Illinois' financial crisis has 'hurtled out of control'
The Illinois State House took an early step toward ending a devastating two-year budget impasse Friday, but with many challenges remaining and a critical deadline drawing near, the state’s workers are worried about a complete lack of stability.
“Many of our members are impacted,” Greg Baise, president of the Illinois Manufacturers Association, told FOX Business. “The lack of stability, it has hurtled out of control in the last year or so.”
On Friday, the Illinois House gave initial approval to a $36.5 billion spending package for fiscal year 2018. The bill still requires more rounds of voting within the chamber and then approval by the Senate – a process that could very well extend beyond the Friday deadline.
Home to the business hub of Chicago, Illinois houses the headquarters of countless companies, including Walgreens (NASDAQ:WBA), Archer Daniels Midland (NYSE:ADM), Caterpillar (NYSE:CAT), John Deere (NYSE:DE) and Boeing (NYSE:BA). However, Baise said even as the manufacturing base in the state shrinks, companies haven’t been able to rely on the state to step in due to the paralyzing fiscal impasse.
“We’re retiring on average about 10-12 percent of the manufacturing workforce every year and we’re not producing replacements for those particular jobs … [but] until you get the basics of a budget figured you get those priorities pushed down the line,” Baise said.
Illinois has a backlog of unpaid bills worth $15 billion; it owes billions to institutions ranging from medical providers to public universities. It also has more than $250 billion in unfunded pension liabilities, annual payments of which could be cut if a final deal isn’t struck.
“The state has … no real plan to address [the pension problem],” Baise said. “The big question is ‘why can’t they get something done?’”
Businesses are far from the only ones that have been impacted by the impasse. In fact, Illinois’ own credibility is at stake. Failure to strike a budget agreement by the end of the state legislature’s annual session on May 31 resulted in a critical credit downgrade for the country’s fifth largest state to Baa3, the lowest of any state and only one level above non-investment grade — also known as junk. Illinois has received 8 downgrades in as many years and most states are rated at least 8 levels higher, according to Moody’s. The prospect of yet another fiscal year without a spending deal has sparked concerns of a subsequent credit downgrade.
“The negative outlook connotes downward pressure on the rating and the heightened risk of another downgrade anytime in the next 12-24 months,” a Moody’s spokesperson told FOX Business Friday.
Illinois could become the first U.S. state ever to receive a junk rating, meaning the state would be at a high risk of being unable to repay its debt and having to pay in order to be able to borrow money. House Speaker Michael Madigan (D-Ill.) asked credit rating agencies on Friday to hold off on any further downgrades while the State Assembly attempts to iron out a deal.
The state government in Illinois is split between a Republican Governor, Bruce Rauner, and a legislature that is controlled by Democrats, which has resulted in paralyzing gridlock since 2015. For about 24 months the state has remained afloat on court-ordered spending measures and continued appropriations.