CHICAGO – The wheels came off the so-called "grand bargain" deal for an Illinois budget Wednesday, and the state's already low bond ratings may be next.
The state Senate abandoned its plan to vote on a bipartisan package aimed at ending a 20-month-old budget stalemate after Republicans pulled their support.
The deal's prospects further dimmed as partisan bickering ensued although the legislation's backers stressed they will continue to work for its passage.
S&P Global Ratings signaled impatience in a comment piece Thursday.
"We believe it's important for the state's credit quality that a budget plan be enacted by the end of the fiscal year," the commentary said.
The fiscal year ends June 30. S&P rates Illinois BBB with a negative outlook.
"For a state to enter a third fiscal year without enacting a comprehensive budget could indicate to us an erosion in political will that renders its credit quality and fundamental fiscal conditions as inconsistent with the state's current rating," S&P said.
Democrats blamed Republican Gov. Bruce Rauner, accusing him of threatening Republican senators inclined to support the current package during meetings Wednesday.
The administration and several GOP senators dismissed the accusations and defended their position, arguing the 12-bill package still needs work.
"That's an outrageous allegation," said Rauner spokeswoman Catherine Kelly. "We appreciate the hard work of the Senate in trying to pass a bipartisan agreement that can become law. Some progress has been made, but more work is needed to achieve a good deal for taxpayers. We encourage senators to keep working toward a good deal for taxpayers."
Senate President John Cullerton, D-Chicago, canceled the votes after Republican counterpart, Minority Leader Christine Radogno, R-Lemont, told him that if called the bills "there would be very little if any Republican support other than herself," he said.
"There's no sense in calling the bills and having them be defeated," he said. "We are ready whenever we have enough support from Republicans."
Five of the less contentious bills passed Tuesday while a bill offering changes to state pensions failed as most Republicans withheld their support. Plans to try again on the failed bill and take votes on the other seven, including a bill to raise about $6 billion in new tax revenue, never came to pass.
After caucus meetings, the leaders returned to the floor and said there would be no voting.
"I have no question in my mind that we will bring this thing in for a landing," said Radogno. "My only hope is that it is sooner rather than later." Radogno previously had been pushing for passage by March 1.
While the two architects of the plan said they would continue working to pass the legislation, Cullerton said the ball is now in the Republican governor's court and the pressure is on to act.
"It's not my move," Cullerton said. "Ask him what the next step is.
"This has got to end," Cullerton said. "The compromise is there. The governor has to realize this is as good as it's going to get. Can we make some minor changes? Of course we can, but he's got to grow up and get this solved. He's the governor."
The alternative is "junk bond status" which he warned "might come just as a result of us not calling this bill today."
Cullerton was referring to the package's tax hike bill.
The state's red ink, bill backlog, $126.5 billion of unfunded pension liabilities and political gridlock have dragged its ratings down to the triple-B level, making Illinois the nation's lowest-rated state. A one notch drop would put the state's moral obligation pledge -- which is rated one notch lower than its general obligation credit -- in junk territory.
Cullerton and Radogno put together the package to provide a framework for resolving the prolonged gridlock after the first-term governor demanded that policy and governance reforms be part of the budget process in exchange for his support of tax hikes. The budget has bled red ink since temporary tax increases rolled off at the end of 2014.
Democrats who control the Senate and House balked and dug their heels in against his proposals saying they are too anti-union and pro-business and harmful to the middle class. Rauner says reforms to workers' compensation, tort laws, legislative redistricting, local property taxes, and term limits are needed to improve the state's economic climate and attract jobs.
The legislation includes a mix of reforms and new revenues that have drawn the ire of special interests ranging from unions to business groups.
In addition to the tax hike package in SB 9, the leaders intended to call Wednesday SB 1 which overhauls school aid formulas, SB 4 which authorizes $7 billion borrowing authorization to pay down the state's $12 billion bill backlog, SB 10 which establishes a new local government borrowing program, SB 12 which offers worker's compensation reforms, SB 13 which temporarily freezes local government property taxes freeze, and SB 16 which overhauls state pensions.
One remaining sticking point in the plan was Rauner's demand for a permanent local government property tax freeze, which is opposed by municipalities.
The plan had just a two-year freeze. The leaders revised the plan to add three years if approved by referendum. It was unclear whether that would appease Rauner.
The five pieces that passed Tuesday included SB 3 to ease the path for local government consolidation, SB 8 to overhaul procurement rules, and SB 5 to provide $215 million in help with Chicago Public Schools June teachers' pension payment.
SB 7 would provide a big expansion of gambling that includes six new casino licenses including one for Chicago, and SB 6 would appropriate $7.7 billion in funding to pick up where the six-month stopgap budget approved last June ended.
Even if Rauner puts his full support behind the bills – which are linked so all must pass for any of them to become law – the legislation's fate in the House is uncertain given House Speaker Michael Madigan's opposition to Rauner's reform proposals.
Fitch Ratings downgraded the state to BBB earlier this year and the credit remains on negative watch with a further hit expected absent action by the end of the fiscal year June 30.
The state is also testing the patience of Moody's Investors Service, which assigns a negative outlook.
S&P in its comment Thursday said the unraveling of the "grand bargain" represents a missed opportunity.
"In our view, legislation providing appropriations for the remainder of fiscal 2017 and tax increases to generate additional revenue would help stabilize the state's fiscal trajectory," analysts wrote.
S&P said the state's prioritization of debt service remains a key feature of the state's investment grade rating but the "prioritization of revenues to fund debt is accomplished by deferring payments to many other stakeholders which we do not view as sustainable."
