CHICAGO (Reuters) - Failure to embrace pending legislation in the Illinois Senate to address the state's longstanding budget problems would represent a "significant missed opportunity" and risk a credit rating downgrade and hurt economic growth prospects, S&P Global Ratings said on Monday.


S&P, which rates Illinois BBB with a negative outlook, said legislation boosting revenue and ending the state's budget impasse could improve the near-term fiscal outlook, although a rating upgrade would be at least two years away.


In a report, S&P said it takes no position on elements in the Senate legislation.


Illinois is limping its way through a record-setting second consecutive fiscal year without a complete budget due to an ongoing feud between the Republican governor and Democrats who control the legislature. A six-month fiscal 2017 budget expired on Dec. 31.


Last month, the Democratic and Republican leaders of the Senate unveiled a package of 13 bills aimed at ending Illinois' budget stalemate and addressing the state's deep fiscal woes. Measures include tax hikes, cost-saving pension changes and borrowing to pay down $10.7 billion in unpaid bills.


The legislation also includes items like workers' compensation changes and legislative term limits that Governor Bruce Rauner has insisted on during budget deliberations.

S&P chastised Illinois for a fiscal crisis it called "a man-made byproduct of policy ultimatums placed upon the state's budget process.

"We believe Illinois' distressed fiscal condition and dysfunctional budget politics now threaten to erode the state's

long-term economic growth prospects," S&P Managing Director Gabriel Petek said in a statement.

In a speech on Monday, Democratic Illinois Senate President John Cullerton said the legislation, with some revisions, will be voted on by his chamber this week. He warned that delaying a fix until after the 2018 election would mean the state's current credit ratings would be cut two notches into junk, the unpaid bill total would balloon to an estimated $24 billion and even bigger tax increases would be required.

"If not this plan, then what? And if not now, then when?" Cullerton asked.

Illinois, already the lowest-rated U.S. state, was downgraded last week to BBB by Fitch Ratings, which cited the state's "unprecedented failure" to act on budgets.

(Reporting by Karen Pierog and Dave McKinney; Editing by Jeffrey Benkoe and Dan Grebler)