Reforming State Debt Management Practices: The Case of Illinois, 2004

Martin J. Luby

Municipal Finance Journal, 2009, vol. 30, issue 1, 1 - 36

Abstract: In 2004, the State of Illinois adopted PA 93-0839, a series of debt reforms to curb perceived abuses in the management of state debt. The abuses included doubling the amount of state debt outstanding in just one year, “back-loading” the amortization of new debt, utilizing long-term refunding bonds to create one-time debt service payment “holidays,” and overusing “noncompetitive” bond sale measures. The reforms put relatively severe restrictions on the use and management of state debt related to debt limits, cost of issuance, capitalized interest, debt amortization, refunding bonds, bond method of sale, and bond disclosures. This paper analyzes these debt reforms according to the four fundamental principles that should inform debt management policy: accountability, equity, efficiency, and effectiveness. More specifically, the paper reviews the principles by which debt policy should be evaluated, describes how the Illinois debt reforms operate, and describes how outcomes changed as a result of implementing such reforms, all in the context of the fundamental debt management principles.

Date: 2009
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