Illinois Leaders Haggle Over Stopgap Budget as Time Runs Short

  • Democratic Speaker is ‘optimistic,’ Republicans note progress
  • Chicago school aid is sticking point on education funding

In Illinois, time is running out to halt the longest budget standoff in the state’s history.

While Republican Governor Bruce Rauner said an accord is “essentially reached” on a spending plan for the next six months, both sides pitched separate stopgap measures on Tuesday. Top lawmakers and Rauner are meeting again Wednesday before the legislature convenes. Democratic Speaker Michael Madigan said he is “optimistic,” and Republican Leader Jim Durkin noted progress, though Senate Minority Leader Christine Radogno said “caution is always in order.”

If an agreement isn’t struck in the next two days, Illinois will enter its second year without a budget. Starting July 1, the state may shutter essential services, halt road construction and is at risk of shutting down corrections and public safety services, according to Rauner. Measures that provided authority to fund domestic violence shelters, home-delivered meals for seniors, and child-nutrition programs will lapse. Without state aid, some schools, including Chicago’s district, may not open on time.

“It’s at a level I’ve not witnessed before,” said John Hicks, executive director of the National Association of State Budget Officers, who has more than three decades of experience in state government. If a stopgap is reached, “that’s a big step forward given recent events to be able to create some certainty,” said Hicks, who said he can’t remember a budget standoff that’s lasted as long as Illinois’s.

The state has been mired in gridlock for nearly a year even as court orders, consent decrees and continuing appropriations have the state spending at about 90 percent of last year’s levels. Since Rauner took office in January 2015, he’s sought to tie any budget to property-tax reductions, limits on unions and changes to worker-compensation laws, an agenda that’s drawn ire from Democrats who say it will hurt lower-income residents. The political fight has created the unprecedented impasse.

Investors continue to punish the Land of Lincoln as its credit ratings drop to levels not seen by a U.S. state in more than a decade. Illinois yield spreads soared to the widest since October this month. Investors demanded an extra 1.9 percentage points to own 10-year Illinois bonds compared to benchmark securities, according to data compiled by Bloomberg. That’s the most of the 20 states tracked by Bloomberg.

Market Demand

Still buyers keep snatching up the bonds with overall market yields close to a five-decade low. Buyers also take comfort in the fact that the state gives debt service a priority over other expenses and requires monthly deposits for interest and principal bills. Illinois sold $550 million of bonds this month at a top yield of 4 percent, or 2 percentage points above benchmark.

“It’s the widest trading state GO in the market by far, the lowest-rated state GO in the market as well, but there’s a price for BBB-rated munis that do have the wherewithal to pay the debt service” said John Miller, co-head of fixed income in Chicago at Nuveen Asset Management, which oversees $120 billion of state and local debt. “As a BBB-state GO, you’re not going to get shut out of the market. The market will price that into the yield, especially now.”

The first-term governor and legislative leaders met Tuesday in Springfield to hammer out details of a short-term plan to avoid a massive shutdown of services. Rauner agreed to hold his agenda items in exchange for “bridge” funding to get the state through the November election.

Education Funding

Both sides have pitched bills that include $1 billion for higher education, such as scholarships for low-income students. There are two separate plans to fund state operations, including prisons, as well as their own measures for capital projects like road improvements.

The biggest obstacle is education funding. Republicans want to increase elementary and high school education aid by about $240 million, while Senate Democrats want to overhaul the way the state funds schools. Their proposal boosts general state aid funding by $760 million, including a so-called equity grant that would provide more aid to schools that have more low-income students. Under this plan, Chicago’s schools would see an increase of about $386 million, including $100 million for its pensions. It’s the only district in the state that pays the vast majority of its own pension costs.

Rauner has refused to support what he calls a "bailout” for Chicago’s cash-strapped schools that are facing a $1 billion deficit and is pushing for lawmakers to change state law to allow the district the ability to file for bankruptcy.

Real People

If both sides can’t agree on some kind of education funding and don’t pass any state aid, Chicago’s schools and other districts through the state have said they won’t be able to open on time.

Both parties have advocated for about $650 million to social service providers, which have been slammed by the impasse. More than half of 429 social service providers surveyed by the United Way of Illinois in early June said they’ll have to stop serving clients in six months if the impasse continues. Almost two-thirds of respondents have already started cutting programs or operations, according to the survey.

Representative Jack Franks, a Democrat, who’s served in the legislature since 1999 and decided not to run again partly because of this year’s dysfunction, said real people are suffering and will die without a budget. Without a fix, there will be more homeless, higher crime rates, and ultimately, higher costs because of increased incarceration rates.

“It’s going to be catastrophic,” Franks said. “Both sides suffer under the delusion that it’s OK for real people to suffer as long as the other side gets blamed. It’s clear that this isn’t about policy anymore and what’s good for the citizens. It’s only about what’s good for the power brokers.”

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