Cadwalader attorneys analyzed a recent Illinois Circuit Court decision denying a petition filed by a political activist and a hedge fund claiming that $16 billion of Illinois's general obligation bonds ("GOs") violated the state constitution.
In this case, political activist John Tillman ("Tillman") filed a petition seeking to enjoin the disbursement of public funds for improper purposes. The Complaint alleged that Illinois's 2003 and 2017 GO Bond issuances violated two interrelated provisions of the Illinois Constitution, one of which requires long-term debt to be for a "specific purpose" and the other of which mandates a balanced budget by providing that appropriations may not exceed available funds.
As more fully explained in the Cadwalader memorandum, Judge Jack D. Davis II did not find the challenged bonds in violation of a provision of the Illinois Constitution. The petition claimed that the provision the GOs allegedly violated required long-term debt to be for a "specific purpose." However, Judge Davis stated, the legislation authorizing the issuances had, in fact, "stated with reasonable detail the specific purposes for the issuance of the bonds."
This memorandum was authored by Ivan Loncar, Ingrid Bagby, Lary Stromfeld, Michele Maman, Jed Miller and Casey Servais.
Commentary
Ivan Loncar
In modern public finance, the dominant view is that public debt generally cannot be invalidated retroactively once issued. This view makes sense from a policy perspective, because the threat of retroactive invalidation could destabilize the bond markets, increase borrowing costs for government issuers, or even make it impossible for states and municipalities to borrow at all.
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