The Illinois Supreme Court on Thursday unanimously shot down a legal challenge to bonds issued by the state in 2003 and 2017, which sought to halt repayment on the bond debt — likely leading to default and fiscal chaos.
Instead, Illinois’ seven high court justices agreed the state’s two bond sales in question were completely constitutional and ruled against the conservative activist who brought the suit.
Gov. J.B. Pritzker’s office celebrated the ruling ending “a frivolous lawsuit designed to grab headlines,” while Comptroller Susana Mendoza took aim at John Tillman, the activist behind the legal challenge.
“The Supreme Court of Illinois got it right: The taxpayers of Illinois should not have to suffer financial Armageddon just so rich people who bet against Illinois can profit,” Mendoza said, suggesting the suit’s intent was to force Illinois to default on bonds to benefit investors at hedge funds.
Tillman, CEO of the libertarian-leaning Illinois Policy Institute think tank, has long railed against Illinois’ spending practices that’s led to an ever-widening structural budget deficit.
Tillman filed his suit in 2019, during Pritzker’s first year in office as he was on the path to pushing a graduated income tax Tillman and his group would ultimately go on to help defeat. The lawsuit, which also targeted the state’s treasurer and comptroller’s offices, claimed general obligation bonds issued in 2003 and 2017 years — amounting to over $16 billion — were unconstitutional.
Illinois still owes $14.3 billion on those bonds — mandatory debt service payments that draw down the state’s overall general funds budget where dollars for schools and other government services must compete. (The other major chunk of state money that’s already largely spoken for before lawmakers’ annual budget process even begins is payments to Illinois’ pension systems.)
Tillman asked the court to find the bond sales unconstitutional and force Illinois to stop repayments on the bonds.
But the justices declined, pointing out Tillman waited an extremely long time after the two bond sales to mount a legal challenge — in particular, 16 years after the 2003 bond issuance.
“It is patently obvious that the State will suffer some prejudice if relief is granted at this extremely late stage,” Chief Justice Anne Burke wrote for the court. “Enjoining the State from meeting its obligation to make payments on general obligation bonds will, at the very least, have a detrimental effect on the State’s credit rating.”
Although the General Assembly designated the bonds to make pension payments in 2003 and pay down Illinois’ massive backlog of state voucher bills in 2017 after a two-year budget impasse, Tillman argued some revenues from the bond sales were used for other purposes. He said that equated to deficit financing — essentially putting state costs onto a credit card.
The state constitution requires the state to only collect debt if it can stipulate a “specific purpose” for debt spending. Tillman argued because some of the bond sale revenues were designated for long-term debt payments, the sale was speculative, and therefore not specific.
During oral arguments in March, Justice Mary Jane Theis pushed Tillman’s attorney, Raoul Cantero, on whether a decision in their favor would result in the state suffering massive defaults and potential credit downgrades.
“Your complaint asks the court to order the state to default on billions of dollars of debt,” Theis said. “Is that reasonable?”
“The court's role is to interpret the statutes and determine whether they’re constitutional, and if they're not constitutional then the chips have to fall where they may,” Cantero said.
While Cantero speculated that Illinois state’s credit rating may actually improve if the state no longer had to pay off its old bond debt if the sales were ruled unconstitutional, the court shot down that argument as fantasy.
In a statement Thursday, Tillman said he was disappointed in the decision and evaluating next steps, while pivoting his focus to the state’s pension debt.
“In the interim, I continue to be profoundly concerned about Illinois’ reckless debt accumulation,” he said. “All Illinoisans should care about this. If the state doesn’t tackle pension reform now, it will slide into a fiscal crisis beyond repair that will threaten not only taxpayers and the people who depend on government services, but also people who are counting on their public-sector pension in retirement.”
