Illinois Governor Says ‘Everything’ Is on Table for Budget

(Bloomberg) -- Illinois Governor J.B. Pritzker said “everything is on the table” as he discusses with lawmakers how to deal with next year’s more than $6 billion budget shortfall as revenue drops amid the coronavirus pandemic.

• Pritzker was responding to a reporter’s question about whether he will consider tools such as pension bonds and layoffs of state employees to fill the budget gap
• Federal aid will impact the budget decisions as he discusses spending plans with General Assembly members, Pritzker said
• “This is an all hands on deck challenge,” Pritzker said Tuesday during his daily press conference. “We are looking at everything”

Key Insights

• Pritzker’s budget office, which released his 2021 spending proposal in February, lowered its general revenue funds forecast on April 15 by $2.7 billion for the 2020 fiscal year and by $4.6 billion for 2021
  • The total shortfall for the year that starts July 1 may be $6.2 billion and expand to $7.4 billion if a proposed constitutional amendment to enact a graduated income tax does not pass in November
• Short-term borrowing is expected to serve as bridge through crisis: Pritzker
• Illinois and its local governments are expected to get about $4.9 billion from the CARES act
  • Two U.S. senators have proposed another bill to give states and municipalities as much as $500 billion in additional aid
• Illinois Senate President Don Harmon has asked for more than $40 billion of federal aid
  • His request is for block grants as well as aid for pensions, the unemployment trust fund, hospitals and direct payment to municipalities, according to an April 14 letter addressed to Senator Dick Durbin that was viewed by Bloomberg
    • Illinois’s five retirement funds had $137 billion of unfunded liabilities as of June 30
    • “My letter reflects the real world needs of Illinois as we seek to rebuild and recover from this ongoing global pandemic that is destroying our economy,” Harmon said in an email on Tuesday
• This budget cycle will “be difficult,” Illinois Senator Bill Brady, leader of that chamber’s Republicans, said Tuesday over the telephone before Pritzker’s remarks
  • “We are going to have to do our best to reconcile our priorities with what the taxpayers can pay,” Brady said
  • A plan to at least partially reopen the economy or allow some businesses to restart needs to be outlined, keeping safety in mind, he said

• “Some tough decisions will have to be made,” Illinois House Republican Leader Jim Durkin said in a telephone interview Monday

  • Durkin is supporting the idea of a so-called “maintenance budget” to avoid expanding state spending

Market Reaction

• The pandemic and its economic consequences “are likely to exacerbate the already substantial financial challenges that Illinois faces and test its resilience compared with other states,” according to a report Tuesday by Moody’s Investors Service

  • The firm’s rating for Illinois is Baa3, its lowest investment grade
  • On April 9, Moody’s cut Illinois’s outlook to negative from stable
  • Expected investment losses, tax revenue declines, large unfunded pension liabilities and a large unpaid bill backlog “are likely to worsen significantly, reducing future financial flexibility,” said Moody’s analysts led by Ted Hampton
• The state’s ability to make difficult choices will be important, said Ty Schoback, senior municipal credit analyst at Columbia Threadneedle Investments, which owns Illinois debt
  • Schoback expects any federal relief to be limited to direct budget impacts from the virus, not for “pre-existing credit issues.”
• Spread on Illinois’s 10-year general-obligation bonds over AAA benchmark securities has dropped to 3.58% from a peak of 3.99% on April 8

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