
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
DAN RUTHERFORD (R), ILLINOIS STATE TREASURER, IS INTERVIEWED AT BLOOMBERG TV
MAY 26, 2011
SPEAKERS: MARGARET BRENNAN, BLOOMBERG NEWS
DAN RUTHERFORD (R), ILLINOIS STATE TREASURER
11:15
MARGARET BRENNAN, BLOOMBERG NEWS: Illinois State Treasurer says the state is on the verge of a financial disaster and it's running out of time. Treasurer Dan Rutherford joins us now.
Welcome back to the show. Mr. Treasurer, you've got, what, five days to pay off $8 billion?
DAN RUTHERFORD (R), ILLINOIS STATE TREASURER: Thank you.
BRENNAN: Is Illinois going to pay its bills?
RUTHERFORD: Well, Illinois will pay its bills. The biggest concern that I have as a State Treasurer of Illinois is the recourse that the general assembly and its governor looking at is to go into long term borrowing further debt.
And I put together a complete white paper on a compilation of the problem we have right now. In 2002, Illinois had long-term debt of about $12 billion. Today, we're at $45 billion.
And the recourse is being discussed right now at our state capital in Springfield is to go into the market and borrow another $8 to $9 billion to add further to our debt just for the operations of the state government. And I've said that this is not something that I think we should be doing.
I've been very much opposed to it.
BRENNAN: Right. And you've said publicly that you're willing to call up the bond houses, call finance companies and say, don't give my state money because the governor does, in fact, want to do that. Have you made those calls?
RUTHERFORD: No, I've not made those calls. And this was the point of the last resort. I think just by my having come out as publicly as I have and explained in real detail that the debt at every household in state of Illinois has libel (ph) on their back right now just in bonding (ph).
Every household is $10,000. And it's $42,000 if you were to take in the unfunded liability for our pension systems. But I can tell you upfront that the rating companies have already been very much aware of the problems Illinois has had. And we are rated literally...
BRENNAN: Right.
RUTHERFORD: ...only above California by two of the agencies. And actually, Moody's had sent me e-mail after they saw my statement and said, we want to clarify - Illinois is worse than California according to the Moody's rating operations.
BRENNAN: Which is why they've given you that credit rating. But I mean, if you're opposing the borrowing, legally, you can't prevent it from happening, though.
RUTHERFORD: Yes.
BRENNAN: So what can we expect by May 31st?
RUTHERFORD: Well, here, no, I can't legally stop it. But it has to pass by a 3/5 vote of the Illinois general assembly. And my desire is to please encourage my legislative colleagues not to go with the 3/5 vote, to go into the further long-term debt.
Here, the governor's proposed budget in the state of Illinois was $1.7 billion more in spending than the previous year. And according to the Civic Federation of Chicago, the governor's proposed budget is $2.4 billion greater than anticipated revenue. You know, it's pretty simple.
And I don't make it so elementary but it's pretty simple. You don't spend more than you did the previous year. And you absolutely don't spend more than the cash anticipated to come in. And let me add one more thing.
That cash coming in includes a 67 percent income tax increase...
BRENNAN: Right.
RUTHERFORD: ...that was put into effect.
BRENNAN: Right.
RUTHERFORD: So Illinois has just got to get off the addiction of debt. They have to stop borrowing for the operations of state government.
BRENNAN: So in the near term with this May 31 deadline, what are you suggesting - an extension of that maturity?
RUTHERFORD: No. Here, when you say in the May 31 deadline, let me clarify. That is just when the budget needs to be passed...
BRENNAN: Right.
RUTHERFORD: ...and go into effect on July 1. So what I'm saying is pass a budget in Springfield that is not above what's projected revenues are. If you do that, then you've actually started to curtail some of the spending that Illinois' government's got going on.
Of the $45 billion in debt in general obligation bond debt, 58 percent of this - that's a significant part - 58 percent of that was borrowed just to put it into the public pension systems.
There is no dedicated revenue stream to pay it back like you were to do if you were to do road construction bonds and you've got your motor fuel tax to pay it back. Illinois legislators and this governor have got to learn that they have to live within their means and not go out into the market and continue to borrow more money.
BRENNAN: So what gets cut? What doesn't get paid?
RUTHERFORD: Well, here, well, a couple of things. First of all, we've got up until June 30 to receive a 57 percent match from the federal government for Medicaid.
I've said as a Treasurer of Illinois, I will work with the administration on interfund transfers, cash that isn't in treasury right now, short-term, put it out there, capture the 57 percent. That generates well over a hundred and some millions of dollars that we get in the additional seven percent.
Get that done before July 1. The other is in looking at where we are at in regards to spending. You know, you can't come in.
And that's the part that is so hard for people to understand apparently in Springfield, is you can't go out and be planning a budget that's already going to be $2.4 billion more than you've got your projected revenues coming in.
BRENNAN: So you said, you're on a verge of financial disaster. Do you think it's going to be averted?
RUTHERFORD: You know, it's going to determined what's going to happen in the last few days here at this general assembly. I think that...
BRENNAN: Yes.
RUTHERFORD: ...if we go into further debt - let me just be real clear - if Illinois goes into further long-term debt, I think that it just continues to exacerbate. It has a halo effect.
BRENNAN: Are there banks signed (ph) up (ph) to lend to Illinois?
RUTHERFORD: I beg your pardon?
BRENNAN: Are there actual banks that are ready to lend to your state?
RUTHERFORD: You know, it's one of these things. They're probably ready to lend, but we are paying such a premium on the interest rates and the insurance on the bonds more so than any other states in the nation.
BRENNAN: OK.
RUTHERFORD: So for example, Illinois, went into the market in April of this year for a $3.7 billion bond program to help put money into the pension funds. It cost Illinois more 17 percent - it would have been 17 percent less if it was the state of Kentucky.
BRENNAN: Right.
RUTHERFORD: Thirty-four percent less in the interest if it was Missouri and 41 percent if it was the state of Washington. So sure, there's always going to be somebody out there that's willing to lend to Greece and Iraq and Illinois.
But it's not at a rate that the taxpayers should be willing to have to take the consequences for.
BRENNAN: That's a heck of a group you just put yourself in. Thank you so much, Treasurer. We've got leave it there and pay our bills here at Bloomberg with this commercial break.
RUTHERFORD: Have a good day.
11:20
***END OF TRANSCRIPT***
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