Talk of Illinois tax hike gives hope to bond investors

Bond investors say a tax increase in Illinois would be good news

January 8, 2011

By Ashley Gross

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A possible income-tax hike in Illinois may have some taxpayers grumbling, but bond investors say it’s a good step.

California is in terrible financial shape, but the bond-rating agency Moody’s says we are even worse. It rates Illinois bonds the lowest in the country.

But bond experts say a move to raise the income tax could help stave off another downgrade. Brian Battle works for the Chicago bond-trading company Performance Trust Capital Partners. He says a tax hike gives bondholders more hope that Illinois won’t default on its debt.  

"This is the first positive news we’ve had since last summer about Illinois being proactive about doing something to plug this budget gap that we have and now we need to see what they’re going to do about it long-term," Battle says.

Battle says bond investors want reassurance that the state can pay its debts many years from now. So he says the market won’t really get interested in Illinois bonds until state leaders start cutting the budget in addition to raising revenue.