Pressure builds on Illinois to address budget woes

Reuters News
Posted: Jun 01, 2015 1:43 PM

By Karen Pierog

CHICAGO (Reuters) - Illinois ended its legislative session on Sunday without a new budget, adding pressure to its shaky finances and relatively low credit ratings.

Heated rhetoric by Republican Governor Bruce Rauner and the Democratic leaders of the House and Senate in the waning hours of the spring legislative session could foreshadow a tough budget battle that extends beyond the July 1 start of fiscal 2016.

Christopher Mooney, director of the Institute of Government & Public Affairs at the University of Illinois, said on Monday that the scope of Illinois' problems is unprecedented and that it is far from clear what Rauner - a wealthy political novice - will do.

"Right now it looks like we're going to have a massive conflict," he said. "However, (legislative leaders) may walk out of (Rauner's) second-floor office tomorrow and say they have a deal."

Illinois has the worst-funded pension system and lowest credit ratings among the 50 states.

House Speaker Michael Madigan and Senate President John Cullerton, both Chicago Democrats, ordered their chambers back into session in June, while warning the governor plans a massive negative advertising campaign against Democratic lawmakers.

"We really don't have any clarity yet how this will end and what kind of fiscal (2016) budget will be put in place," said Ted Hampton, an analyst at Moody's Investors Service.

He added that while a "credible" spending plan could prevent the state's rating from deteriorating further, resorting to budget gimmicks like underfunding pensions would be considered negative for the rating.

Karen Krop, a Fitch Ratings analyst, said Fitch is looking for a balanced budget, noting that neither the governor's proposed spending plan or the one crafted and passed by Democratic lawmakers was balanced.

Democrats who control the House and Senate opted for their own $36.3 billion spending plan that was at least $3 billion short on revenue instead of a $32 billion budget proposed by Rauner in February. The governor's budget relied in part on pension savings that were unlikely in the wake of a recent Illinois Supreme Court ruling preventing retirement benefit reductions for public sector workers.

Standard & Poor's placed Illinois' A-minus rating on a watch list for a possible downgrade last month, warning that the lack of "structural alignment of revenues and expenditures" would push it into the triple-B category. S&P has dropped only three states to that level: California in 2003, Massachusetts in 1989 and Louisiana in 1988.

(Editing by Matthew Lewis)