Illinois warns budget fight imperils road work ahead of bond issue

By Dave McKinney and Karen Pierog

CHICAGO (Reuters) – Top officials in Illinois Governor Bruce Rauner’s administration warned on Wednesday of the imminent shutdown of hundreds of transportation projects even though the state is selling bonds on Thursday to fund road, bridge and mass transit work.

The odd timing of the announcement on the eve of the state bond issue handed Rauner’s Democratic rivals in the state legislature fodder to question whether the first-term governor was deliberately acting to drive up Illinois’ borrowing costs.

Illinois Department of Transportation Secretary Randall Blankenhorn told reporters in the state capitol in Springfield that 800 projects totaling $2 billion will be shuttered if the legislature does not approve the governor’s temporary budget plan.

The state is selling $550 million of general obligation bonds in the U.S. municipal market with $530 million of the proceeds earmarked for mass transit and road construction.

The Republican governor pleaded with Democrats who control the legislature to return to session to pass a spending plan that would keep the state operating until January and fully fund K-12 schools.

“Allowing the crisis to continue is wrong,” Rauner said, referring to the ongoing impasse that has left Illinois as the only state without a fiscal 2016 budget.

Illinois has been dependent on court orders and a muddle of ongoing and stopgap appropriations to continue operating and lawmakers have not reached any agreement on a spending plan for the fiscal year that begins July 1.

“We’re hoping none of his activities or staff work is going to drive up borrowing costs like it did for the Chicago Public Schools in February,” said Steve Brown, spokesman for Democratic House Speaker Michael Madigan.

The school district delayed, then downsized its bond sale after Rauner threatened a state takeover of CPS and said the system was headed for bankruptcy, comments Chicago Mayor Rahm Emanuel called “shameful” because of their possible impact on the bond issue.

Rauner defended the state’s borrowing, which comes on the heels of last week’s downgrades of Illinois’ already-low credit ratings. But his administration offered no immediate explanation either on specific projects that could be shut down or that might be funded through the bonds.

Illinois GO bonds continue to trade at wide spreads over Municipal Market Data’s benchmark triple-A yield scale. But the state’s upcoming debt issue will likely benefit from interest rates that are at or near record lows as cash-heavy investors chase scarce supply of bonds issued by states, cities, schools and other muni issuers.

(Editing by Matthew Lewis)