Adding more weight to the coming weeks, S&P Global Ratings on Wednesday warned that the state’s debt will be rated junk if there’s no budget agreement in place by July 1 — the beginning of the new fiscal year.
As lawmakers left Springfield with no budget in place, S&P on June 1 downgraded Illinois’ bond rating to one step above junk. Moody’s Investors Service followed S&P’s downgrade.
Now, analysts say no budget means a downgrade to junk status come July 1. And the blame is all on a political war that analysts say puts the state at great risk.
“In this case, given the very pronounced and protracted impasse that’s gone on for almost two full fiscal years, we think that it’s above one in two likelihood that we would lower the rating at around the time of the new fiscal year if the lawmakers were unable to pass a budget to begin the new fiscal year,” analyst Gabriel Petek said during a conference call on Wednesday.
“Around that time is what we’re looking at given the duration of the impasse, the accumulation of these unpaid bills and all of the implications that not having a budget has for a state’s finances. We just really see this as a situation that’s deteriorating quickly if they don’t pass a budget.”
Petek noted that that the state’s fiscal downgrades are out of step with the economic cycles of other states which have gradually improved their fiscal condition.
“We think that leads to them [Illinois] being vulnerable to even greater stress in the event of a downturn,” Petek said.
Analysts said a temporary budget could help delay the bleeding, but new revenues are needed as the state’s bill backlog rises to $14.5 billion.
Petek noted, too, that the current presidential administration is “less likely” to provide stimulus funds to the state in the event of a recession. He noted the current discussion of limiting or reducing Medicaid funding to Illinois will contribute to more financial stress on the state.
Lawmakers left Springfield last week with no budget agreement in place, despite the Illinois Senate clearing a package of “grand bargain” bills that included an income tax hike, a two-year property tax freeze and appropriations for social service agencies and public universities which have been devastated by the state’s inability to pass a budget for two years. The Illinois House, in turn, didn’t take up those bills and Illinois House Speaker Michael Madigan said he plans to hold public budget hearings in June, with the first scheduled for Thursday in Chicago.
Finger pointing ensued, but there’s no clear indication that an agreement will be made by July 1.
Gov. Bruce Rauner has said he’ll only approve a budget if there’s a four-year property tax freeze attached. He’s been touring the state, advocating for a change in the system which he says is hurting businesses and families.
“It’s not real to have a property tax freeze that’s only two years and leave it at that. The property taxes will skyrocket in years 3, 4, 5, 6. And if we’re going to ask , as the Senate wants to do, is ask for a massive income tax hike which is permanent, and a massive sales tax hike, which is permanent, to offer the people of Illinois only a two year property tax freeze in return? That’s not fair,” Rauner said in Peoria. “That’s not right and it’s just putting a huge burden on the working families and our businesses.”
Meanwhile, State Rep. David McSweeney, R-Barrington Hills, on Wednesday released an analysis that he requested from the Commission on Government Forecasting and Accountability, which anticipates $6.249 billion in expected deficits in the fiscal year that ends on June 30 and $7.651 billion by next year — without a budget in place. The state’s bill backlog could jump to $22.7 billion with no budget in place by next year.