CHICAGO — With Illinois' credit rating hanging in the balance, the state's spring legislative session ended in gridlock after passage of a $36 billion budget labeled by Gov. Bruce Rauner as "phony" and without action on reform initiatives demanded by the rookie governor.
A proposed expansion of gambling that would have provided Chicago with a casino stalled, and lawmakers never got around to advancing a new pension reform plan after the Illinois Supreme Court's recent voiding of a 2013 overhaul.
Lawmakers did approve a restructuring of public safety pension fund payments owed by Chicago.
The GOP governor and the legislature's Democratic leaders traded barbs on Sunday, blaming each other for the budget impasse as the session winded down without signs of the compromise Rauner had said he was hopeful of on Friday.
"A stunningly disappointing General Assembly session this spring. We do not have a balanced budget," Rauner said during a news conference. "We have an attempt to force major tax hikes on the people of Illinois and we have absolutely no significant reforms and no sincere effort that we can tell yet to achieve significant reforms for the people of Illinois."
Rauner proposed deep cuts to eliminate a $6 billion deficit in his proposed $32 billion budget and tied his support for tax increase proposals to Democratic support for a scaled-down version of his turnaround agenda.
Democrats countered that the budget should be negotiated and adopted on its own and not used as leverage to promote what they consider Rauner's pro-business agenda. Democrats pushed through their own $36.3 billion budget for the fiscal year beginning July 1 that is at least $3 billion short of needed revenue.
They also attacked Rauner's spending plan as imbalanced because it assumes more than $2 billion in savings from an employee pension changes that even Rauner has said has questionable chances of surviving a legal challenge.
"The number one problem facing the state of Illinois is the budget deficit. I'm focused on eliminating the budget deficit," House Speaker Michael Madigan, D-Chicago, said in an interview on the program Illinois Lawmakers. "I don't think you can cut your way out of the budget deficit. I think you have to do cuts. You also have to do new revenue."
Madigan said the Democratic-crafted state budget "helps and protects middle class families" and accused the governor of "functioning in the extreme" by tying his agenda to the budget.
Democrats say the agenda items remain on the table but any talk of cooperation is overshadowed by increasing divisiveness. Senate President John Cullerton, D-Chicago, said he's committed to working on a compromise but expressed disappointment in the direction he said Rauner was headed.
"The governor made it clear that in the next few days, he will launch a multimillion dollar negative ad campaign designed to demonize those who are standing up for the middle class," Cullerton said at a news conference. "Nothing could be more damaging to the prospects of compromise than deploying Washington-style campaign tactics rather than working on bipartisan solutions for this state."
Rauner and Republican minority leaders were dismissive of Democrats' comments that their motives are aimed at protecting the middle class. "They are not about the middle class, they are about the political class," Rauner said.
Rauner's initiatives include a local property tax freeze tied to giving local governments more bargaining power with unions, and reforms to workers' compensation and civil judgments. He also wants constitutional amendments on term limits and redistricting.
"The Democrats only want another tax increase, they have turned their back on reform and compromise," said Senate Minority Leader Christine Radogno, R-Lemont.
After May 31, legislation requires a three-fifths majority instead of a simple majority. Rauner said he would not call a special session due to the costs.
Democrats are not expected to immediately send their budget to Rauner, a maneuver that would force him to act on it close to the start of the new fiscal year if no bargain is struck.
In another complication, negotiations on union contracts are ongoing and some believe Rauner's administration is preparing for a possible lockout. Democrats approved legislation that would impose binding arbitration after a negotiating impasse.
Madigan said House members would be called back later this week and Cullerton will call the Senate back next week although it appeared those sessions would be to address the impending advertising attack and not to act on an expected budget pact.
Illinois' A-minus level ratings, already the lowest among states, are in the balance with analysts and investors looking for a structural fix that doesn't raise its $5 billion bill backlog or rely on one-shots.
Fitch Ratings and Moody's Investors Service assign the state a negative outlook and Standard & Poor's put the state's general obligation rating on negative watch after the Illinois Supreme Court's May 8 ruling nixing the state's 2013 pension reforms.
"I could see a rating agency making the assessment that the lack of progress on the state's fiscal and pension issues negatively affects its credit quality," said Michael Johnson, managing partner and head of research at Gurtin Fixed Income Management LLC.
"At this point, it is very difficult to discern a path forward. It is difficult to see how the state gets to a truly balanced budget and even if the current political impasse is resolved, and then they still have the pension issue," he added.
Standard & Poor's warned in a recent report: "Absent a credible budget for fiscal 2016 that has structural alignment of revenues and expenditures, we would lower our rating on Illinois to the 'BBB' category. The magnitude of any downgrade will be based on the 2016 budget condition and our assessment of liquidity and payables."
The state does not have any near-term borrowing planned but its spreads in the secondary market increased after the court's pension ruling.