Cash-starved Illinois enacted its first budget since 2015 after the House voted on Thursday to override Republican Governor Bruce Rauner's veto of the plan.
The Illinois Senate had previously voted on Tuesday to override the veto from Rauner, who fiercely opposed the 32% tax hike contained in the new budget.
The political drama was heightened by a hazmat situation at the Illinois capitol on Thursday that delayed the House vote. Just as the special House session was set to get underway, the building was put on lockdown for roughly two hours as fire officials investigated a suspicious white substance that was released in front of or in the governor's office, a fire official told CNN. The substance was not hazardous and there were no injuries.
Despite the $36 billion budget getting pushed through, Illinois remains in a financial mess following decades of mismanagement and the recent budget fight. The state has racked up $15 billion of unpaid bills and owes a quarter-trillion dollars in pensions to state workers when they retire.
Unfortunately, the budget compromise may not be enough to put Illinois back on a sustainable fiscal path.
Moody's said on Wednesday that it may still make Illinois the first state with a "junk" credit rating despite the $5 billion being raised by the tax hike. A downgrade would make Illinois the first state to receive a "junk" rating and could likely trigger higher borrowing costs for America's fifth-largest state.
The problem is that the budget compromise lacks "broad bipartisan support" and that may "signal shortcomings" in its effectiveness, Moody's warned.
Rauner, the Republican governor, called the budget a "disaster" that will "solve none of the problems" because it doesn't include methods to reform the state's unsustainable spending.
Under the terms of the agreement, Illinois personal tax rates will rise from 3.75% to 4.95%, while the corporate tax rate will go from 5.25% to 7%.
Rep. Steven Andersson, a Republican who supported the override of the GOP governor, said on the House floor that the past few days were "brutal" and that he received death threats and hate mail. But he said he felt he had no choice in his vote.
"We are going into freefall if we don't do this. Our options are this -- or financial meltdown," said Andersson.
Moody's raised concern that the budget deal doesn't address the $251 billion in funded pension liabilities the state faces. "So far, the plan appears to lack concrete measures that will materially improve Illinois' long-term capacity to address its unfunded pension liabilities," it wrote.
On Thursday, Moody's warned it may downgrade the credit rating of the Chicago Board of Education, citing the state's inability to provide operating aid to the district amid the budget standoff.
While the budget deal offers relief for the school district, Moody's said it may be "insufficient to alleviate its distressed financial position."
S&P Global Ratings said in a recent report that even with a budget it's likely Illinois finances will "remain strained and vulnerable to unanticipated economic stress."
The good news is the end of the budget standoff could ease pressure on social services and public colleges that rely on state funding. Everything from Illinois mental health services and domestic violence to public universities had been hurt by the crisis.
The budget fight became so contentious that even Governor Rauner and his wife appeared to be on different sides at the end.
The Ounce of Prevention Fund, an early childhood education foundation run by Diana Rauner, put out a statement earlier this week urging Illinois lawmakers to override her husband's veto.
Now that the budget fight is over, Illinois can begin to start working down its $15 billion of unpaid bills. A separate measure passed by state lawmakers would allow Illinois to borrow $6 billion to help pay down some -- but not all -- of those bills. That means Illinois will have to take on yet more debt to pay back its debt.
By Matt Egan, CNNMoney