Illinois’ unpaid bills are expected to reach $14 billion by summer 2017, according to a new report from Moody’s Investors Service.
Gov. Bruce Rauner and the General Assembly reached an agreement in June on a stopgap budget to fund state operations through the November elections. But the stopgap budget was a temporary measure to keep the state running; it was not a full budget and did not include structural or spending reforms.
Consequently, Moody’s has speculated the state will manage its mounting bills in its usual way: by borrowing money.
“Moody’s does not anticipate Illinois would suspend its statutory debt service requirements to continue funding operations,” spokesman David Jacobson said, according to the Chicago Tribune. “But if the bill payment backlog becomes sufficiently large, the state could resort to borrowing from debt service funds for operating needs. That or similar actions would signal a deterioration in Illinois’ credit position.”
A year-long impasse between Illinois’ Republican governor and Democrats who control the legislature left the state with an incomplete fiscal 2016 budget and only a six-month spending plan for fiscal 2017, which began on July 1.
A bipartisan legislative commission has projected the stopgap budget will push the state’s general fund deficit to a record $7.8 billion. As a result, Illinois’ chronic pile of unpaid bills is likely to balloon to as much as $14 billion, surpassing a previous high of $10 billion in 2012, according to the credit rating agency.
Payments on Illinois’ approximately $26 billion of outstanding GO bonds have not been affected by the current political impasse.
The state, which Moody’s rates Baa2 with a negative outlook, already has the lowest general obligation credit ratings among the 50 states due to its struggles with a $111 billion unfunded pension liability, a structural budget deficit, and political gridlock.
The rating agency also noted that some of the $9.75 billion in cash balances the state had as of March 31 in nonoperating funds could be tapped for debt service on GO bonds.
Both sides of the budget battle in Springfield have said they will not revisit the state’s budget crisis until after the November elections. The temporary budget plan expires at the beginning of 2017.
–Staff & wire reports