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Another Budget Deadline Busted. Where Does That Leave Illinois?

Pretty much the same place as yesterday—only with lower bond ratings and much higher stakes.

Michael Madigan leaves the Democratic caucus, which left without a budget at the end of session.   Photo: Zbigniew Bzdak/Chicago Tribune

Put simply, Illinois is a mess.

In a month, it could be a disaster.

On day 700 of the budget impasse, the last day of General Assembly’s regular session, the House failed to send a budget to the governor. It’s madness, but is there a method to it? Perhaps. The Tribune’s explanation is reasonable:

Not only was Madigan able to sidestep the immediate pressure from some of his House Democrats to vote for a tax increase, but going into overtime also pushes GOP lawmakers to join in a solution or split the blame for the continued stalemate. That’s because starting Thursday, passing a budget will require at least some Republican votes to reach the three-fifths benchmark now required.

The primary cause of this mess? Political incentives have aligned such that politicians derive benefit from the impasse, and/or could suffer politically from fixing the problems. As a number of people pointed out to me, the deal on the table comes down to Democrats putting together a mix of cuts and tax hikes to get a balanced budget (which the Senate did, more or less, and passed on a party-line vote), and in exchange Rauner gets reforms that are popular with his base and not with the Democrats’ base.

It’s a bad situation for Democrats, but in some ways one of their own making. As Daniel Biss argued to me, transactional politics has dominated Illinois Democrats; Rauner successfully ran on a clear reform agenda, which went a long way towards boxing in Democratic legislators. So the legislature’s last gasp is another month of transactional politics.

Democrats do have a lot of leverage, because the consequences of not passing a budget by July 1, the end of the state’s fiscal year, are so dire. Standard & Poors, for instance, lowered the state’s bond ratings with a clear warning:

We also believe that Illinois is now at risk of entering a negative credit spiral, where downgraded credit ratings would trigger contingent demands on state liquidity, further exacerbating its fiscal distress. Although CreditWatch typically has a 90-day time horizon, we anticipate resolving Illinois’ placement around the start of its 2018 fiscal year, which begins on July 1. If lawmakers fail to reach agreement on a budget with provisions designed to reduce the state’s structural deficit, it’s likely we will again lower the ratings.

Moody’s also lowered the state’s ratings. If Illinois doesn’t have a new budget that addresses the bond agencies’ concerns by July 1, the state is essentially certain to fall into junk bond status. One credit analyst told Bloomberg that we’re “approaching that point of impaired ability to function at basic level.”

As a couple school district superintendents told me, schools could not open their doors (or shut them early) without a budget, and there’s resistance among legislators to pass a stopgap budget to protect K-12 schools, because doing so has taken the pressure off them to pass a real budget (see: June 2016). If a full deal can’t be reached, a stopgap bill is possible—but as Amanda Kass breaks down, even the “autopilot” budget, which has caused so many layoffs at social service agencies and universities, considerably exceeds the state’s revenues. Without an income-tax increase, which would require a budget agreement and, in theory, compromises with the governor, that will continue and the bills will keep piling up.

It’s hard to imagine the state going past July 1 without passing a budget, even with the higher bar to clear, because the consequences are so dire. But it was hard to imagine that the state would go 700 days without a budget, too. And while a budget now must be passed in a bipartisan fashion, it’s not clear that the core of the problem—the political incentives—have changed enough to clear a path for one.

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