Despite passing a budget, Illinois bonds could still drop to junk status

The Illinois House overrode a veto by Governor Bruce Rauner of a spending plan that included a $6-billion increase in personal and business taxes.  This follows a veto override by the state Senate, which means that for the first time in more than two years, the state has a budget.

Despite the congratulatory pats on the back by Democrats, the spending plan doesn't even come close to fixing the state's money problems.  There is still a $15-billion backlog of unpaid bills the state owes contractors and small businesses.  And at some point, the legislature is going to have to address the $250 billion in unfunded pension liabilities for public employee unions.

Bond rating agencies say they could still make Illinois the first state to receive junk status for its bonds because no one is confident that the bitter partisanship that has marked the last two years in the legislature will be fixed anytime soon.

Fox 2:

Moody's said on Wednesday that it may still make Illinois the first state with a "junk" credit rating despite the $5 billion being raised by the tax hike. A downgrade would make Illinois the first state to receive a "junk" rating and could likely trigger higher borrowing costs for America's fifth-largest state.

The problem is that the budget compromise lacks "broad bipartisan support" and that may "signal shortcomings" in its effectiveness, Moody's warned.

Rauner, the Republican governor, called the budget a "disaster" that will "solve none of the problems" because it doesn't include methods to reform the state's unsustainable spending.

Under the terms of the agreement, Illinois personal tax rates will rise from 3.75% to 4.95%, while the corporate tax rate will go from 5.25% to 7%.

Rep. Steven Andersson, a Republican who supported the override of the GOP governor, said on the House floor that the past few days were "brutal" and that he received death threats and hate mail. But he said he felt he had no choice in his vote.

"We are going into freefall if we don't do this. Our options are this -- or financial meltdown," said Andersson.

Moody's raised concern that the budget deal doesn't address the $251 billion in funded pension liabilities the state faces. "So far, the plan appears to lack concrete measures that will materially improve Illinois' long-term capacity to address its unfunded pension liabilities," it wrote.

On Thursday, Moody's warned it may downgrade the credit rating of the Chicago Board of Education, citing the state's inability to provide operating aid to the district amid the budget standoff.

While the budget deal offers relief for the school district, Moody's said it may be "insufficient to alleviate its distressed financial position."

S&P Global Ratings said in a recent report that even with a budget it's likely Illinois finances will "remain strained and vulnerable to unanticipated economic stress."

The good news is the end of the budget standoff could ease pressure on social services and public colleges that rely on state funding. Everything from Illinois mental health services and domestic violence to public universities had been hurt by the crisis.

The legislature still bestowed a gift on Chicago schools by changing the funding formula for state aid to local public school systems.  The new formula will siphon a half a billion dollars from suburban and rural school districts and put the money in the coffers of the CPS.

The massive tax increases will almost certainly accelerate the flight of residents and businesses from the state.  Governor Rauner insisted that a property tax freeze is still a viable plan, but Democrats, of course, have other ideas for that money.

All in all, the contentious debates, the name-calling, and the political maneuvering have done little to improve the state's financial outlook.  The pension bomb that has already been lit is set to go off during the next serious economic downturn, as a combination of unfunded liabilities and possible junk status for the state's bonds means that government will be unable to beg, borrow, or steal enough to keep the pension system afloat.

And what of the billions in unpaid bills?  The only solutions offered so far involve more tax increases.  The thought of cutting even a dollar from the state budget just hasn't entered the minds of legislators from both parties.

The bottom line: Virtually nothing has changed.  The state is still in deep fiscal trouble, and it appears that only a serious financial meltdown will force the legislature to come to grips with their own incompetence and corruption.

The Illinois House overrode a veto by Governor Bruce Rauner of a spending plan that included a $6-billion increase in personal and business taxes.  This follows a veto override by the state Senate, which means that for the first time in more than two years, the state has a budget.

Despite the congratulatory pats on the back by Democrats, the spending plan doesn't even come close to fixing the state's money problems.  There is still a $15-billion backlog of unpaid bills the state owes contractors and small businesses.  And at some point, the legislature is going to have to address the $250 billion in unfunded pension liabilities for public employee unions.

Bond rating agencies say they could still make Illinois the first state to receive junk status for its bonds because no one is confident that the bitter partisanship that has marked the last two years in the legislature will be fixed anytime soon.

Fox 2:

Moody's said on Wednesday that it may still make Illinois the first state with a "junk" credit rating despite the $5 billion being raised by the tax hike. A downgrade would make Illinois the first state to receive a "junk" rating and could likely trigger higher borrowing costs for America's fifth-largest state.

The problem is that the budget compromise lacks "broad bipartisan support" and that may "signal shortcomings" in its effectiveness, Moody's warned.

Rauner, the Republican governor, called the budget a "disaster" that will "solve none of the problems" because it doesn't include methods to reform the state's unsustainable spending.

Under the terms of the agreement, Illinois personal tax rates will rise from 3.75% to 4.95%, while the corporate tax rate will go from 5.25% to 7%.

Rep. Steven Andersson, a Republican who supported the override of the GOP governor, said on the House floor that the past few days were "brutal" and that he received death threats and hate mail. But he said he felt he had no choice in his vote.

"We are going into freefall if we don't do this. Our options are this -- or financial meltdown," said Andersson.

Moody's raised concern that the budget deal doesn't address the $251 billion in funded pension liabilities the state faces. "So far, the plan appears to lack concrete measures that will materially improve Illinois' long-term capacity to address its unfunded pension liabilities," it wrote.

On Thursday, Moody's warned it may downgrade the credit rating of the Chicago Board of Education, citing the state's inability to provide operating aid to the district amid the budget standoff.

While the budget deal offers relief for the school district, Moody's said it may be "insufficient to alleviate its distressed financial position."

S&P Global Ratings said in a recent report that even with a budget it's likely Illinois finances will "remain strained and vulnerable to unanticipated economic stress."

The good news is the end of the budget standoff could ease pressure on social services and public colleges that rely on state funding. Everything from Illinois mental health services and domestic violence to public universities had been hurt by the crisis.

The legislature still bestowed a gift on Chicago schools by changing the funding formula for state aid to local public school systems.  The new formula will siphon a half a billion dollars from suburban and rural school districts and put the money in the coffers of the CPS.

The massive tax increases will almost certainly accelerate the flight of residents and businesses from the state.  Governor Rauner insisted that a property tax freeze is still a viable plan, but Democrats, of course, have other ideas for that money.

All in all, the contentious debates, the name-calling, and the political maneuvering have done little to improve the state's financial outlook.  The pension bomb that has already been lit is set to go off during the next serious economic downturn, as a combination of unfunded liabilities and possible junk status for the state's bonds means that government will be unable to beg, borrow, or steal enough to keep the pension system afloat.

And what of the billions in unpaid bills?  The only solutions offered so far involve more tax increases.  The thought of cutting even a dollar from the state budget just hasn't entered the minds of legislators from both parties.

The bottom line: Virtually nothing has changed.  The state is still in deep fiscal trouble, and it appears that only a serious financial meltdown will force the legislature to come to grips with their own incompetence and corruption.

RECENT VIDEOS