by the General Assembly that would, under contract law, impair the obligations of a contract between the State and its bondholders
Security for Illinois General Obligation Bonds
20 Debt Overview
Medicaid 23.6% State Employee Health Insurance 35.1% All Other 41.3%
2 4 6 8 10 12 14 16 Estimated Sept-17 Projected June-18
Estimated Bill Backlog ($billions)
Impact of the Financing on the Bill Backlog
21 Debt Overview and Plan of Finance
$15.1 billion1 $7.5 billion3
GOMB Estimate Composition of the Bill Backlog (August 2017)
Source: State’s Office of the Comptroller and GOMB Estimates; 1. Comprised of $9.06 billion at the State Comptroller’s office and Comptroller estimate of $6.1 billion held at State Agencies as of September 30, 2017. 2. Takes into account Comptroller estimates from December 31 and June 30 of each year when calculating the average. 3. GOMB estimates.
The State is taking prudent and meaningful steps to reduce the amount of outstanding bills The State’s bill backlog has increased from approximately $5 billion at the end of FY 2015 to approximately $15.1 billion as of September 30, 20171 – Estimated balance of the backlog at the end of FY 2018, as a result of the financing and application of federal funds, will be $7.5 billion, a nearly 50% reduction in the
December 2010-June 2015 Average2 = $7.1 billion
Competitive Transaction Overview
*Preliminary, subject to change.
The State is selling the $1.5 billion Series of November 2017ABC Bonds on a competitive basis – The 2017ABC Bonds will be concurrently marketed with the $4.5 billion* 2017D Bonds to be sold on a negotiated basis during the week of October 23rd Future Financings – The State plans to price one or more series of General Obligation Bonds for capital projects and information technology projects, estimated at $750 million, before December 31, 2017
22 Debt Overview and Plan of Finance
Preliminary Amortization ($000s)
Maturity (November 1st) November 2017ABC (Competitive) 2018 $ 500,000 2019 500,000 2029 500,000 Total $1,500,000
General Obligation Bonds, Series of November 2017ABC*
Estimated Size Series A (2018): 500,000,000 Series B (2019): 500,000,000 Series C (2029): 500,000,000 Total: $1,500,000,000 Method of Sale Competitive Use of Proceeds To provide funds to pay vouchers previously incurred by the State and to pay costs of issuance Tax Status Federally Tax-Exempt, State of Illinois Taxable Coupon Fixed Rate Amortization Serial bonds due on November 1, 2018-2019, and November 1, 2029 Interest Payment Dates May 1 and November 1, commencing May 1, 2018 Redemption Features 10-Year Par Call (Series C) Security and Repayment Source Direct, full faith and credit general obligations of the State pursuant to the General Obligation Bond Act (the “Bond Act”). The provisions of the Bond Act are irrepealable until all bonds issued under the Bond Act, including the Bonds, are paid in full as to both principal and interest. Ratings Receive ratings on October 6th & 10th Sale Date October 17, 2017 Closing Date November 8, 2017 Financial Advisor PFM and PRAG
Preliminary Amortization ($000s)
Maturity (November 1st) November 2017D (Negotiated) 2020 $ 500,000 2021 500,000 2022 500,000 2023 500,000 2024 500,000 2025 500,000 2026 500,000 2027 500,000 2028 500,000 Total $4,500,000
Negotiated Transaction Overview
*Preliminary, subject to change.
Future Financings – The State plans to price one or more series of General Obligation Bonds for capital projects and information technology projects, estimated at $750 million, before December 31, 2017
23 Debt Overview and Plan of Finance
General Obligation Bonds, Series of November 2017D*
Estimated Size $4,500,000,000 Method of Sale Negotiated Use of Proceeds To provide funds to pay vouchers previously incurred by the State and to pay costs of issuance Tax Status Federally Tax-Exempt, State of Illinois Taxable Final Maturity November 1, 2028 Coupon Fixed Rate Amortization Serial bonds due on November 1, 2020-28 Interest Payment Dates May 1 and November 1, commencing May 1, 2018 Redemption Features 10-Year Par Call Security and Repayment Source Direct, full faith and credit general obligations of the State pursuant to the General Obligation Bond Act (the “Bond Act”). The provisions of the Bond Act are irrepealable until all bonds issued under the Bond Act, including the Bonds, are paid in full as to both principal and interest. Ratings Receive ratings on October 6th & 10th Sale Date Week of October 23, 2017 Closing Date November 8, 2017 Financial Advisor PFM and PRAG
The State is selling the $4.5 billion Series of November 2017D Bonds on a negotiated basis – The 2017D Bonds will be concurrently marketed with the $1.5 billion 2017ABC Bonds to be sold on a competitive basis on October 17th
Financing Overview Use of Proceeds The Bonds are being issued to provide funds to finance capital projects under the State’s capital program, information technology and to pay costs of issuance of the Bonds. Security The Bonds are direct, general obligations of the State and, pursuant to Section 9(a) of Article IX
Obligation Bond Act of the State of Illinois, as amended (the “Bond Act”), the full faith and credit of the State is pledged for the punctual payment of interest on all bonds issued under the Bond Act, including the Bonds, as it comes due and for the punctual payment of the principal of all bonds issued under the Bond Act, including the Bonds, at maturity, or on any earlier redemption date, and redemption premium, if any. These provisions are irrepealable until all bonds issued under the Bond Act, including the Bonds, are paid in full as to both principal and interest. Interest Payment Dates June 1 and December 1, commencing June 1, 2018 Mode Fixed Rate Bonds Ratings Receive ratings on October 6th & 10th Pricing* Mid-November Closing* Early December
*Preliminary, subject to change.
Capital Projects & IT Bonds - Issuance Terms and Schedule
Amortization* Dec 1 Capital IT 2018 $26,000,000 $9,500,000 2019 26,000,000 9,500,000 2020 26,000,000 9,500,000 2021 26,000,000 9,500,000 2022 26,000,000 9,500,000 2023 26,000,000 9,500,000 2024 26,000,000 9,500,000 2025 26,000,000 9,500,000 2026 26,000,000 9,500,000 2027 26,000,000 9,500,000 2028 26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
26,000,000
$655,000,000 $95,000,000
24 Bill Backlog and Plan of Finance
Date Event October 2nd & 3rd Rating Meetings October 6th & 10th Receive Ratings October 6th Post Competitive Bill Backlog POS October 10th Post Negotiated Backlog POS October 17th Competitive Bill Backlog Sale Week of October 23rd Negotiated Bill Backlog Sale November 8th Bill Backlog Closing Mid-November Capital Projects Bonds Sale Early December Capital Projects Bonds Closing
September 2017 October 2017 November 2017 Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat Sun Mon Tue Wed Thu Fri Sat 1 2 1 2 3 4 5 6 7 1 2 3 4 3 4 5 6 7 8 9 8 9 10 11 12 13 14 5 6 7 8 9 10 11 10 11 12 13 14 15 16 15 16 17 18 19 20 21 12 13 14 15 16 17 18 17 18 19 20 21 22 23 22 23 24 25 26 27 28 19 20 21 22 23 24 25 24 25 26 27 28 29 30 29 30 31 26 27 28 29 30
Transaction Timeline
25 Bill Backlog and Plan of Finance