Last Wednesday, Illinois Governor J.B. Pritzker announced that the State of Illinois intends to borrow another $2 billion from an extraordinary Federal Reserve facility on top of $1.2 billion that it borrowed back in June. Pritzker reportedly stated that the goal of the borrowing is to “continue managing the state’s massive bill backlog.”
Back in June, before the first $1.2 billion loan, Illinois’ bill backlog was about $6 billion. It fell by about $2 billion the first week after that loan was secured, but has since risen to about $7 billion.
The Fed has stated that its new Municipal Liquidity Facility is authorized under Section 13(3) of the Federal Reserve Act, which make loans available to a wide range of entities under “unusual and exigent circumstances.” However, this lending is theoretically not available for “insolvent” entities, and for good reason.
How do you define “insolvent” entities, for this purpose? The law requires a certification from the CEO or other leader of the borrower that it is not insolvent. For the June $1.2 billion loan, Pritzker wrote a letter titled ““Certification Regarding Solvency and Adequate Credit,” certifying that the State of Illinois is “not insolvent,” with the following reason:
For the purposes of this certification, a person or entity is “insolvent” if it is in bankruptcy or any other Federal or State insolvency proceeding (as defined in paragraph B(ii) of Section 13(3) of the Act), or if the person or entity was generally failing to pay undisputed debts as they become due during the 90 days preceding the date of borrowing under the Facility.
In other words, it appears the State of Illinois was paying down its bill backlog in June with the proceeds of a loan denied to entities “failing to pay undisputed debts as they become due.” Will Governor Pritzker sign a similar certification letter if and when the latest loan is finalized?