No matter how soon it is resolved, the budget standoff between Gov. Jim Edgar and the General Assembly already has jeopardized Illinois` prestigious bond rating and injured hundreds of companies that do business with the state. As the impasse in Springfield dragged into its 15th day Monday, municipal-bond analysts warned that the next casualty of the political standoff may be Illinois` triple-A rating from Moody`s Investors Service and double-A-plus rating from Standard & Poor`s Corp.
Meanwhile, hundreds of vendors that sell the state everything from paper clips to police uniforms continue to lose money as the state stops paying its bills-many of them already 60 days overdue-until a fiscal 1992 budget is approved.
Bond analysts and bond-rating agency officials say that if the stalemate drags on and ends without significant steps to correct the widening revenue-spending gap that became apparent late last year, Illinois probably will lose top-shelf bond ratings.
Moreover, as the wrangling in Springfield goes on, Wall Street is beginning to wonder whether Illinois-like New York and other states-has lost the political will to conduct its fiscal business in a timely, responsible manner. This year, 10 states passed their own deadlines for approving a budget.
Credit-rating downgrades would have a long-term impact on how much the state and a host of state agencies, such as universities and certain civic-center authorities, have to pay for borrowing.
Short-term political confrontations don`t result automatically in downgrades of long-term bonds. But George Leung, managing director for state ratings at Moody`s, said the ”risk of political paralysis” is a factor in credit-rating decisions. ”A key to any credit judgment has got to be the issue of the political will to deal with problems,” he said.
”We`re looking for a resolution of this problem, but it doesn`t look like they`re ready to resolve it,” said Todd Whitestone, a managing director for Standard & Poor`s.
”We talk to the rating agencies every day, and they are concerned about the fact that this is dragging out,” said George Hovanek, Illinois` deputy budget director. But he said the Edgar administration has a credible budget plan that should support the current bond ratings.
Some bond traders disagree. ”I think a credit downgrade is inevitable,” said Stephen Leslie, sales manager for M.R. Beal & Co., a municipal bond-trading firm in New York. ”They`ve been fortunate that they don`t have any general obligation issue (coming to market during the impasse).”
Others are more circumspect, saying there`s still time to balance revenues and spending in a way that will send positive long-term signals to the bond market. Mark Muller, an assistant vice president and portfolio manager for Van Kampen Merritt Inc. in Lisle, said Illinois bonds are trading in a normal range and a downgrade can be avoided.
”I believe the market has discounted the short-term problems and that market believes the State of Illinois will address these issues,” he said.
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In February, Standard & Poor`s put Illinois` $4.28 billion of outstanding general obligation bonds on its CreditWatch list with negative implications, which means the agency is reviewing the state`s fiscal health with an eye to a downgrade.
Standard & Poor`s Whitestone noted that Illinois ended its 1991 fiscal year on June 30 with a cash balance of only $99.5 million, achieved largely by not paying bills due at the end of the year.
”It`s incongruous to have a rating of double-A-plus and the extremely low balance that Illinois has,” he said. Whitestone said he expects Standard & Poor`s to make a judgment about the Illinois rating once it studies the particulars of the budget approved by the legislature.
”They`re going to resolve it, but the question is, are we going to like it?” he said.
The Illinois Bureau of the Budget estimates the state will have to spend a record $890 million of fiscal 1992 revenues to pay for bills still owed on June 30, up from $586 million in ”lapse-period” spending last year. The bureau estimates the figure will drop to $590 million next year, but James Ofcarcik, special assistant to Illinois Comptroller Dawn Clark Netsch, said lapse-period spending could climb to $1 billion at the start of fiscal 1993.
”There`s always been lapse-period spending in Illinois, but this year they let it rise to the hilt,” Whitestone said. ”If they`re just going to let it ride and let it get bigger in the following years, you`re just digging a deeper and deeper hole. (In that case) they`re not going to get the rating they want.”
Since the impasse began, the comptroller`s office has been directed not to pay bills for work done after June 31. But that doesn`t help the backlog of unpaid state bills, which, according to spokesman Rick Davis, now runs about 60 days for most bills.
”We`re holding $300 million in backlogged bills,” said Ofcarcik.
The brunt of the delay in bill-paying has been felt by nursing homes, hospitals and pharmacies, according to Davis.
”In the last six months we`ve been paying commercial vendors once we get the money,” he said. The backlog has grown since January as state expenditures increased while revenues, slowed by the recession, fell below predictions, he said.
”We got hit with a double whammy,” Davis added.
And once the budget impasse is resolved, Davis said Illinois could fall another two weeks behind in its bills as it tries to catch up.
The next bond-market test of Illinois` fiscal health is expected in mid-September, when the state offers $150 million of college savings bonds. A $125 million general obligation bond offering in May was fairly well received, and no similar issue is expected until early next year.
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