(MCT) — Gov. Pat Quinn's administration delayed Wednesday's planned sale of $500 million in construction bonds, saying a recent credit downgrade because of inaction on government worker pension reform left the market "unsettled."
The decision was made after officials with the governor's budget office spoke with potential bidders who indicated they would seek interest rates higher than what the state wanted to pay.
"In a bond market when there is uncertainly, you pay an extra premium, which we decided was imprudent to pay," said John Sinsheimer, director of capital markets for the state. "So we pulled them, and will bring the back at a future date when everything has settled down."
It's unclear when the state would return to the market to borrow the money, or if the delay would affect the building schedule of a multibillion-dollar statewide public works program.
Last week, Standard & Poor's downgraded the state's credit rating from A to A-minus. The move left Illinois with the worst ranking in the country, a distinction the state already had earned from Moody's Investors Service. The low ratings are a cause for concern because it means the state could pay more to borrow money, as evidenced by the postponed bond sale.
Sinsheimer would not disclose the offers the state received, saying they were preliminary. When the state issued a similar bond sale last year, it secured an interest rate of 3.9 percent. At the time, Quinn's office hailed the figure as the lowest rate the state had received in decades, despite receiving a credit downgrade just days before.
But the negative hits from rating agencies have come in a flurry over the past six weeks, with the bond houses blaming the lack of action in Springfield on reforming the state's vastly underfunded public employee retirement system.
Quinn has been pushing unsuccessfully for pension changes for a year and is expected to call for action once again during his annual State of the State address next week. The bond sale delay could increase the pressure on lawmakers to act sooner rather than later, particularly if it affects construction of schools and roads in their districts.
The governor downplayed the possibility that the building program might be forced to stop but said the action should serve as "one more alarm bell" for lawmakers to act on pension reform.
"We're going to have a cloud hover over our state until we get this pension reform accomplished," Quinn said. "It's very difficult, everyone knows that, but the time for reciting the difficulty is over. Now is the time for action."
While it's not unheard of for states to delay a bond sale, it is unusual, said Brian Battle, director of Chicago-based Performance Trust Capital Partners.
"I think it certainly is a seminal event in Illinois history," Battle said. "Because of our credit rating, we could not sell bonds today. We could have, but we would have gotten hurt, and that's unusual. Now the citizens can see what the cost is for all this dithering in Springfield."