CHICAGO – Prospects are bleak for a breakthrough on Illinois’ two-year-old budget stalemate before the General Assembly’s scheduled adjournment Wednesday.

Talks were continuing between the House and Senate Democratic majorities on a budget agreement, but even if they reach an accord it’s likely to face a veto from Gov. Bruce Rauner.

Illinois State Capitol
Illinois lawmakers are set to adjourn their regular spring session Wednesday with lawmakers still sniping over budget issues. Adobe Stock

The House and Senate resume work in the morning with the spring session officially set to reach its May 31 conclusion, after which a three-fifths majority is needed for legislation to take effect immediately. That requires 36 Senate votes and 71 in the House. Democrats hold 37 Senate seats and 67 House seats.

The state’s tainted bond ratings hang in the balance and public universities’ battered ratings also face further blows.

Analyst warnings about the state’s ratings have typically set the start of the new fiscal year on July 1 as the date that looms large in determining whether they will sink below the Baa2/BBB level – already the lowest rating among states -- but some action could come quicker.

Fitch Ratings reiterated in a report last week that it intends to resolve the state’s Rating Watch placement based on the state’s “fiscal trajectory as it starts fiscal 2018 and that failure to enact a balanced budget for fiscal 2018 would result in a further downgrade.”

“The state's already weak credit will erode further if the impasse enters a third year,” Moody’s Investors Service wrote in April. “Failure to reach a consensus before the current legislative session adjourns on May 31 would signal deepening political paralysis, heightening the risk of creditor-adverse actions.”

“We believe it's important for the state's credit quality that a budget plan be enacted by the end of the fiscal year,” S&P Global Ratings wrote in a March report.

While public protests crowded the capital building Tuesday, the barbs between the parties continued, underscoring the deep discord that some believe won’t be resolved until the 2018 elections. Rauner is seeking re-election.

House Speaker Michael Madigan, D-Chicago, whose been the brunt of Rauner’s legislative attacks, portrayed the House’s passage of a bill advancing Rauner’s plan to sell the state’s downtown Chicago headquarters as evidence of Democrats’ willingness to compromise. He pressed the governor on the budget.

“No negotiation can be one sided, and I urge the governor to now join House Democrats in resolving the most important issue facing our state, which is passing a state budget,” Madigan said.

The Rauner administration attacked changes made to the bill Tuesday. “The speaker hijacked the bill to steer $50 million to the city of Chicago while putting the interests of a close friend and lobbyist ahead of Illinois taxpayers,” a statement read.

The administration also offered a harsh assessment of two other House bills, warning that both fell far short of overhauls needed on state procurement and local government consolidation. Both are measures passed in stronger form by the Senate as part of its attempted bipartisan “grand bargain” budget fix and were included Rauner’s turnaround agenda.

While Rauner has cast aside some of his “turnaround agenda” demands in exchange for supporting a tax hike to stabilize state finances, he remains intent on winning a four-year local property tax freeze and accompanying labor and contract changes that would help local governments offset the impact.

Senate Democrats -- with a few Republican votes – on Tuesday approved Senate Bill 482, a two-year local government properyt tax freeze that exempts Chicago, and SB 484 which imposes a two-year freeze on school districts unless they receive a financial hardship waiver. The freezes would exclude levies for debt service and pensions.

Democrats said the bills showed they were serious about compromise while the GOP said they don’t go far enough to warrant proposed state tax hikes.

“Unfortunately this property tax freeze….is nothing more than ‘grand bargain lite’….it is not enough” and will be an “utter and complete failure,” said Sen. Bill Brady, R-Bloomington.

While Democrats and Republicans remain divided on key issues, House and Senate Democrats also remained at odds over a proposed budget.

Senate Democrats last week approved a $37.3 billion fiscal 2018 budget that relies on more than $5 billion in new tax revenue. House Democrats dislike some of the $3 billion in proposed cuts and are hesitant to approve tax hikes without GOP votes but they have yet to unveil their own plan.

Even if they come to some accord, over the weekend budget director Scott Harry made clear the administration’s opposition.

"If this bad deal for taxpayers comes to the governor's desk, he will veto it," Harry said.

Democrats and Republicans also remain in conflict over how to overhaul school funding formulas. Senate Democrats passed a plan last week attacked by the Rauner administration. A House committee hearing on the legislation was criticized by the GOP as a bailout for Chicago Public Schools.

The state currently faces a roughly $5 billion budget gap while its bill backlog hovers at a record $14 billion. The state’s $126.5 billion unfunded pension tab adds to the state’s financial strains as contributions will jump by $1 billion next year to $8.8 billion.

Proposed pension changes have bipartisan support but are stuck in the budget mess. They are estimated to shave $1.25 billion off contributions with another $1 billion in possible future annual savings if the changes are upheld by the courts.

About 90% of state spending goes on without a budget in place under continuing appropriations, court orders and consent agreements or special appropriations agreed to by lawmakers and Rauner. Unable to reach a budget agreement last year at this time, lawmakers signed off on a six-month stopgap spending plan.

Social services and the state’s public higher education systems have been starved for cash after its expiration on Jan. 1. School districts received a full year’s appropriation. It’s unclear whether Rauner and Democrats will again turn to some form of a temporary appropriation in the absence of a broader, long-term deal. Rauner previously said he wasn’t interested in another short-term solution.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.