May 24, 2018
When will Illinois have a budget for Fiscal Year 2019? The issue is of intense concern because of the State’s recent history: full budgets for FY2016 and FY2017 were never enacted, while the General Assembly enacted a budget for FY2018 over Governor Rauner’s veto six days into the fiscal year. Another long-term budget standoff between the legislature and Governor would undoubtedly be disastrous for the State. The question of whether it can be avoided looms as the State nears a technical deadline.
The current session of the General Assembly is scheduled to adjourn on May 31. Legislation passed after that date, including revenue and spending bills, does not take effect until June 1 of the following year unless passed by a three-fifths majority. Accordingly, May 31 is traditionally seen as an important deadline in the annual budget process. However, since political power is currently divided between a Democrat-controlled General Assembly and a Republican Governor with the power to veto, the path to a budget will likely involve compromise between the parties in the legislature and may effectively require a supermajority regardless of when it passes.
Moreover, passing a budget after May 31 is not without precedent: in 2004 budget negotiations ran past the beginning of the new fiscal year on July 1. The General Assembly did not pass a full budget for FY2008 until August 10, 2007, but the State operated with a one-month budget that the legislature approved on June 29. Until voters approved an amendment to the Illinois Constitution in November 1994, the deadline for legislative action with a simple-majority vote was June 30. The amendment followed a 12-day overtime session—until July 12, 1994—to pass the FY1995 budget.
The amendment establishing May 31 as a deadline did not prevent Illinois from setting the state record for the longest time without a budget, according to the National Conference of State Legislatures. Rhode Island had held that distinction since 1924, when it failed to pass a budget for an entire year. More recently, Kentucky went nine months without a budget in 2003 and Pennsylvania had no budget for nine months in 2016.
There are, however, also practical reasons to be mindful of May 31. If credit ratings companies interpret a failure to pass a budget by that date as an indicator that Illinois is entering a new impasse the State could be the first to be downgraded to a non-investment grade, or “junk bond,” rating. On June 1, 2017 both S&P and Moody’s lowered the State’s General Obligation rating to within one notch of junk and threatened more downgrades if the impasse continued. Both companies held off from further downgrades when a budget was enacted in July. Fitch, which currently rates Illinois two notches above junk, views July 1 as the crucial deadline for enacting a budget.
Even more important than the enactment date is the quality of the budget enacted. Thus far, few details have emerged from Springfield about ongoing negotiations to fill a budget gap. However, stopgap measures could include more generous revenue estimates, fund sweeps and savings from changes to pensions and employee group health insurance. The budget may include some of the Governor’s proposals that the Civic Federation considers to be aggressive assumptions, such as selling the James R. Thompson Center in Chicago. The best outcome for the State would be a bipartisan budget that is structurally balanced and begins to address the $129 billion unfunded pension liability, the $7 billion bill backlog and the lack of adequate reserves.