Budget bill still in Illinois Senate
Risk of ‘junk’ rating persists
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.