Misplaced Priorities: Lawmakers OK unprecedented state investment in high-risk cash notes

Taxpayers could again end up holding the bag as a result of yet another bad decision by state lawmakers, who voted in committee Thursday to authorize the Illinois Treasurer’s office to invest in high-risk debt in the form of cash notes sought by the Regional Transportation Authority (RTA) and the Chicago Transit Authority (CTA). This legislation, House Bill 3004, would also allow RTA to borrow more money for a longer period of time than allowed under current law.

The bottom line here is, the Illinois Treasurer’s office would be able to buy the CTA’s and RTA’s bad debts to bail out the CTA, RTA and their investors. The bill says that if the state treasury invests money in CTA’s interim financing notes and CTA is unable to pay back those debts, the treasury can skim the state dollars that are distributed to CTA. This has never been done before, due to the fact that this type of debt is considered very high-risk.

HB 3004 also extends an increase in the amount of short-term borrowing RTA can undertake above and beyond its $800 million debt cap. Current law allows RTA to issue working cash notes that are $100 million beyond its debt limit; but the law says RTA can take on as much as $300 million in debt beyond its limit if it enters into those agreements before July 1, 2018. HB 3004 amends current law to allow RTA to issue working cash notes and establish lines of credit of up to $300 million beyond its debt limit so long as those agreements are entered into before July 1, 2020, rather than July 1, 2018.

In the event of a default, bondholders would be paid back first at the expense of mass transit services to taxpayers in the RTA/CTA region. This is a bad deal for taxpayers and a bad policy decision for the State of Illinois. HB 3004 was passed out of committee by a vote of 7-5 and is now on the floor of the House of Representatives.

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