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This just in…

Wednesday, Jul 29, 2009

* Illinois has been downgraded by Fitch, but it’s not as bad as it could’ve been

Fitch Ratings downgraded the state of Illinois’ general obligation bond rating on Wednesday to A, down two notches from AA-minus. Analysts cited the failure of the state to enact a budget that addresses its spending needs and structural deficit.

More

The rating is removed from Rating Watch Negative, where it was placed April 9, 2009.

The Outlook is Stable.

The downgrade reflects the significant scope of the budgetary problem and the failure of the state to enact a budget that fully addresses its current spending needs and its large structural budget deficit. The enacted budget relies heavily on non-recurring revenues, particularly the use of debt to finance current operations, which will contribute to continued difficulty in structuring a balanced budget in the future. […]

The extent of the current fiscal problem has been clear for several months as revenue estimates were downsized; however, comprehensive solutions have been repeatedly delayed.

Thank goodness it wasn’t a California-like downgrade.

Also, the state’s Build Illinois bonds were reaffirmed at AA.

- Posted by Rich Miller        

13 Comments
  1. - VanillaMan - Wednesday, Jul 29, 09 @ 3:39 pm:

    The Outlook is Stable.

    They must not live here.


  2. - Josh - Wednesday, Jul 29, 09 @ 3:58 pm:

    I guess this is good, because they are going to have to borrow more to pay vendors.


  3. - Ghost - Wednesday, Jul 29, 09 @ 4:14 pm:

    Josh, not if we don’t pay the vendors!


  4. - wordslinger - Wednesday, Jul 29, 09 @ 4:17 pm:

    –Also, there are large cash balances, reported at $6 billion, in other state funds that far exceed the current payables; any inter-fund borrowing or budget transfers would require legislative approval.–

    Where is that $6 billion?


  5. - interesting - Wednesday, Jul 29, 09 @ 4:37 pm:

    The BI stuff is interesting ..all of the non-transportation projects in the capital bill are funded through BI bonds–looks like wall street is ready for a deal


  6. - Vote Quimby! - Wednesday, Jul 29, 09 @ 5:04 pm:

    So….can anyone bottom-line this for us financial neophytes? Is there a direct effect on the budget?


  7. - wordslinger - Wednesday, Jul 29, 09 @ 5:14 pm:

    VQ, the state will have to pay more juice when it issues bonds. How much more will be determined by the market.

    Back in the day when I followed this stuff, a rule of thumb was a full rating grade was worth about half a percentage point, so being knocked down two notches would cost about one percentage point in interest.


  8. - Truthful James - Wednesday, Jul 29, 09 @ 5:49 pm:

    Fitch is one of the three rating services. The other two are Moody’s and Standard and Poor’s. Fitch is the newest of the three rating agencies. It will be interesting to see where the other two place the State of Illinois.

    The Outlook “Stable” refers not to the State but to the likelihood of an additional downgrade at this time.


  9. - Jack - Wednesday, Jul 29, 09 @ 6:24 pm:

    You won’t catch me buying any Illinois bonds. Does Fitch know that there isn’t cash to pay all of the current bills? The budget isn’t so much the problem as the cash flow. No cash equals pratically bankrupt or a junk bond rating.


  10. - wordslinger - Wednesday, Jul 29, 09 @ 6:26 pm:

    Jack, bonds always get paid first. They always have and always will. Vendors have to be content with watching the mailbox.

    When was the last time any state missed a bond payment? Doesn’t happen.


  11. - blackdem - Wednesday, Jul 29, 09 @ 8:40 pm:

    Where is all of the negative post like when the county was downgraded???? Stroger has balanced budget for three years mind you while the state and Mayor Daley are at record deficits..that is unless his veto stands..The spend then cry broke and we all act like that’s ok. Kudos to Stroger


  12. - hmmm - Wednesday, Jul 29, 09 @ 8:43 pm:

    Blackdem, aka, the Stroger campaign -

    The county was downgraded AFTER it hiked taxes to balance its budget.

    The state was downgraded because it didn’t hike taxes to balance its budget.

    Big difference. And you won’t get any Stroger sympathy here.


  13. - Vote Quimby! - Wednesday, Jul 29, 09 @ 9:00 pm:

    Plus, this was posted late in the afternoon so there may be more action in the morning…


Sorry, comments for this post are now closed.


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