Insolvent Illinois May Tap Into Fed's Emergency Muni Facility Tyler Durden Thu, 05/21/2020 - 20:25 Illinois is insolvent. So what's new? Well, the state's fiscal situation was deteriorating well before the coronavirus pandemic. Traditional lenders have severed ties with the state as local officials struggle in muni bond markets to fund budgets, which has forced them to request funding assistance via the Federal Reserve's new $500 billion Municipal Liquid Facility (MLF), reported Bloomberg. The Fed laid out the process last week of how state and local governments can tap into MLF, a tool announced in April that will provide state and local governments affected by virus-related shutdowns, with ample amounts of liquidity as tax revenue collapses. Carol Knowles, a spokeswoman for Illinois' budget office, said state officials are drafting a "notice of interest" that will shortly be submitted to the Fed, the first step towards gaining access to MLF. The move comes after the state suspended a short-term debt auction worth $1.2 billion several weeks ago. The proposed one-year notes were expected to fund state operations as cash flows reach dangerously low levels thanks to the economic fallout. Once the notice of interest form is submitted, the MLF program will begin to participate in the bidding of Illinois debt. According to the NY Fed, the state is eligible to borrow about $9.7 billion under the program. Kent Hiteshew, whom the Fed hired to supervise the MLF program, said the central bank is administering virtual meetings that would allow for the quick approval once states and local governments submit the forms. "We should begin purchasing notes in the very near future," Hiteshew said. Even before the outbreak, Illinois had a massive unfunded pension liability problem and soaring budget deficits. As tax revenue collapses and the local economy has ground to a halt, the state's bonds, rated one notch above junk, are at risk of downgrades. We recently noted, the state is paying 5.65% on its 10-year bonds is now five times higher than the 1.13% costs AAA-rated states to borrow. The difference in funding rates merely reflects Illinois' collapsing finances of unfunded pensions, soaring budget deficits, and unpaid bills. No rational person would give Illinois a favorable rate on its debt because of the state's fiscal situation. Illinois' pension shortfalls are continuing to worsen with a visual below mapping out where trouble lurks in the state. Many of Illinois pension funds are less than 50% funded -- we're assuming that number now is much worse. Take, for example, the shortfall between Chicago police pension assets and pension liabilities, the gap is absolutely astonishing... The state also has mounting unpaid bills, which currently stands around $7.5 billion. With recession deepening, don't expect state officials to pay its bills anytime soon. Steve Cortes, a conservative political commentator, recently told Fox News that Illinois politicians are using the virus crisis as a means to bailout decades of failed liberal policies. He said much of the instabilities in the state, such as unfunded pensions, existed well before the pandemic. Watch the latest video at foxnews.com At this point, it appears the Fed via MLF will be giving the bankrupted state another lifeline, another can-kicking policy that will absolutely solve nothing but delay the recovery. Of course, what Illinois' liberal leaders really want is a bailout... not a loan. Don't hold your breath