Two days ago when we reported that the Illinois House had voted 72-45 to pass a 32% income tax hike (and a $36 billion spending plan), in an last ditch scramble to provide the state with its first budget in three years (or else suffer the first ever US downgrade to "Junk"), we said that "ultimately, the fate of Illinois' credit rating is now in the hands of Rauner, and whether and how fast his imminent veto is overriden." We got the answer on Independence Day afternoon, when just around noon, first the Senate voted to approve the House tax hike and spending bill, then shortly after, Gov. Rauner - just as he warned he would - vetoed both the income tax increase and the budget bill and budget implementation bill only to be himself overriden moments later by the Senate, as it took the drastic measure to end a record budget impasse. The 36-18 vote in the Senate on the tax hike came after a very short debate, and two days after more than a dozen Republicans in the House broke ranks with Rauner to join Democrats to support the plan amid growing frustration.
Needless to say, former PE titan, Bruce Rauner disagreed, and in his veto message to lawmakers said that "the package of legislation fails to address Illinois' fiscal and economic crisis, and in fact, makes it worse in the long run. It does not balance the budget. It does not make nearly sufficient spending reductions, does not pay down our debt and holds schools hostage to force a Chicago bailout." Rauner also noted he did not get the economic agenda items he had made a requirement to sign a tax hike into law.
"This budget package does not provide property tax relief to struggling families and employers. It does not provide regulatory relief to businesses to create jobs and grow the economy. It does not include real term limits on state elected officials to fix our broken political system" said Rauner, listing the issues from what he once dubbed his "turnaround agenda."
# Gov. Bruce Rauner holds a press conference...
It does however stave off the day of reckoning and potentially Illinois junk status downgrade.
The voting came as Illinois entered its third year without a budget amid Wall Street's threat of a credit downgrade to junk status, potential layoffs of construction workers and with Illinois already booted from the Powerball and Mega Millions lottery games.
"We don't have any time left," said Sen. Toi Hutchinson, D-Olympia Fields. She laid out what is at stake without a resolution, including the state's credit rating being downgraded to junk status, road workers being laid off, and the dismantling of higher education and social safety net.
The tax hike and budget now head to the House, which also will have to vote to override Rauner for them to become law. But according to the Chicago Tribune, Democratic Speaker Michael Madigan said the House would not do so Tuesday, meaning the budget process will play out at least another day.
The House is not scheduled to convene until 4:30 p.m., but attendance has been an issue as lawmakers had dispersed for the holiday. Still no surprises are expected:
"I think that the Senate vote is reflective of the vote in the House. I think it speaks to all the hard work that has been done by a bipartisan group in the legislature," Madigan told WICS-TV of Springfield after the vote. "My expectation is that the bills that the Senate just passed will become law and we will have taken a huge step toward correcting the financial imbalances of the state of Illinois." Perhaps, although some have suggested that instead of hiking taxes, which will lead to a fresh exodus of taxpayers from both Chicago and Illinois (recall the Chicago population is already shrinking the most of any US city) what the budget should have done is slash spending. Of course, that is the last thing on the mind of legislators of one of America's biggest nanny states.
In fact, quite the opposite: the accompanying budget plan, which the Senate also quickly approved 39-14, would have the state spend a little more than $36 billion, about $4 billion more than it currently takes in from taxes. In other words, Illinois just "saved" itself from default but assuring it would end up with even more debt.
# Going back to the vote, as the Tribune adds, the 36 votes in the Senate was the minimum needed both to pass and override a veto. There are 37 Democrats in the Senate, but two voted no. They are Sen. Julie Morrison of Deerfield, and Sen. Tom Cullerton of Villa Park. Both likely will face a tough re-election challenge. Sen. Haine, who has been undergoing treatment for blood cancer since February, traveled to the Capitol to vote for the plan. The critical vote belonged to Republican Sen. Righter, who noted the damage done to Eastern Illinois University in his district.
"Every dollar that we throw onto the backlog of bills is a dollar the next generation has to pay for even though we got to spend it," Righter said. "That's simply wrong, and that is the basis for which I support this."
# So do today's last minute Senate fireworks mean no Illinois downgrade to junk is coming? It remains to be seen: the movement after years of dysfunction was enough to delay the state's credit rating from being cut to junk status by Wall Street ratings agencies Monday, though they warned that much rides on a final approval of the budget package. Even then, S&P Global Ratings warned 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."
Meanwhile, on Monday Fitch 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. S&P called the actions a “meaningful step.” Yields on the state’s 10-year debt have soared to 4.8 percent, 2.8 percentage points more than those of benchmark obligations. That’s the highest yield of all 22 states that Bloomberg tracks...
It would be the ultimate insult to Illinois if despite the last minute scramble, S&P were to do to the insolvent state what it did to the USA in August 2011, when despite the pleas of Obama, Geithner and the entire administration, it went ahead and did the unthinkable, when it downgraded the US from its vaunted AAA rating. In any case, it's only a matter of time before Illinois slides not only to Junk, but to Default as well....