Despite months of negotiations and years of at-the-brink talks between Republican Governor Bruce Rauner and Democratic House Speaker Michael Madigan, Illinois failed to pass a state budget for the third year in a row over the weekend.
The shutdown stops a planned $2.2 billion in highway and bridge construction spending on 900 active projects and is predicted, even in the short term, to significantly impact construction and engineering companies and the state's economy as a whole. An American Road and Transportation Builders Association economic analysis forecasts a week-long shutdown of the state's transportation improvement projects will cost the construction industry and the state's taxpayers at least $34 million in the first week alone. Over time, the cost could grow to as high as $345 million per week in lost sales, wages, and economic activity.
Illinois has been operating under court-ordered spending, stopgap budgets, and ongoing appropriations mandated by law for those entire three budgetless years. As a result, the state's pile of unpaid bills, a barometer of its structural deficit, has topped $14 billion. Rauner wants measures to deal with the structural debt passed as part of any new budget. Measures such as a property tax freeze, restrictions on liability lawsuits and compensation for injured workers, term limits for lawmakers and a new, fair method for drawing officeholders' districts.
Madigan has balked at those ideas and, as the deadline passed, the Illinois House passed a revenue bill, which includes a 32% increase of the personal income tax rate by a 72-45 vote. It needed 71 to pass. Lawmakers later voted 81-34 to approve a roughly $36 billion spending plan which Rauner says he will veto if it reaches his desk. The bill faces an uncertain future in the Illinois Senate this week.
It's not just builders and construction companies who suffer from the uncertainty here in the Land of Lincoln, either. S&P Global Ratings has warned it will likely lower Illinois' creditworthiness to below investment grade in the near future. That means bonds will be harder to sell to finance future improvement projects. This is nothing new, of course, the state's bonds are only one-step above junk as it is. Public universities risk losing their accreditation and social service providers are closing their doors as payments dry up.
"The estimated costs of demobilization of the 900 active highway projects is $20 million, at a minimum," says Mike Sturino, President & CEO of the Illinois Road and Transportation Builders Association. "Keeping these projects closed would cost an estimated $14 million each week, displace thousands of construction workers, and have an expanded impact on other sectors of the economy like retail, manufacturing, and healthcare as a result."
Illinois' problems certainly didn't start today or even this year. It's taken decades for the state to spend itself to near-junk status. Still, with no budget and all state projects shut down at a cost of at least $14 million a week it's hard to imagine the state even beginning to repair its credit rating without a budget this week.