Illinois's Record Budget Standoff Risks Getting More Entrenched

  • Starting June 1, super-majority is needed to pass compromise
  • Unpaid bills expected to climb to $10 billion by July 1

Illinois’s 307 days without a budget is dividing the state into the haves and have-nots.

Thanks to a fleeting political thaw, universities are starting to receive $600 million that’s been held up during the record long-impasse, and government employees, pensioners and bondholders have all seen their checks continue to come. But on the other side are the homeless shelters, charities and companies that are owed $6 billion, a sum that’s projected to grow to $10 billion by July 1. Elected officials’ paychecks have been delayed since last month, too, in a last ditch effort to prod lawmakers to act.

“The state of Illinois did not make themselves and their financial health a priority overall,” said Philip Krupps, president of Brown County State Bank in Mount Sterling, Illinois, where the local state prison is at least six months behind on its municipal water bill. “They’re playing the shell game of moving money around and just satisfying enough of each little need to pacify the situation.”

Illinois is the only state that’s failed to pass a budget, with less than two months to go before the year ends. Governor Bruce Rauner and Democratic lawmakers can’t agree on how to plug a deficit that was left when income-tax increases expired in January 2015. The first-term Republican wants the budget to include changes he says he was elected to make, like limiting the power of unions or freezing property taxes. Democrats want to raise taxes on the wealthy. Both sides have dug in, creating the longest standoff in the state’s history.

Resolving it is only set to get more difficult: After the end of May, it will take a super-majority to approve a spending plan. Without one in place, the queue of unpaid bills is rising even as the state spends about $500 million a month more than it brings in.

Social service providers have been especially hard hit. Eighty-four percent of human service agencies have cut programs, including support for the mentally ill, disabled and senior citizens, according to a January survey by United Way of Illinois. Marylin Krolak, executive director of the DuPage Senior Citizens Council, said funding for its Meals on Wheels program has been cut by 30 percent, which means it can feed about 200 fewer each month.

“We’re just throwing seniors to the roadside because of budget problems,” said Krolak, whose organization serves the suburbs west of Chicago.

Rape crisis centers, owed about $5 million, are depleting reserves, leaving positions unfilled and creating waiting lists for victims of sexual assault. Homeless shelters haven’t gotten state aid this year, which is also jeopardizing matching funds from the federal government, according to the Chicago Coalition for the Homeless.

“The whole social services safety net is starting to wear away,” Bob Gilligan, executive director of the Catholic Conference of Illinois told lawmakers last week. The state owes Catholic Charities of Chicago $18 million. “Once it goes, it’s virtually impossible to rebuild.”

Illinois bonds aren’t in danger of defaulting because state law mandates monthly transfers to ensure that semi-annual debt payments are made. But the the turmoil hasn’t gone unnoticed: Investors are demanding an extra 1.8 percentage points to hold Illinois’s 10-year debt, the most among the 20 states tracked by Bloomberg and up from as little as 1.1 percentage point two years ago.

“Bondholders pay attention to distress in social services for the borrower,” said Adam Buchanan, senior vice president of sales and trading at Ziegler, a broker-dealer in Chicago. “It’s a signal of weakness of potentially greater problems in the future.”

Even though money is sitting in earmarked accounts, some of it can’t be spent without legislative approval. Illinois owes about $21 million for this fiscal year to companies that clean up leaking underground fuel tanks, according to the state’s environmental protection agency. The agency said it has more than enough to pay those bills -- if only lawmakers would allow it.

The failure to adopt a budget is pushing Illinois’s government overall deeper into the hole. The expiration of the tax hikes in January 2015 cut revenue by about 20 percent for the year ending in June, according to Moody’s Investors Service. Meanwhile, continuing appropriations, court orders and consent decrees have the state shelling out more money than it’s taking in. Rauner’s proposed 2017 budget is short by at least $3.5 billion, the Civic Federation, a watchdog group, said in a report on Tuesday.

Last month, lawmakers agreed on a bipartisan deal, which Rauner signed, to prop up universities with emergency funding. While the Senate passed a similar emergency measure for social services agencies on April 22, the bill has yet to pass the House and a broader deal has remained elusive.

Jason Knoedler, senior vice president of the Bank of Springfield, said the bank has extended credit to help businesses cope. Some that provide janitorial supplies and services to prisons haven’t been paid for seven to eight months, he said. Knoedler’s bank also serves landlords in the capital who aren’t getting rent checks from the state.

“As a community bank, we try to have our customer’s back,” said Knoedler. “But it’s getting harder and harder with the pressure that the state of Illinois is putting on us.”

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