Credit Agency Downgrades Illinois Over Budget Chaos

By Stephen Gossett in News on Jun 10, 2016 6:27PM

Moody's Investors Services on Thursday downgraded Illinois' credit rating one notch to a paltry Baa2. For those who don't have a financial decoder ring, that's two levels above "junk." The grade is attributed to the state's gobsmacking $26 billion in debt. Standard & Poor's followed soon after with its own downgrade.

The culprit, of course, is the never-ending, fiery pileup known as the budget impasse, coupled with unaddressed revenue lost from last year’s income tax cuts. The current budget gap is at least 15 percent of operating expenditures, and-barring a miracle agreement in Springfield-Moody's projects a roughly $10 million backlog in the near future.

"This downgrade is going to cause tens of millions of dollars in additional borrowing costs that could have been used to help our most vulnerable citizens and, instead, will just evaporate into higher debt service costs," Civic Federation President Laurence Msall told according to the Sun-Times.

As the budget impasse drags into its second year, more devastating effects potentially loom for the state, including billions of dollars lost in public health services, college and university support, and Chicago Public Schools financing-which could threaten the start of the public school year.

The Moody's report does positively note the state’s strong economic base and budget-related legal fail safes. In the next breath, it adds, "However, the long-running partisan standoff is impeding Illinois' ability... to make progress addressing unfunded retiree benefit liabilities that far exceed those of other states.” True spit.

The credit agency's recommendations for an upgrade will certainly ring familiar: a long-term plan for pension reform, a legal framework to prevent unpaid bills, and "recurring fiscal measures" to maintain balance.

The city of Chicago suffered its own credit devaluation in May of last year.