Looming junk-bond status
Illinois currently sits just a step above junk-bond status. Since Gov. Rauner has taken office, our state’s bond rating has been downgraded seven times. Moody’s Investors Service as well as S&P Global Ratings have warned that Illinois could fall into junk bond status on July 1, 2017. No state in the history of the nation has ever been downgraded to junk-bond status.

A credit downgrade means that the state will have more difficulty borrowing money in the future and will likely be forced to pay higher interest rates on money it does borrow.

The investment firms noted that the state’s backlog of bills and pension debt is a key reason for the downgrade. The backlog of bills has crept above $15 billion, and the state’s pension debt is $130 billion. Moody’s noted that Illinois’ unfunded pension liability for five of its retirement programs increased by 25 percent in the fiscal year ending June 30, 2016.

To stabilize the rating, Moody’s said lawmakers need to agree on a budget that “more closely aligns revenues and spending, without relying on unsustainable fiscal measures.”

The state’s first general obligation bond payment of FY18 is due on July 3.


Transportation projects halt at the end of June

On June 30, the Illinois Department of Transportation will halt all work on existing projects if a budget is not passed. This will come as a huge expense to the state. According to the Transportation for Illinois Coalition, shutting down job sites will cost more than $3 million a day and will force approximately 30,000 Illinoisans to be laid off across the state.


Payments to state workers run out in July
The first payment to employee payrolls in FY18 is due on July 7 for 12 agencies, the largest being the Illinois State Police. On July 10, payroll for 10 additional agencies including the Department of Healthcare and Family Services, the Department of Public Health, the Department of Central Management Services and the Department of Aging. The additional 29 agencies receive payment for payroll between the 13th and 17th of the month.

State workers have continued to be paid in the absence of a budget due to a court order in St. Clair County. That court order will remain in place unless it is overturned.

 

Unable to pay schools in August
The first payment for schools of FY18 in order to open in the fall is due on August 10. Schools usually submit vouchers for state aid twice a month, on the 10th and the 20th.

Chicago Public Schools CEO Forest Claypool has said that CPS will open on time in the fall. As of May 31, the Chicago Tribune reported that the state is nine months behind on payments to CPS and owes the school district $467 million. CPS currently owes creditors $9 billion.

 

Social service agencies struggling
Social service agencies in the district and across the state have been forced to bear much of the burden of the budget impasse. After months of delayed payments, many have been forced to reduce services, cut back on staff or close their doors entirely. More social service agencies will suffer if the impasse continues and will no longer be able to provide their vital support to our communities. Increasingly, social service agencies have come forward stating that they will not be able to make payroll by the end of the summer.

 

Higher education downgrade
On June 9, Moody’s Investors Service downgraded seven Illinois universities, including five to junk-bond status due to the universities’ reliance on the state for funding support.

Moody’s cited two factors that could lead to improving universities’ credit rating:

  • “Resumption of steady and consistent state support contributing to improved operating performance”
  • “Significant and sustained growth in liquidity”

They also cited four factors that could lead to a further downgrade:

  • “Ongoing decline in directly paid state operating support or ‘on-behalf’ payments for pension and other post-retirement health benefits”
  • “Inability to further adjust to changes in state funding”
  • “Material declines in liquidity”
  •  “Continued enrollment and net tuition revenue declines”

You can read the full report here.

Illinois universities and community colleges have not received a full year of funding since 2015. Since then, universities have been forced to cut programs, implement furlough days and lay off staff.