(Bloomberg) — Illinois lawmakers are racing to push through legislation to end a record-long budget impasse and avoid becoming the only U.S. state with a junk credit rating.
Lawmakers are in session Monday after the Democrat-run House of Representatives approved an income-tax increase with 15 Republican votes on Sunday, signaling bipartisan will to end the stalemate even though Governor Bruce Rauner vowed to veto it if the measure clears the Senate. The House also sent a $36 billion spending plan to the Senate amid concern that credit-rating companies will pull Illinois's investment-grade rating if a budget isn't enacted.
"It's been a political crisis, an unprecedented stalemate for over two years now and yesterday's action was really the first break in that stalemate," John Miller, co-head of fixed income at Nuveen Asset Management, said in an interview on Bloomberg Television. "We think they keep their investment grade ratings even though there's still a lot of work to be done."
Illinois has entered its third year without a budget because of a clash between the Republican governor and lawmakers over how to close the government's chronic deficits. Unpaid bills have soared to a record $15 billion, and by August the state is set to run out of money for key expenses for the first time since the stalemate began, according to Comptroller Susana Mendoza, a Democrat. That means school funding, state payroll and pension payments could be affected.
On June 1, S&P Global Ratings 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. That would make it the first state on record to lose investment-grade status. On Monday, Fitch Ratings called the weekend developments "concrete progress," noting that it appears the legislature may have enough votes to override Rauner's planned veto of the tax hike.
