(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 gapFederal 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 2021The 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 NovemberShort-term borrowing is expected to serve as bridge through crisis: PritzkerIllinois and its local governments are expected to get about $4.9 billion from the CARES actTwo U.S. senators have proposed another bill to give states and municipalities as much as $500 billion in additional aidIllinois Senate President Don Harmon has asked for more than $40 billion of federal aidHis 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 BloombergIllinois’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 TuesdayThis 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 saidA 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 gradeOn April 9, Moody’s cut Illinois’s outlook to negative from stableExpected 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 HamptonThe state’s ability to make difficult choices will be important, said Ty Schoback, senior municipal credit analyst at Columbia Threadneedle Investments, which owns Illinois debtSchoback 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
Get More: Senators Propose $500 Billion State and Local Government Rescue
(Updates with spread in last bullet)
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