An appeals court in Illinois has reinstated litigation seeking to block payments on $14.3 billion in municipal debt, saying the attempt to restrain borrowing in the country’s worst-rated state isn’t frivolous or malicious, WSJ Pro Bankruptcy reported. The appellate court said that John Tillman, chief executive of the right-leaning Illinois Policy Institute, had put forth a legitimate claim in support of his theory that past bond sales by the state were impermissible. The court stressed that it wasn’t deciding the merits of Tillman’s claims but said that the litigation could continue in a lower court. The complaint accused Illinois of taking on more debt than its constitution allows and breaking a state rule prohibiting deficit financing with bond deals in 2003 and 2017. Some of those bonds raised money to prop up Illinois pension funds, while others funded back payments to stretched government vendors. Tillman, a prominent foe of public-sector unions, argues Illinois is barred from taking out long-term debt except for “specific purposes” or to refinance longer-term debt, while the state had instead borrowed to bridge deficits and to speculate on financial markets. He has asked for a court order declaring the 2003 and 2014 debt sales invalid and unenforceable and prohibiting state officials from making further payments to bondholders. A state judge dismissed the litigation last year, saying it risked “an unjustified interference with the application of public funds” and it would draw the courts into political questions that should be left to lawmakers.
