*** UPDATE 1 *** From Catherine Kelly in the governor’s office…
“Fitch’s action further demonstrates the importance of reaching bipartisan agreement on a truly balanced budget and changes that will grow our economy and bring new jobs to our state.”
*** UPDATE 2 *** From John Patterson, spokesman for Illinois Senate President John Cullerton…
While unfortunate, this was expected.
The looming threat was among the many reasons why the Senate is working on a comprehensive budget and reform plan. The goal is to end the nearly two-year impasse and restore financial stability.
If there’s a silver lining, it would be that hopefully this adds to the growing urgency to pass the Senate’s plan and get a comprehensive budget for the state.
*** UPDATE 3 *** Treasurer Michael Frerichs…
“Our credit rating suffers because the leaders in the General Assembly and the Governor will not negotiate an honest budget,” Frerichs said. “This singular focus on non-budgetary items is silently ripping money out of the pockets of everyone who lives in this state.”
“Borrowing costs money. Borrowing without a budget costs even more money. We know a budget will bring down our borrowing costs and yet we still have a leadership team that chooses not to negotiate. We can do better.”
*** UPDATE 4 *** Democratic Governors Association…
“Bruce Rauner’s failed governorship continues to hurt Illinois jobs and cost Illinois families,” said DGA Communications Director Jared Leopold. “Over and over again, Governor Rauner has sacrificed Illinois’s economy to protect his special interest friends. Today, Illinois families and business are paying
* And from Illinois Working Together Campaign Director Jake Lewis…
[ *** End Of Updates *** ]
“To borrow a phrase from Fitch Ratings, Bruce Rauner has been an ‘unprecedented failure’ as the governor of Illinois. Today’s downgrade, the sixth under Gov. Rauner, is yet another indicator of the damage the governor has inflicted on Illinois and its people during his time in office. According to Fitch, the budget impasse has ‘fundamentally weakened’ the state. It will take years for Illinois to recover from Rauner.
“As residents and college students flee Illinois in record numbers, it is time for the governor to do something he has failed to do in his first two years in office: listen. The governor must drop his extreme political agenda for good and work to pass a responsible, fully-funded budget.”
* From Fitch Ratings…
Fitch Ratings has downgraded the following ratings of the state of Illinois:
–Issuer Default Rating (IDR) to ‘BBB’ from ‘BBB+;
–$25.9 billion in outstanding general obligation (GO) bonds to ‘BBB’ from ‘BBB+’;
–$431 million Illinois Sports Facilities Authority sports facilities bonds (state tax supported) to ‘BBB-’from ‘BBB’;
–$2.6 billion Metropolitan Pier and Exposition Authority McCormick Place expansion project bonds to ‘BBB-’ from ‘BBB’;
–$267.8 million city of Chicago motor fuel tax revenue bonds to ‘BBB-’ from ‘BBB’.
The Rating Watch Negative is maintained.
Fitch warned it would downgrade the ratings if the state didn’t have a budget by the end of January.
* The explanation…
KEY RATING DRIVERS
The downgrade of Illinois’s IDR and related ratings reflects the unprecedented failure of the state to enact a full budget for two consecutive years and the financial implications of spending far in excess of available revenues, which has resulted in increased accumulated liabilities and reduced financial flexibility. Even if the current attempts at a resolution to the extended impasse prove successful, Fitch believes that the failure to act to date has fundamentally weakened the state’s financial profile.
The Negative Watch reflects Fitch’s expectation that the state’s implementation of a solution, whether temporary or permanent, will be a challenge in the current political environment and that in the interim the state will continue to delay and defer payments in lieu of balancing the budget. While Fitch acknowledges that there is a plan being developed in the state Senate that contains elements that could ultimately resolve the impasse, its passage is uncertain and the timing of implementing solutions is unknown. Fitch expects to resolve the Rating Watch within the next six months based on an assessment of the state’s fiscal trajectory as it starts fiscal 2018. If the state continues on the current path, a further downgrade would be warranted.
Illinois has failed to capitalize on the economic growth of recent years to bolster its financial position. Rather, the decision to allow temporary tax increases to expire and the subsequent failure to develop a budget that aligns revenues with expenditures have resulted in a marked deterioration in the state’s finances during this time of recovery. Once again, the state has displayed an unwillingness to utilize its extensive control over revenues and spending to address numerous fiscal challenges.
* Fitch projects revenue performance will “continue to track slow economic growth,” and claims it is “unlikely that reductions in state spending alone would be sufficient to achieve budgetary balance given the magnitude of the current budget gap.”
Operating Performance: ‘bbb’ factor assessment
Illinois’ operating performance, both during the great recession and in this subsequent period of economic growth, has been very weak. The failure to address a long-standing structural budget gap with permanent and comprehensive solutions, whether revenue or expenditure, has left the state with an gaping hole in its operating budget and increasing budgetary liabilities.
* On the Senate’s “grand bargain”…
The state Senate has put forth a series of bills that have the potential to lead to a compromise that will resolve the impasse. The Senate bills include raising the state income tax and other revenue measures, debt issuance to reduce accumulated budgetary liabilities, pension reforms, aid to Chicago public schools, and non-budgetary reforms sought by the governor, including a freeze on property taxes, workers compensation reform, and some form of term limits. These proposals, if they proceed through the full legislature and are signed by the governor, have the potential to meet the requirements to stabilize the Illinois IDR and related ratings. However, their passage is uncertain as is the timing of the implementation of any solutions.
* A look ahead…
BUDGET SOLUTIONS: Failure to enact a balanced budget for fiscal 2018 would result in a further downgrade. Successful implementation of measures to enact a structurally balanced budget and reduce accumulated budget liabilities would stabilize the credit.
LIQUIDITY: The rating is sensitive to a material reduction in the state’s ability to manage within available revenues through discretionary payment deferrals. Furthermore, failure of the state to make its statutorily required debt service transfers as scheduled, 12 months in advance on a rolling basis, would result in an immediate downgrade of the rating to below investment grade because it would suggest that the state’s liquidity pressures are presenting a risk to bondholder interests that has not been evidenced to date.