CHICAGO – A new budget director will take the helm in Illinois with both budget and election seasons set to kick into high gear and the state’s barely investment grade ratings on the line.
Hans Zigmund will replace Scott Harry as director of the Governor’s Office of Management and Budget on Jan. 15 as Harry moves over to the State Board of Education. Harry took the position a year ago to fill the role being then vacated by Tim Nuding.
Zigmund began working for state government in 2006 as a staff economist in the Illinois Department of Revenue. He was later elevated to chief economist.
He served as associate director of OMB from 2011 to 2013 and has been director of economic policy in the governor’s office since August. Before state government, Zigmund was a pension analyst at Hewitt Associates. He’s also taught statistics, economics, and public finance at several higher education institutions.
“As Scott leaves, I know the job is in good hands, as there’s no one more familiar with the budget situation in Illinois than Hans,” Gov. Bruce Rauner said in a statement announcing the transition late Friday.
“While we face challenges, we have a number of positive factors working in our favor,” Zigmund said the statement.
The state ended a record two-year-old budget impasse when some GOP members joined the General Assembly’s Democratic majority in July to pass a $36 billion fiscal 2018 budget with $5 billion in tax hikes and override Rauner’s veto.
State tax collections have begun to show the impact of higher personal and corporate income tax rates approved as part of the budget package.
State tax collections were up $1.8 billion growing to $12.1 billion from $10.3 billion a year earlier in fiscal year-to-date figures through November reported by the legislature’s Commission on Government Forecasting and Accountability. Personal income taxes accounted for $6.8 billion of the total and were up 28.8% reflecting the higher tax rates. Sales taxes improved by only 2.2% to $3.5 billion.
Other factors also helped improve overall revenue increases.
“Increased income tax receipts stemming from the recently enacted higher tax rates, fund sweeps, as well as an increase in federal sources resulted in this significant gain,” COGFA revenue manager Jim Muschinske wrote in the report. General funds were up 68% to $18.2 billion for the year compared to last year through November.
Despite growing revenues, lawmakers and Rauner will face an estimated $1.5 billion gap as the 2018 session convenes. The House returns to session on Jan. 23 and the Senate on Jan. 30. Rauner will deliver his State of the State speech on Jan. 31 and his budget address on Feb. 15.
It’s unclear whether lawmakers will set aside their deep political divisions to tackle the red ink or a fiscal 2019 budget especially given the looming elections. The primary is March 20 and the general election in November. Top Democratic contenders in the governor's race include state Sen. Daniel Biss, businessman Chris Kennedy, and businessman J.B. Pritzker. Rauner faces a challenge from state Rep. Jeanne Ives.
Rauner tweeted Wednesday a list of New Years resolutions, including a push to “roll back” the tax hike and “require the budget to be truly balanced….no balanced budget = no pay for legislators.” He will also continue to push for a local property tax freeze and term limits.
The two-year budget impasse drove up the state’s bill backlog to a record $16 billion and dragged the state’s ratings down to the verge of junk. Moody’s Investors Service and S&P Global Ratings rate the state at the lowest investment grades of Baa3/BBB-minus with Moody’s assigning a negative outlook and S&P a stable outlook. Fitch Ratings assigns Illinois a BBB rating and negative outlook.
A return to budget gridlock, one-shots to deal with red ink, growth in the state’s bill backlog that stands at $9.1 billion after an infusion of more than $6 billion in bond proceeds, or a worsening of the state’s $128.9 billion of unfunded liabilities could sink the rating.
The state’s spreads had soared over the last two years to 300 basis points before falling under 200 basis points following passage of the budget.
In state's last GO sale, for $750 million Nov. 29, the 10-year landed at a yield of 3.910%,175 basis points over the Municipal Market Data’s top benchmark and 88 bp over the BBB. The long 25-year bond landed at a yield of 4.42%, 165 basis points over the AAA and 80 bp over the BBB. The bonds carried a true interest cost of 4.29%.