Bud­get bill still in Illi­nois Se­nate

Risk of ‘junk’ rat­ing per­sists

Northwest Arkansas Democrat-Gazette - - NATIONAL -

Illi­nois has been with­out a bud­get since 2015 be­cause of dis­agree­ments be­tween the Demo­crat-con­trolled Leg­is­la­ture and Repub­li­can Gov. Bruce Rauner.

SPRING­FIELD, Ill. — The Illi­nois Se­nate ad­journed Mon­day with­out tak­ing ac­tion on House-ap­proved leg­is­la­tion to break a bud­get stand­off and avoid be­com­ing the only U.S. state with a junk credit rat­ing.

The Leg­is­la­ture plans to re­turn to­day at 10 a.m.

Chicago Demo­cratic House Speaker Michael Madi­gan sched­uled a meet­ing of the four leg­isla­tive lead­ers for the same time. Repub­li­cans did not at­tend the one he had Mon­day af­ter­noon with Demo­cratic Se­nate Pres­i­dent John Culler­ton of Chicago.

“We have to do some­thing,” Culler­ton said. “The House has acted, but we’d pre­fer to do it in agree­ment with Repub­li­cans.”

The House voted Sun­day night for a $36 bil­lion spend­ing plan fu­eled by a $5 bil­lion in­crease in in­come taxes. The Se­nate needs to con­cur with the changes the House made to Se­nate leg­is­la­tion ap­proved in May.

Mon­day was the third day of the fis­cal year. Illi­nois has been with­out a bud­get since 2015 — the long­est pe­riod of any state in at least 80 years — be­cause of dis­agree­ments be­tween the Demo­crat-con­trolled Leg­is­la­ture and Repub­li­can Gov. Bruce Rauner.

S&P Global Rat­ings called the House vote a “cru­cial step” to­ward end­ing the bud­get stale­mate.

“It’s been a po­lit­i­cal cri­sis, an un­prece­dented stale­mate for over two years now and yes­ter­day’s ac­tion was re­ally the first break in that stale­mate,” John Miller, co-head of fixed in­come at Nu­veen Asset Man­age­ment, said Mon­day. “We think they keep their in­vest­ment grade rat­ings even though there’s still a lot of work to be done.”

Un­paid bills have soared to a record $15 bil­lion, and by Au­gust the state is set to run out of money for key ex­penses for the first time since the stale­mate be­gan, ac­cord­ing to Comptroller Su­sana Mendoza, a Demo­crat. That means school fund­ing, state pay­roll and pension pay­ments could be af­fected.

Fitch Rat­ings puts Illi­nois’ bond rat­ing at BBB-mi­nus, or one step above junk, a des­ig­na­tion that would sig­nal to in­vestors that buy­ing Illi­nois debt is a spec­u­la­tive ven­ture. S&P has Illi­nois one notch higher, at BBB, but has said that with­out a spend­ing plan that ad­dresses the deficit, Illi­nois would get down­graded again. Moody’s In­vestors Ser­vice was closed for the hol­i­day, but had rated the state’s bonds one step above junk on June 1.

The leg­is­la­tion passed by the House “could rep­re­sent the first step in a sta­bi­liza­tion of Illi­nois’ fis­cal out­look and may lead to an eas­ing of pres­sure on the state’s credit qual­ity,” S&P said in an emailed state­ment on Mon­day. If bud­get progress stalls, Illi­nois has “min­i­mal mar­gin” at its cur­rent rat­ing, ac­cord­ing to S&P.

If Illi­nois is down­graded, that would make it the first state on record to lose in­vest­ment-grade sta­tus. On Mon­day, Fitch Rat­ings called the week­end de­vel­op­ments “con­crete progress,” not­ing that it ap­pears the leg­is­la­ture may have enough votes to over­ride Rauner’s planned veto of the tax in­crease.

Yields on the state’s 10-year bonds have soared to 4.8 per­cent, 2.8 per­cent­age points more than those of bench­mark debt. That’s the high­est yield of all 22 states that Bloomberg tracks.

In his state­ment an­nounc­ing his planned veto of the tax in­crease, Rauner crit­i­cized law­mak­ers for con­tin­u­ing “out of bal­ance bud­gets with no real re­form,” blam­ing Madi­gan, who con­trols much of the leg­isla­tive agenda. The House bill would raise in­di­vid­ual in­come taxes from 3.75 per­cent to 4.95 per­cent and cor­po­rate levies from 5.25 per­cent to 7 per­cent.

Rauner, who in 2015 be­came the first Repub­li­can to lead the state in more than a decade, wants any spend­ing plan to in­clude some of the agenda that he says he was elected to en­act: a prop­erty-tax freeze, leg­isla­tive term lim­its and changes to the work­ers’ com­pen­sa­tion in­sur­ance sys­tem to cut costs for busi­nesses. Democrats have re­sisted, say­ing those changes would hurt the mid­dle class. While those leg­is­la­tors say they’ve passed some of Rauner’s items, the gover­nor says they haven’t gone far enough.

Fitch called the tax-and-bud­get vote “con­crete progress on reach­ing an agree­ment to break the two-year­long bud­get im­passe.” But it pointed out that the court-or­dered spend­ing that has kept the gov­ern­ment func­tion­ing since July 2015 with­out ap­pro­pri­ated spend­ing is putting pres­sure on the trea­sury. That fis­cal pres­sure in­ten­si­fied on Fri­day af­ter a U.S. fed­eral judge ruled that the state must boost its Med­i­caid-re­lated pay­ments by al­most $300 mil­lion more each month to chip away at the back­log of un­paid bills.

Mendoza said the judge’s rul­ing brings Illi­nois’ fi­nances “from hor­rific to cat­a­strophic.” She said that while bond pay­ments will con­tinue “un­in­ter­rupted,” pay­ments to pen­sions, state pay­roll, schools and lo­cal gov­ern­ments will likely have to be re­duced.

In­for­ma­tion for this ar­ti­cle was con­trib­uted by El­iz­a­beth Camp­bell and Von­nie Quinn of Bloomberg News; and by John O’Con­nor, Sophia Ta­reen and staff mem­bers of The As­so­ci­ated Press.

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