Illinois threatened with 'junk' credit rating scrambles to solve budget crisis
Illinois lawmakers are rushing to push through legislation to end a record-long budget stalemate and to avoid becoming the only US state with a junk bond credit rating. The state has nearly $272 billion in outstanding bills and unfunded pensions.
State senators were locked in session Monday, after the Democrat-controlled House approved a 32 percent income-tax hike and a $36 billion spending plan.
The tax legislation increases the personal income tax rate from 3.75 percent to just under 5 percent, while corporations would pay 7 percent instead of 5.25 percent.
S&P Global Ratings said the House vote to raise $5 billion through an income tax increase “represents a meaningful step towards the enactment of a comprehensive budget,” according to Bloomberg.
Governor Bruce Rauner (R-Illinois) vowed in a Facebook post to veto the tax increase if it clears the Senate.
“Illinois families don’t deserve to have more of their hard-earned money taken from them when the legislature has done little to restore confidence in government or grow jobs,” Rauner said in a statement. “Illinois families deserve more jobs, property tax relief and term limits. But tonight they got more of the same.”
Illinois lawmakers have been meeting at the Capitol for the last two weeks in an effort to end the gridlock between the Democrat-controlled legislature and the Republican governor.
Fifteen Republicans broke with Rauner to join 57 Democrats in voting for the tax hike. A dozen Republicans were from parts of Illinois where many of its public universities, prisons and other state facilities are located, according to the Chicago Tribune.
Rauner, who in 2015 became the first Republican to lead the state in more than a decade, wants any spending plan to include some of the agenda that he says he was elected to enact – a property-tax freeze, legislative term limits and changes to the workers’ compensation insurance system to cut costs for businesses.
Democrats, led by Speaker of the House Michael Madigan, have resisted, saying those changes would hurt the middle class.
Credit rating agencies have been threatening the state with junk bond credit rating over its unpaid bills and $251 billion in unfunded pensions.
On June 1, S&P and Moody’s Investors Service both dropped the state’s rating to one level above junk. S&P has said that without a spending plan that addresses the deficit around July 1 ‒ the start of the new budget year ‒ Illinois would get downgraded again.
The state has been without a budget for two years, with a $6.2 billion deficit and backlogged bills of $14.7 billion. Public universities risk losing their accreditation, social service providers could close their doors, and layoffs of road construction workers could be imminent. The prospect of a downgrade would also spike the cost of borrowing credit and could spook investors.