(Bloomberg) — The Illinois Senate overrode Republican Gov. Bruce Rauner’s veto of budget bills approved this week by the Democrat-led legislature, moving the state closer to ending its record budget impasse.
It’s now up to the state’s House of Representatives to hold its own override vote. The chamber plans to do so, Steve Brown, a spokesman for Speaker Michael Madigan, said before Rauner’s veto was announced. The House didn’t have enough members present for a vote today and is set to reconvene Thursday.
“We passed a bipartisan balanced budget for the first time in a couple of years,’’ Senate President John Cullerton, a Democrat, said on the floor Tuesday. “I’m certainly disappointed that he vetoed a balanced budget, but I’m glad that we were able to override him.’’
Rauner, who in 2015 became the first Republican to lead the state in more than a decade, rejected the plan, calling it out of balance.
“The package of legislation fails to address Illinois’ fiscal and economic crisis – and in fact, makes it worse in the long run,” Rauner said in an e-mailed statement. “It does not balance the budget.”
Earlier Tuesday, the Senate approved a $36 billion spending plan and package of tax increases that the House had already passed. The package that cleared both chambers this week is the biggest break in a more-than-two year stalemate. On Monday, S&P Global Ratings and Fitch Ratings said the measures marked a shift toward repairing the state’s battered finances. But both warned that a downgrade is still possible without a budget.
“In the event progress toward a budget falters, the weakened condition of Illinois’ finances and liquidity provide it with minimal margin at its current rating level,” S&P, which has Illinois at one level above junk, said in a statement Monday.
Illinois entered its third fiscal year on July 1 without a budget because of a clash between the governor and lawmakers over how to close 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.
As part of its budget plan, the legislature also approved a bill that includes about $8 billion to help pay down the backlog of unpaid bills, in part by issuing bonds.
On June 1, S&P and Moody’s Investors Service 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 likely get downgraded again. That would make it the first state on record to lose investment-grade status.
On Monday, Fitch called the weekend developments “concrete progress,” noting that it appears the legislature may have enough votes to override a veto. S&P called the actions a “meaningful step.”
Yields on the state’s 10-year debt have soared to 4.8%, 2.8 percentage points more than those of benchmark obligations. That’s the highest yield of all 22 states that Bloomberg tracks.
The tax bill that Rauner vetoed would raise individual income taxes to 4.95% from 3.75%, and corporate levies to 7% from 5.25%.
Rauner 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 Madigan, have resisted, saying those changes would hurt the middle class. While those legislators say they’ve passed some of Rauner’s items, the governor says they haven’t gone far enough.
The fiscal pressure intensified Friday after a U.S. federal judge ruled that the state must boost its Medicaid-related payments to chip away at the backlog of unpaid bills.
Comptroller Mendoza said the ruling brings Illinois’s finances “from horrific to catastrophic.” She said while bond payments will continue “uninterrupted,” payments to pensions, state payroll, schools and local governments will likely have to be reduced.
— Check out No Buyers for Chicago School Bonds Causes Rates to Hit 9% on ThinkAdvisor.