Illinois Senate mulls fate of budget that would end stalemate

By Karen Pierog and Dave McKinney

CHICAGO (Reuters) - The fate of Illinois' first budget since 2015 moved to the Senate on Monday after the House of Representatives completed its work by approving legislation to implement a spending plan for fiscal 2018.

The measure, which passed in a 72-36 vote and includes a way to pay down the state's $15 billion unpaid bill backlog, follows the House's approval on Sunday of a $36 billion spending bill and a revenue bill boosting taxes by $5 billion that Governor Bruce Rauner has vowed to veto.

All three measures, which passed the Democratic-controlled chamber with the support of some Republicans, are destined for votes in the Senate.

John Patterson, a spokesman for Democratic Senate President John Cullerton, said the Senate will be in session on Tuesday "to vote on a balanced budget."

Earlier on Monday, Cullerton told reporters it would be “very difficult” to pass the House-approved budget package without support from Senate Republicans, who rejected a similar tax increase that passed the Senate with 32 Democratic votes in May. Now, 36 votes are necessary to pass the budget legislation.

"I don't want to call a bill and have it fail," Cullerton said.

He said he would like to re-enter negotiations with Republicans on stalled so-called reforms, including a local property tax freeze, sought by Rauner and his legislative allies in order to win their backing on a budget.

A stalemate between the state's Republican governor and Democrats who control the legislature has left the nation's fifth-largest state without a complete budget for two-straight fiscal years. While fiscal 2018 began on Saturday, lawmakers have been scrambling to piece together a spending and revenue plan to avoid Illinois becoming the first-ever U.S. state to be rated junk.

Fitch Ratings on Monday cited "concrete progress" on the budget front, but warned that a downgrade of its BBB rating was still possible in the case of a budget that is temporary, partial or that is enacted beyond the current legislative session.

S&P, which rates Illinois one notch above junk at BBB-minus, called the House action "a meaningful step."

"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," S&P said in a statement.

House Speaker Michael Madigan predicted Senate passage of the budget bills and said there would be an override effort in his chamber should the governor veto any of the measures.

He also condemned what he described as "undue intimidation" by the governor, which he said caused a mass defection of House Republicans away from Rauner’s positions on the budget.

The House-passed budget implementation bill includes a plan aimed at reducing the state's backlog of unpaid bills, which ballooned to about $15 billion due to the budget impasse, by $8 billion. One element of the plan calls for the issuance of up to $6 billion of general obligation bonds.

Illinois already pays the biggest interest rate penalty among states in the U.S. municipal bond market, and a junk rating would make selling new debt difficult and expensive.

In addition to the bonds, the legislation allows money to be borrowed from Illinois' myriad of funds allocated for specific purposes.

State Representative Greg Harris, the House Democrats' budget point person, said enough money has been identified only to cover debt service on $3 billion of bonds and that the rest of the debt could be issued once additional revenue is available.

(Editing by David Gregorio and Matthew Lewis)