More bad news for Illinois taxpayers as Merrill Lynch is saying that things can get worse for the State's financial prospects:
While Illinois has “over the last decade, experienced severe fiscal stress,” the findings of the study “suggest that the investors in the municipal secondary markets demand a risk premium for Illinois general obligation debt that is greater than the financial, economic, and fiscal conditions warrant…due to concerns related to the budgetary politics enveloping the state.” This translates, according to the study, to a 7-21-basis-point premium over non-Illinois general obligation debt. “Specifically, all held equal, Illinois general obligation bonds carried interest rates 21, 12 and seven basis points higher for bonds maturing in 5, 10 and 20 years, respectively.”And...they offer some advice. Will it be heeded? We're not so sure:
The article argues that “the only way to change investors’ minds toward Illinois debt is to get the state’s fiscal house in order.” The article also warns that “it is wholly possible and probably likely that state workers and suppliers demand a similar risk premium in their transactional compensation with the state…[and] that such additional compensation could be many times as high as the reputational risk premium on the state’s debt.”
