Investment firm downgrades Illinois bonds

<p class="p1">SPRINGFIELD – Moody’s Investor Services on Thursday, Oct. 22, downgraded its ratings on Illinois bonds.</p><p class="p2"> 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. </p><p class="p2">Moody’s 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. </p><p class="p2">The outlook for all three types of bonds remains negative, Moody’s said. </p><p class="p2">“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.</p><p class="p2">“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.</p><p class="p2">The rating agency cited three developments it said could make the rating go up:</p><p class="p2">•Implementation of a realistic plan to provide long-term funding for pension obligations.</p><p class="p2">•Progress in reducing the state’s unpaid bills and adoption of legal framework to prevent renewing the build-up.</p><p class="p2">•Development of a structurally balanced and sustainable budget.</p><p class="p2">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. </p><p class="p2">The same holds true, Moody’s said, should the state continue to let its unfunded pension liabilities grow.</p><p class="p2">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,” said Rauner spokeswoman Catherine Kelly.</p><p class="p2">Democrats see things differently.</p><p class="p2">Illinois State 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,” said Cullerton spokeswoman Rikeesha Phelon.</p><p class="p2">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. </p><p class="p2">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.</p><p class="p2">Moody’s on Oct. 19 said it was concerned by the news that Illinois would not make its November pension-systems payment of about $560 million. </p><p class="p2">Pension checks will continue to go out, and the state will attempt to make up for the late payments in the spring.</p><p class="p3"> </p><p class="p3"> </p>