Illinois government's credit rating avoided a cut to junk status Monday when two key agencies said votes to raise income taxes and advance a spending plan count as progress toward ending the state's yearslong budget stalemate.
They warned, though, that much was riding on a final resolution being reached in the coming days.
The assessment came a day after more than a dozen Republicans broke ranks with Gov. Bruce Rauner to join House Speaker Michael Madigan's Democrats in approving a major income tax hike to help pay for local schools, universities, human services and other state programs.
Despite a veto promise from the governor, Fitch Ratings said the House's action amounted to "concrete progress" toward breaking the impasse that's left Illinois awash in red ink. But the agency signaled a downgrade might not be far off if Democrats' budget push falls apart.
Later Monday, Senate President John Cullerton announced that a vote on whether the plan should be sent to Rauner would have to wait another day. Attendance was lacking, as many senators had already dispersed from Springfield for the Fourth of July holiday. They could try again as early as Tuesday morning.
Senate Democrats passed a tax hike proposal with 32 votes in May, but the political landscape is a little different this time around. Now, the measure would need 36 votes to advance, the same amount needed to override a Rauner veto. While there are 37 Democrats in the Senate, Cullerton said it would be "very difficult" for his party to do it on their own. The tax hike plan received Republican support in the House, but Senate GOP lawmakers haven't given a public indication they'd back it.
The latest tax hike measure closely reflects the one the Senate previously advanced. It calls for raising the personal income tax rate from the current 3.75 percent to 4.95 percent, which would generate roughly $4.3 billion. An increase in the corporate income tax rate from 5.25 percent to 7 percent would bring in another $460 million. The surplus revenue could be used to cover the cost of borrowing to pay down unpaid bills, Democrats said. The accompanying budget would have the state spend a little more than $36 billion, about $4 billion more than it currently takes in from taxes.
Fitch said it will "continue to monitor the developments in Illinois," but cautioned that "temporary or partial measures, or a failure to enact a budget within the context of this session, would result in a downgrade." The agency warned that without action, "the state risks losing full control of its budgetary decisions."
S&P Global Ratings also hailed House passage of a budget plan as a "first step" toward stabilizing the state's finances, but said that long term damage has already been done.
"Even with a budget, however, it's likely that Illinois' finances would remain strained and vulnerable to unanticipated economic stress," the agency said. "In addition to having accumulated record amounts of payables, the state's university system has been deprived of state funding since January 2017. If a budget is enacted, the degree to which it closes the state's structural deficit, provides a pathway for addressing the backlog of unpaid bills, and its impact on cash flows, will be important factors in our review of its effect on Illinois' credit quality."
Madigan said he was "very pleased" by the "positive responses" from Wall Street. He praised Republican lawmakers' votes for the budget package, saying the final tally was the result of discussions among the rank and file in both parties. He criticized Rauner's leadership style, saying he and his staff have employed an "undue level of intimidation."
"I think that what you saw with Republicans engaging in bipartisan support for the bill, in my judgment was a reaction to the positions adopted by Gov. Rauner, the tactics employed by Gov. Rauner and his staff over several months," Madigan said.
By contrast, Madigan said, "I only engage in persuasion."
"My method is to use intellectual persuasion to persuade Democratic members, and sometimes Republicans, on the wisdom of a position or vote," Madigan said. "I don't engage in intimidation, I don't engage in threats … I've been here long enough to know it doesn't work."
Rauner, who largely has kept out of the public eye since he called lawmakers back to Springfield in mid-June, posted a video Monday to Facebook, in which he read a written statement blasting Madigan and vowing to "engage citizens and redouble our efforts to change the state."
Meanwhile, the House passed a third, crucial element of their budget package Monday before leaving the Capitol until Tuesday afternoon. The break gives members a brief reprieve from the statehouse so that they can go back to their districts for the holiday.
The legislation provides a plan for paying down about half of the state's $15 billion in unpaid bills that's mounted over the past two years. It would allow the state to borrow up to $6 billion through the sale of general obligation state bonds. Financing the debt in that way would allow the state to swap for a smaller interest rate than is currently accruing on bills that have been left to sit at the comptroller's office.
Under state law, many of those bills begin to earn interest at a rate of 1 percent a month if they aren't paid within 90 days. Bills from health care providers earn interest at an annual rate of 9 percent once they've gone unpaid for more than 30 days. Interest isn't paid until the bill in question is paid, so the longer a bill sits, the higher the cost to pay it.
Rep. Greg Harris, a Chicago Democrat and Madigan's chief budget negotiator, said the budget approved Sunday had enough surplus revenue to support $3 billion in borrowing, and said the state could use that money to generate a total of $8 billion in extra cash to pay down debts. That's because the state receives federal money when it makes some Medicaid payments.
Those payments could put an extra pressure on Illinois' bottom line after a federal judge last week ordered the state to start paying at least $293 million a month in Medicaid bills, plus work toward paying down $3 billion owed to health care providers.
Additionally, the state would take $800 million sitting in special funds for human services and education, and send that money to universities and social service agencies to make up for the past six months they've largely gone without state money.
Harris said the House didn't consider its work finished and planned to continue working on other elements of Rauner's legislative wish list "over the next several days."
"The issues are still at what point is the governor going to become willing to reach an agreement," Harris said. "We've done a pretty good job of meeting every requirement he had for a budget."
One of the items on Rauner's wish list had been cost-saving changes to the state pension systems. That legislation was incorporated into the budget bill the House passed Monday, Harris said.
Amid the recent budget moves, the deep-rooted tension between the sides spurred an announcement from Rep. Chad Hays, R-Catlin, that he would not be seeking re-election next year. Hays, who voted in favor of the tax hike, said the "dislike and distrust" between Rauner and Madigan "has paralyzed government in Illinois."
He said in his resignation letter that Rauner has "struggled with identifying which fights to fight and what constitutes a victory." Madigan, he said, controls the legislative process so firmly that if often results in an "end run around Democracy."
"There truly are legislators who care deeply, have the courage of their convictions and the intestinal fortitude to do what must be done regardless of consequences," Hays said. "They are increasingly silenced and dwarfed by monied bullies. We are in serious jeopardy of independent thought being a relic in our public discourse."