On August 29, 2019, an Illinois court denied a petition by a political activist and a hedge fund seeking leave to file a lawsuit claiming that approximately $16 billion of Illinois's general obligation bonds (GO Bonds) were issued in violation of the state constitution.1 Judge Jack D. Davis, II, sitting in a circuit court in the state capital of Springfield, held that the challenged bonds did not violate a provision of the Illinois Constitution requiring long-term debt to be for a specific purpose, because the legislation authorizing the issuances had, in fact, stated with reasonable detail the specific purposes for the issuance of the bonds.2 Judge Davis also held more broadly that the validity of the bond issuances constituted a non-justiciable political question such that for a court to rule on the issue would be improper and would violate the separation of powers.3 Given the breadth of the ruling, it seems likely that Judge Davis wanted to preclude similar debt invalidation challenges in the future, thereby shielding Illinois and the bond markets more generally from the destabilizing effects of legal challenges to already-issued public debt.4
Under Illinois law, private citizens have standing to bring actions in their capacity as taxpayers to enjoin the disbursement of public funds for improper purposes. See 735 ILCS 5/11-303. Before bringing such an action, however, a private citizen first must file a petition seeking leave from a court. Id.
On July 1, 2019, a prominent political activist, John Tillman (Tillman), filed such a petition in his capacity as an Illinois taxpayer. The proposed complaint attached to the petition also identified New York-based hedge fund Warlander Asset Management, L.P. (Warlander) as a plaintiff in the proposed action. The complaint primarily 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 (Il. Const. art. IX, § 9) and one of which mandates a balanced budget by providing that appropriations may not exceed available funds (Il. Const. art. VIII, § 2).
Specific Purposes Requirement (Il. Const. art. IX, § 9)
Article IX, Section 9 of the Illinois Constitution authorizes the incurrence of long-term debt upon either (i) a three-fifths vote of the members of each house of the Illinois General Assembly or (ii) approval by the majority of the electors voting in a general election, but in either case requires that such long-term debt be for a specific purpose. See Il. Const. art. IX, § 9(b). Specifically, Section 9(b) of Article IX provides: Any law providing for the incurring or guaranteeing of debt shall set forth the specific purposes and the manner of repayment. Id.
The central issue in the litigation, therefore, was the meaning of the phrasespecific purposes. The complaint initially alleged thatspecific purposes include onlyspecific projects in the nature of capital improvements, including roads, buildings, and bridges. See Complaint § 27. The...