Still No Illinois Budget; S&P Downgrades Chicago Convention Center Bonds by 7 Notches; Will Schools Open?

Still No Illinois Budget Deal

The NFIB reports Still No Illinois Budget Deal.

No budget deal. Not even a one-month budget deal. Could a long summer turn into a long fall?

While Illinois has certainly had its share of extended sessions over the years, this one feels different. Normally the legislative leaders would be meeting daily, or at least weekly, to determine where they could find common ground with the governor.

Unfortunately, this time the “meetings” seem to be conducted in front of the press, with both sides unwilling to step across the proverbial line in the sand.

And, at the sake of over simplifying, Gov. Bruce Rauner has said he will “deal” with the Democrats on a tax hike if he gets his economic reform package. Democrats have said “no way” to his reforms and are now challenging him to hit the restart button and send them a new, balanced budget.

NFIB/Illinois is solidly in Rauner’s corner because he is fighting for many of the issues our members have been clamoring for: real workers’ compensation reform, changes in the prevailing wage laws, lawsuit reform and others. Illinois can’t, once again, increase costs for small businesses without giving them some relief.

S&P Downgrades Chicago Convention Center Bonds by 7 Notches

Thanks to the budget impasse in Illinois, debt repayments on convention center bonds were not made, placing the bonds in technical default. As a result, S&P Downgrades Chicago Convention Center Bonds by 7 Notches.

Illinois' ongoing budget battle led Standard & Poor's Ratings Services and Fitch Ratings on Wednesday to drop the rating on more than $3 billion of bonds issued for an expansion of Chicago's McCormick Place convention center.

Without a state budget for the fiscal year that started July 1, the Metropolitan Pier and Exposition Authority, which issued the bonds, informed bondholders on Monday that no tax revenue has been appropriated and that a $20.8 million monthly debt service deposit was not sent to the bond trustee last month.

S&P downgraded the bonds by seven notches to BBB-plus from AAA. Analyst John Sugden said the rating will remain at BBB-plus and on a watch list for another possible downgrade despite the legislation. Fitch said it downgraded the bonds to BBB-plus, from AA-minus.

In secondary market trading on Wednesday, the spread for some of the authority's bonds over Municipal Market Data's benchmark triple-A yield scale jumped to 136 basis points from 88 basis points on July 28. That involved $5 million of bonds due in 2028, according to MMD.

One Step Above Junk

BBB- is one step above junk, quite the downgrade from AAA.

The hot summer continues and both sides seem unwilling to bend. Thanks to a bill passed last year, legislators still get paid. But what about schools?

Schools Will Open

On June 24, Rauner signed HB 3763 which provides funding for elementary and secondary schools. However, the Sun Times reports Democrats warn 'Bigger Fights are Still on the Table'.

By assuring schools remain open during an ongoing budget clash, Rauner took off the table a potential political deathtrap for himself and instead turned the tables on Illinois House Speaker Michael Madigan, D-Chicago. Madigan has accused Rauner of holding the state budget hostage to Rauner’s proposed reform bills. After signing the legislation, it was Rauner who said he refused to allow Madigan to hold schoolchildren hostage over the speaker’s refusal to sign off on Rauner’s pro-business, anti-union reforms.

Lawmakers passed a series of budget bills before May 31, but in total, it remains some $3 billion to $4 billion out of balance. The state’s budget hole widened significantly in January, with the sunset of a statewide income tax increase. Rauner has said he would not sign off on a tax increase for FY2016 unless lawmakers approved changes to the workers’ compensation laws and freeze property taxes.

Pressure Off

By signing a measure to fund schools, Rauner took the pressure to "do something" off himself, but also off the legislature.

Net-net I take that trade.

So we sit. And I support Rauner not working out a tax hike deal with House leader Michael Madigan unless it involves significant reforms.

Reform Wish List

1. Allowing Illinois municipal bankruptcies
2. End of collective bargaining of public unions
3. Scrapping prevailing wage laws
4. Passage of right-to-work laws
5. Workers' compensation legislation
6. End of defined benefit pension plans for new hires

Rauner needs to hold out for far more than a workers' compensation trade. And I encourage the governor to hold out until he gets most of that list, however long that takes.

Someone needs to break the hold Madigan has over Illinois, and Rauner is the only one with that chance.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com