Illinois budget prognosis remains murky as lawmakers hit homestretch

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CHICAGO – With the clock ticking on the Illinois legislative session, Gov. Bruce Rauner and Democratic lawmakers all say their goal is a “balanced budget” but the status of their progress is clouded as the two sides quibble over the need to certify a revenue estimate and have yet to put a formal number on any spending gap.

On Wednesday, attention centered on Rauner’s proposed $38 billion spending plan for the fiscal year that begins July 1.

During a hearing on several Rauner proposals, school districts warned of financial disaster if the state begins shifting some teachers’ pension costs onto their books, as the governor outlined in his budget plan.

Market participants and analysts are all watching closely to see if gridlock returns; it’s unclear whether lawmakers will move to get a budget out of the way so they can focus on the November elections, or drag the budget into the campaign.

“Given recent history, the renewal of political stalemate could be the gravest threat facing the state,” the Chicago Civic Federation warned Wednesday in its 66-page analysis of Rauner’s proposed budget. “The current year’s budget was enacted by the General Assembly over the governor’s veto, and recent Illinois bond documents have warned potential investors that there is no assurance that budgets will be enacted in future years.”

The public comments from the Republican governor and the Democrats who lead the legislature have so far lacked the acrimony seen at the same time last year when the state veered toward a third fiscal year of gridlock with its investment-grade status under threat and a bill backlog that would eventually hit a high of more than $16 billion.

But the two sides still remain at odds, as underscored by comments that followed a leaders' meeting Tuesday.

“The process is moving very slowly. I would like to see it move more expeditiously” with the session’s end in a few weeks, Rauner said after emerging from the meeting. After May, a three-fifths majority is needed to pass a budget instead of a simple majority.

Senate President John Cullerton, D-Chicago, offered a different assessment saying he felt like recent meetings have been productive and the two sides are not far apart based on progress by the budget working groups. “We are much closer this year” compared to last year and the process is less “chaotic’ because “we have more revenue,” Cullerton said.

Rauner and fellow GOP minority leaders continued to press for a formal revenue estimate. They also want a full-year balanced budget – goals the Democrats say they share.

The administration and legislature’s Commission on Government and Forecasting have offered separate revenue projections but they are just $99 million apart at nearly $38 billion.

Republicans want to certify an estimate. The Democrats say there’s no need.

“There is a reluctance to be pinned down, I think. Actually being pinned down and agreeing on a revenue number is key to having a balanced budget,” Rauner said.

“My point was to not get hung up on a specific number,” Cullerton countered, saying it then becomes “somewhat of a gotcha game, a political fight.”

It’s unclear whether any of Rauner’s cost-saving measures will make it into a final budget plan or how Democrats will shape the plan. The Chicago Civic Federation's report called Rauner's plan “precariously balanced” and said it fails to make headway in tackling the state’s bill backlog.

The administration estimates the state will carry $7.7 billion of unpaid bills into the new fiscal year. Rauner would put a projected $351 million surplus toward the bills, but the federation warns that’s too little and the surplus is uncertain given the riskiness of some budget assumptions.

For the third year in a row, the budget assumes proceeds $240 million from the yet-to-happen sale of the state’s downtown Chicago office building, as well as $470 million in health insurance savings the Rauner administration has pursued unsuccessfully for three years, the federation said. Another $600 million in interfund borrowing is more certain but represents a one-shot that contributes to a structural imbalance.

The federation is also worried about the impact of budget proposals on local governments and schools because shifting pension costs back to Chicago Public Schools would further destabilize the state’s largest school district.

“In total, the Civic Federation is concerned about $1.8 billion in precarious projected savings or revenues, as the evaporation of any of these projections could put the meager surplus in jeopardy,” the report says.

“Illinois residents were able to breathe a short sigh of relief following the end of the unprecedented impasse, but the state is far from fiscal stability,” Civic Federation President Laurence Msall warned in a statement that accompanied the analysis by the federation's Institute for Illinois Fiscal Sustainability.

“The state narrowly avoided a downgrade to junk status last year and another impasse could squander recent progress," Msall said.

“Governor Rauner laid out his budget proposal in February. As this report notes, thanks to a number of reforms and spending reductions, it is balanced with a surplus. These are our administration’s ideas, but we are open to suggestions from the legislature to provide better value for taxpayers,” administration spokeswoman Rachel Bold said in a statement.

Several school districts warned during a legislative hearing Wednesday of the toll Rauner’s four-year pension cost shift would take on their budgets, undercutting an overhaul of school funding formulas that bolstered public school aid last year.

“I’m here to discuss the devastating impact the pension shift would have on District 186,” Springfield Public Schools District 186 Superintendent Jennifer Gill told committee members. The cost shift in its first year would cost the district $2.3 million and reach $10 million annually once fully phased in. “The pension shift would be a financial disaster for us. It would be impossible to cut our way out of this deficit,” and higher property taxes would be needed, Gill said.

No votes were taken on any of the proposals as they are not yet in bill form, something Democrats expressed frustration about. Budget Director Hans Zigmund said in the past Rauner’s budget bills have been shot down so the hope was to instead engage in “thoughtful discussion” of the proposals in hopes that a compromise could be struck.

S&P Global Ratings rates the state at the lowest investment grade level of BBB-minus with a stable outlook. Fitch Ratings has the rating at BBB with a negative outlook. Moody’s has it at the lowest investment grade level of Baa3 with a negative outlook.

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