published Jun 1st 2016, 9:36 am, by Elizabeth Campbell

(Bloomberg) —
Illinois’s leaders failed to end the state’s worst budget impasse on record, deepening the fiscal turmoil in the Land of Lincoln as unpaid bills may swell to $10 billion, schools risk not opening on time, and prisons fall in danger of running out of supplies.

For the second year in a row, the Democratic-led legislature and Governor Bruce Rauner, a first-term Republican, couldn’t agree on a spending plan during the regular legislative session that ended Tuesday. Starting Wednesday, it now takes three-fifths of the General Assembly to pass anything, making a resolution to the standoff even harder to reach. Both sides have agreed to negotiate a stopgap plan to keep the government running through at least December.

“I want to work with the governor. He is in trouble, just like we’re in trouble,” Senate President John Cullerton, a Democrat, told reporters late Tuesday. “We have universities that might close, social service providers might close, schools that might not open. We’re all confronted with this right now.”

Illinois has been in financial crisis for years as the state struggles to resolve a $111 billion unfunded pension liability. This year’s turmoil is unprecedented as the nation’s fifth most-populous state has gone a record 11 months without a budget but is still spending an average of $500 million more a month than it’s taking in. At this rate, it will end the fiscal year on June 30 with a $6.2 billion shortfall, according to the comptroller’s office.

“Today we end the spring session for the General Assembly in stunning failure, stunning failure by the super-majority Democrats who control our legislature,” Rauner flanked by Republican lawmakers told reporters in Springfield on Tuesday. “The Democrats in the General Assembly have failed to pass a balanced budget.”

Downgrade Risk

The last day of the regular session was marked by a series of failures. Democrats couldn’t agree on a budget among themselves with the Senate rejecting a spending plan approved last week by House Democrats that the governor’s budget office says is short by $7.5 billion. Rauner had vowed to veto it. The House then didn’t pass a standalone education funding bill from the Senate that would have provided $205 million for Chicago public schools pensions.

Forrest Claypool, executive officer of the Chicago district, called on lawmakers to stay in session until an education budget is approved.

“ For Chicago students, we will continue to aggressively pursue equal funding so we can prevent the worst of the draconian cuts that are inevitable with a $1 billion budget deficit,” Claypool said in an e-mailed statement.

Illinois has been paralyzed with partisan gridlock since Rauner, a former private-equity executive, took office in January 2015. Rauner has said he would only agree to new taxes to help plug a deficit left by tax increases that expired in January 2015 if his agenda items like changes to workers compensation costs, curbs on unions, or property tax limits were adopted. Democrats, led by Speaker Michael Madigan who controls much of the legislative agenda, have rejected Rauner’s demands.

“If the state is taking actions that increase its structural budget gap, that’s something that could lead to a downgrade,” Ted Hampton, lead analyst on Illinois for Moody’s Investors Service, said in an interview. “The passing of May 31 with apparently no agreement in place demonstrates the severity of the political logjam that has evolved.”

Jeopardized Funding

The structural imbalance has earned Illinois the worst credit rating of all 50 states. Investors keep punishing Illinois, asking for an extra 1.8 percentage points to own the state’s 10-year bonds compared to benchmark debt. That’s the most of all 20 states tracked by Bloomberg. Still, Illinois’s “capacity and commitment” to its monthly deposits for debt service are unchanged regardless of the impasse, according to Hampton.

Illinois is only 30 days away from starting its second straight fiscal year without a budget. While court orders, consent decrees and continuing appropriations have prevented a government shutdown, more services are in jeopardy as the impasse drags on and vendors who haven’t been paid for months lose patience. The stalemate’s consequences are expected to be much worse in the year that starts July 1.

Schools may not open on time. Last year, even though Rauner vetoed the Democrats’ spending plan that was billions of dollars out of balance, he was able to approve funding for elementary and secondary education. Prisons, social service providers and public colleges are also at risk.

Democratic leaders said they would negotiate with Republicans on a temporary plan. Representative Jack Franks, a Democrat, called for the governor to call a special session on Wednesday to keep lawmakers in.

“If we do not pass the budget, real people are going to suffer,” Franks said on the House floor on Tuesday. “There are crisis centers closing. Poor people need our help.”

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net William Selway

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