SPRINGFIELD — Moody’s Investor Services on Thursday downgraded its ratings on Illinois bonds.
The move comes just a few days after Moody’s issued a “credit negative” alert and Fitch Ratings dropped its ratings on Illinois-issued debt instruments.
Moody’s on Thursday downgraded Illinois’ $26.8 billion of general obligation bonds to Baa1 from A3; Illinois sales tax or Build Illinois bonds from Baa1 from A3; and the state’s appropriation bonds to Baa2 from Baa1.
The outlook for all three types of bonds remains negative, Moody’s said.
“The downgrades reflect weakening of the state’s financial position during 2015 and our expectation that an ongoing budget stalemate will lead to further deterioration,” Moody’s said in its announcement.
“Structural budget imbalance, accounts payable and other fiscal metrics are back-tracking, despite a favorable economic climate, leaving the state more vulnerable to the next economic downturn, barring unexpectedly strong and swift corrective actions,” the agency said.
The rating agency cited three developments it said could make the rating go up:
Implementation of a realistic plan to provide long-term funding for pension obligations.
Progress in reducing the state’s unpaid bills and adoption of legal framework to prevent renewing the build-up.
Development of a structurally balanced and sustainable budget.
On the other hand, Moody’s said, if the state does not address its budget problem and growing backlog of unpaid bills, the rating could be driven downward. The same holds true, Moody’s said, should the state continue to let its unfunded pension liabilities grow.
Republican Gov. Bruce Rauner’s administration sees the report as “another confirmation that years of unbalanced budgets, deficit spending and mismanagement have damaged Illinois’ fiscal health and major, structural reforms are needed to restore it,” Rauner spokeswoman Catherine Kelly said.
“This is more proof that instead of blocking all reforms and passing a broken budget that was $4 billion in the hole, the supermajority in charge of the legislature should partner with the governor to enact real reforms that will grow jobs and free up more resources to balance the budget.”
Democrats see things differently.
Senate President John Cullerton, D-Chicago, “joins the chorus of Republican leaders and rating agencies in asking the governor to set aside his personal agenda in favor of a budget plan that reverses the damage and dysfunction of the last year,” Cullerton spokeswoman Rikeesha Phelon said.
“The biggest issue facing Illinois is the state budget deficit,” House Speaker Michael Madigan, D-Chicago, said in a written statement.
“Two credit downgrades in less than a week have driven home that important fact. So I urge the governor, again, to put aside his agenda that Democrats and Republicans alike oppose — an agenda that will hurt middle-class and struggling families — and instead focus on a budget that helps all Illinoisans,” the speaker said.
Illinois is concluding its fourth month of fiscal year 2016 without an overall budget in place as the GOP and Democrats remain at an impasse that has changed little since May.
However, the state is spending at a rate said to put it on track for a $5 billion shortfall as it funds primary and secondary education and items mandated by court order and continuing appropriation.
Moody’s on Monday said it was concerned by the news that Illinois would not make its November pension-systems payment of about $560 million.
Pension checks will continue to go out, and the state will attempt to make up for the late payments in the spring.
Mark Fitton is a reporter for Illinois News Network.
House Speaker Michael J. Madigan issued the following statement after Moody’s Investor Services downgraded Illinois’ credit Thursday. The downgrade comes just three days after Fitch Ratings issued a downgrade of its own to the state’s credit rating:
“Two credit downgrades in the same week are certainly nothing to claim victory over and nothing to ignore. These downgrades will have direct consequences on state taxpayers. The interest rate on future debt repayment will be higher, costing taxpayers more for the foreseeable future.
“Yet despite the Fitch Ratings downgrade Monday, Governor Rauner has insisted on moving ahead with his agenda, which would damage middle-class families’ standard of living and drive down wages, despite the clear lack of support for his agenda from Democrats and Republicans alike.
“With its own credit downgrade Thursday, Moody’s made it very clear that what the state needs to do is focus on eliminating our budget deficit, creating a long-term plan to fund the state’s pensions and reducing the state’s bill backlog.
“We all want economic growth, more business investment and more good-paying jobs for hard-working families in every part of Illinois. That is not in question. These priorities can be achieved through a state budget that takes a balanced approach with some spending cuts and some new revenue, not by slashing services and programs that families count on.
“The biggest issue facing Illinois is the state budget deficit. Two credit downgrades in less than a week have driven home that important fact. So I urge the governor, again, to put aside his agenda that Democrats and Republicans alike oppose — an agenda that will hurt middle-class and struggling families — and instead focus on a budget that helps all Illinoisans.”