(Bloomberg) -- Illinois bonds gained after the state’s senate approved a $38.5 billion budget with broad support from both Republicans and Democrats, signaling that the state may avoid a repeat of last year’s impasse that pushed its bond rating to the verge of junk.
The passage late Wednesday marked a break for a government that for the past three years has missed key deadlines for enacting its spending plan because of political bickering, gridlock and the failure of leaders to reach an agreement. If approved by the House Thursday and signed by Republican Governor Bruce Rauner, it would be the first time since he took office in 2015 that a full-year budget is enacted on time.
Illinois’s bonds, which had already rallied this month amid optimism that a budget would be approved on time, edged up in early trading Thursday, when they were the most frequently traded municipal securities. Taxable debt due in 2033, the most active, climbed 1.4 percent to 96 cents on the dollar, pushing the yield down 14 basis points to 5.49 percent, according to data compiled by Bloomberg. The broader municipal market was unchanged.
“The bond markets would be very pleased if we don’t have to go through this budget warfare cycle again,” said Paul Mansour, head of municipal research at Conning, which oversees about $9 billion of state and local debt, including Illinois bonds.
Lawmakers on both sides of the aisle commended the bipartisan efforts and compromise that they said made this year’s budget-making process work. The appropriations bill passed the Senate with 56 yes votes and two no votes.
“It is a budget given the reality of the makeup of the General Assembly,’’ said Senate Minority Leader Bill Brady, a Republican, who noted that while it’s not a spending plan that he would have drafted himself, “it is a budget given the reality and the philosophy of our governor that I believe we can all work with.’’
Starting June 1, a three-fifths majority of each legislative chamber is required to pass any bill, making approval of a spending plan more difficult. The state’s unpaid bill backlog stands at $6.7 billion, according to the comptroller’s office, which is less than half of what it was last July, when they piled up because of the stalemate.
"I don’t think anybody wants to go back to the havoc that we created by not having a budget,” said Senator Heather Steans, a Democrat and one of the budget negotiators. “Everybody knows we need to restore fiscal stability.”
The state is spending more on education, according to Senator Andy Manar, a Democrat. The plan includes cuts to the department of corrections and other operating areas as well as some pension savings through buyouts and other changes, according to Steans. The package also includes about $1.3 billion of supplemental spending for the current fiscal year, including all funds, Manar said.
The extra revenue from the tax levy enacted over Rauner’s veto helped narrow the budget gap this year, making negotiations easier. The shortfall between spending and revenue that the two sides are grappling was closer to $2 billion, rather than the approximately $7 billion hole last year, according to S&P Global Ratings.
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