Illinois Is in a $6 Billion Budget Hole and Flirting With Junk

by Dramelin 6:30 AM 0 comments

Two years ago, Illinois’s budget impasse meant that the state’s lottery winners had to wait for months to get their winnings.
Now, with $15 billion in unpaid bills, Illinois is on the brink of being unable to even sell Powerball tickets.
For the third year in a row, the state is poised to begin its fiscal year on July 1 with no state budget and billions of dollars in the red.
If that happens, S&P Global Ratings says Illinois will probably lose its ­investment-grade status and become the first U.
state on record to have its general obligation debt rated as junk.
Illinois is already the worst-rated state at BBB-, S&P’s lowest investment-grade rating.
The state owes at least $800 million in interest and late fees on its unpaid bills.
Any further downgrade will make it more expensive the next time the state needs to sell bonds.
Unlike Detroit or, say, Lehman Brothers, states can’t file for bankruptcy, so Illinois has no choice but to dig its way out of a $6 billion budget hole.
This is not a new problem.
While many states are required by their constitutions to have balanced budgets, Illinois has been running deficits since 2002.
Things have gotten worse since 2015, when tax hikes expired.
That year, Republican Bruce Rauner became governor and began battling with Democrats, who control the Illinois legislature.
Rauner, a former private equity executive and the state’s first Republican governor since 2003, has insisted on initiatives such as freezing property tax increases and enacting term limits.
His chief opponent is Democratic House Speaker Michael Madigan, who’s in his 33rd year as leader and in August will become the ­longest-serving statehouse speaker in U.
Madigan’s standoff with Rauner counts as the longest budget impasse in U.
history, according to the National Conference of State Legislatures.
Both sides are digging in ahead of the 2018 governor’s race.
Pritzker, heir to the Hyatt Hotel Corp.
empire, and Chris Kennedy, the fifth son of Robert F.
Kennedy, are gearing up for the right to take on Rauner as the Democratic nominee.
So far, the budgetary pain has been limited mostly to social service providers and universities reeling from the loss of state aid.
Services for the homeless, disabled, and elderly have been slashed.
Starting on July 1, Illinois won’t be able to pay contractors, bringing road construction to a halt and a possible shutdown of transit services.
Without state aid, school districts across the state say they may not be able to stay open for the full school year.
Vaccine access for thousands of children is at risk because the state isn’t paying doctors for immunizations on time, according to the Illinois chapter of the American Academy of Pediatrics.
This is all an extreme example of the fiscal stress facing more and more U.
states, says Gabriel Petek, an analyst at S&P.
Almost a decade after the Great Recession, revenue growth for states is “chronically sluggish,” while expenses are climbing, especially for nondiscretionary items such as pensions, he says.
While the federal government helped states during the past two downturns, it’s less likely that aid is forthcoming now, given the Trump ­administration’s intentions to shrink federal spending and push authority (and financial obligations) onto the states.
“Whatever stress you already see throughout the state sector is likely to intensify if some of these policies that are currently under consideration came to fruition,” Petek says.