Illinois is heading for junk bond status
Friday, Apr 21, 2017 - Posted by Rich Miller
* If nothing changes soon, then it’s not a question of “if” Illinois hits junk bond status, it’s “when”…
The lowest-rated U.S. state is headed toward its third year of an unprecedented budget impasse as Republican Governor Bruce Rauner and the Democrat-led legislature repeatedly fail to agree on how to plug chronic deficits and halt the growing backlog of unpaid bills.
Both Moody’s Investors Service and S&P Global Ratings have warned that Illinois could be downgraded again, while investors are already demanding higher yields on its bonds than they do from borrowers that are on the cusp of junk, according to data compiled by Bloomberg.
“It’s getting harder and harder to find a reason to be optimistic for a budget,” said Ty Schoback, a senior analyst in Minneapolis at Columbia Threadneedle Investments LLC, which holds some Illinois debt among its $22 billion of municipal holdings. “That being said, this is politics — you can’t predict. Two years ago, we were debating whether or not Illinois falls into BBB. Today, we’re debating whether it falls to junk status. If the status quo persists, what are we going to be debating in two years?” […]
Both Moody’s and S&P have warned of further credit deterioration if Illinois enters a third year without a spending plan. Both companies rank Illinois only two steps above junk with negative outlooks, signaling the rating could fall again. No U.S. state general-obligation bonds have ever been rated below investment-grade, according to data going back to at least 1970.
* From S&P’s rating downgrade of the U of I…
We will reassess the rating and outlook as new information becomes available and expect to resolve the CreditWatch status over the next 90 days. We could consider additional negative rating action, including a multinotch downgrade during the CreditWatch period if the rating on the state is lowered.
* From S&P’s rating report on ISU…
We could consider additional negative rating actions, including a multinotch downgrade during the CreditWatch period, if we lower our rating on the state.
* From S&P’s downgrade of City Colleges of Chicago…
“The CreditWatch reflects our view that there is at least a one-in-two
likelihood of a rating change within the next 90 days”
They’re strongly hinting at something very bad.
- anon2 - Friday, Apr 21, 17 @ 10:33 am:
Before Rauner was elected, every downgrade was all Pat Quinn’s fault. It’s different now, however, and the governor has absolutely no responsibility for downgrades on his watch.
- Norseman - Friday, Apr 21, 17 @ 10:35 am:
How’s that elect a businessman thing going for us all?
- Flynn's mom - Friday, Apr 21, 17 @ 10:36 am:
Thanks Rauner!!
- Almost the Weekend - Friday, Apr 21, 17 @ 10:37 am:
Rauner and Madigan Staff already writing up dueling press releases when no budget passes on May 31st.
- Foster brooks - Friday, Apr 21, 17 @ 10:37 am:
No budget until 2019,unless the courts intervene.
- Arock - Friday, Apr 21, 17 @ 10:38 am:
Yes he does, as well as every legislator and governor that voted for fictitious budgets for the last two decades.
- Oswego Willy - Friday, Apr 21, 17 @ 10:42 am:
===Yes he does, as well as every legislator and governor that voted for fictitious budgets for the last two decades===
Nope. It’s on Rauner.
The Rauner campaign told me so…
Rauner, in 2014…
===“Illinois’ credit rating has been downgraded 13 times under Pat Quinn and now, because of his failed leadership, our state’s economy and finances are still broken. Pat Quinn put special interest politics ahead of Illinois workers. We need to change direction before it’s too late.” – Rauner campaign spokesperson Mike Schrimpf===
Good try.
- Honeybear - Friday, Apr 21, 17 @ 10:44 am:
This is what A Corporate Coup is
And what Hedge funds want.
- Red fish blue fish - Friday, Apr 21, 17 @ 10:44 am:
If this comes to pass, Rauner will have succeeded in “shaking up Springfield”.
In all seriousness, this is yet another sign of Illinois descent into ruin. The worst part is that Rauner and his ilk will be shielded from the fallout. They’ll retreat back to their wealthy enclave in the north shore and pretend nothing is wrong.
As much as I enjoy poking fun at Rauner’s G-dropping affectation, the man is responsible for a growing amount of harm to everyday citizens.
- OurMagician - Friday, Apr 21, 17 @ 10:55 am:
So how do Reggie Phillips, Dan Brady, Carol Ammons, Norine Hammond, and Terri Bryant spin this in their districts? Madigan! Rauner! Or do they realize that the University’s are the key cogs in their districts and work together for a common cause, the survival of the largest beacon of hope in their districts. I won’t hold my breath or I will be downgraded as well waiting for any to realize they represent their districts and the people first, not their dear leaders.
- Earnest - Friday, Apr 21, 17 @ 11:03 am:
Credit rating downgrades only counted when Quinn was governor. /s
- Teach - Friday, Apr 21, 17 @ 11:03 am:
How can a group of Republican leaders convince Rauner to change his stance on abortion, yet fail to act on the higher ed debacle, since most of the regionals are in Republican districts?
- Anon - Friday, Apr 21, 17 @ 11:07 am:
This really just adds fuel to the fire for the argument that credit ratings agencies don’t actually have any bearing or reflection on the likelihood or even probability of a default.
- Anon - Friday, Apr 21, 17 @ 11:07 am:
This really just adds fuel to the fire for the argument that credit ratings agencies don’t actually have any bearing or reflection on the likelihood or even probability of a default.
- Flip357 - Friday, Apr 21, 17 @ 11:20 am:
Time to invest in some credit default swaps and hedge against Illinois.
- Anon1234 - Friday, Apr 21, 17 @ 11:23 am:
This may not be the place to ask, but can someone recommend an explanation of what the bond ratings mean in a state that can’t declare bankruptcy? What happens if the state tries to default on the debt? Is there any way for the state to avoid repaying the debt through a default? If so, then perhaps that is the plan.
- Daniel Plainview - Friday, Apr 21, 17 @ 11:25 am:
Don’t worry, the dreamy Richard Goldberg is hard at work bringing Radogno back into the fold to craft the most beautiful deal you ever saw, believe me. If the Dems end up not going along they alone will shoulder the blame for this.
- RNUG - Friday, Apr 21, 17 @ 11:42 am:
Rich, given your track record on stories this week, expect it to happen on Monday
- wordslinger - Friday, Apr 21, 17 @ 12:05 pm:
Logical and predictable consequences to the chosen course of action.
- Perrid - Friday, Apr 21, 17 @ 12:07 pm:
Rich, I don’t think that counts as a hint. I think that’s putting your megaphone next to someone’s ear and yelling. But some people just refuse to hear…
- Shemp - Friday, Apr 21, 17 @ 12:11 pm:
This.
===Arock - Friday, Apr 21, 17 @ 10:38 am:
Yes he does, as well as every legislator and governor that voted for fictitious budgets for the last two decades===
- Oswego Willy - Friday, Apr 21, 17 @ 12:22 pm:
- Shemp -
===“Illinois’ credit rating has been downgraded 13 times under Pat Quinn and now, because of his failed leadership, our state’s economy and finances are still broken. Pat Quinn put special interest politics ahead of Illinois workers. We need to change direction before it’s too late.” – Rauner campaign spokesperson Mike Schrimpf===
Reconcile this… No, I’ll wait, thanks.
- Sense of a Goose - Friday, Apr 21, 17 @ 12:23 pm:
===Arock - Friday, Apr 21, 17 @ 10:38 am:
Yes he does, as well as every legislator and governor that voted for fictitious budgets for the last two decades===
Only two decades? I would argue that every time pension payments were skipped and the ‘rainy day fund’ wasn’t funded, we had a fictitious budget. If it took us thirty + years to get here, we need at least a ten year plan to dig out. Twenty is probably more realistic.
- Anonymous - Friday, Apr 21, 17 @ 12:24 pm:
Some might say inevitable.
Serious question for Bruce Rauner’s defenders: If Bruce Rauner were deliberately and intentionally trying to make Illinois bonds into high interest/low risk instruments, what exactly would he do differently?
– MrJM
- ejpp - Friday, Apr 21, 17 @ 12:55 pm:
They are all at fault over the past 30 plus years. Therefore I will continue to keep asking as it applies to all the current and former elected officials. If any of us did our jobs so poorly and or refused to do our jobs which led to these type of results, would you still be employed?
- cannon649 - Friday, Apr 21, 17 @ 1:15 pm:
ejpp - correct - it has been more that 30 years however
Sorry but in Illinois people to continue not only keep and progress in these positions -
- RNUG - Friday, Apr 21, 17 @ 1:20 pm:
== . If it took us thirty + years to get here, we need at least a ten year plan to dig out. Twenty is probably more realistic. ==
The first reduced pension fund payment after the 1970 Constitution was in 1975, 40+ years ago.
The first skipped pension fund payments in Illinois were around 100 years ago.
I’ll note the funds today are more or less in the same shape as 1969 / 1970 which drove the adoption of the Pension Clause.
So a couple of decades to fix it is not out of line.
- GlimmerGirl - Friday, Apr 21, 17 @ 1:40 pm:
“Cusp of Junk” would be a good name for a band, or a yacht.
- Ron - Friday, Apr 21, 17 @ 2:33 pm:
Lol, so Illinois has over 100 year history of not paying for pensions so we guarantee that we will pay through a constitutional clause that makes private workforce citizens serfs?
- Oswego Willy - Friday, Apr 21, 17 @ 2:39 pm:
===so Illinois has over 100 year history of not paying for pensions so we guarantee that we will pay through a constitutional clause===
… to protect state workers from those either waiting to steal the pensions earned or legislate away the pensions without going thru changing a constitutional protection.
Mighty smart in 1970 to see gow things change…
- cdog - Friday, Apr 21, 17 @ 2:40 pm:
Rauner’s “debt dreams” coming true. /s
- Ron - Friday, Apr 21, 17 @ 2:52 pm:
Illinois doesn’t care about it’s privately employed citizens as long as a few coddled public workers get taxpayer guaranteed benefits regardless of market conditions.
- Ron - Friday, Apr 21, 17 @ 2:53 pm:
Prediction, Illinois will lose more people in 2017 than it did in 2016.
- Oswego Willy - Friday, Apr 21, 17 @ 3:01 pm:
===Illinois doesn’t care about it’s privately employed citizens as long as a few coddled public workers get taxpayer guaranteed benefits regardless of market conditions.===
They could apply to work for the state, heck you could apply to work for the state…
No one is stopping you or them.
- Ron - Friday, Apr 21, 17 @ 3:02 pm:
I have a feeling that Illinois can find state workers without taxpayer guaranteed pensions. Other states do.
- illini - Friday, Apr 21, 17 @ 3:11 pm:
I live in what has become a very red part of Southern Illinois. It is hard not to know, and even become friends with many who are now typically voting the straight Republican ticket all the time, in all elections and at all levels.
It infuriates me to no end that so many genuinely good people, neighbors and “friends” are so incredibly oblivious to what is is happening to our state, its Higher Ed, Social Service Agencies and the general economic health of our region. they simply do not comprehend the deliberate destruction that is happening right before their very eyes.
It does not help matters when the local papers are more interested in reporting High School sports, the local “crime” stories and promoting local fundraisers and events. The only “political” reporting is nothing more than the recycled diatribe that BVR and the ILLGOP give them and they print all this as “news”.
So it is probably no wonder that there is no outrage at what is happening and the deafening silence to reports as we see on CapFax. These voters never read anything even close to what we see here and have no comprehension of how dire out situation actually is.
Credit downgrades to the “junk” status, Higher Ed in a death spiral, all social service programs being destroyed, $13 Billion in unpaid vouchers and unfunded pension obligations mean nothing to most of these good people.
And when I even attempt to have any discussion with some of my neighbors they appear to be in total denial to the facts and the reality. And they blame everything on “Madigan” “Chicago” and “Machine Politics” without ascribing any culpability to Rauner.
@Wordslinger is correct - Southern Illinois has been sold a bill of goods - they bought it and do not yet realize how devastating this blind allegiance is hurting our state.
- Nor - Friday, Apr 21, 17 @ 3:13 pm:
=They could apply to work for the state, heck you could apply to work for the state…=
Then they would lose their stock options, Goldman-Sachs health insurance, wine club memberships, and golden parachutes.
Why would the Ron’s go to state when the free market values them so highly?
- Oswego Willy - Friday, Apr 21, 17 @ 3:15 pm:
- Ron -
Illinois has constitutional protected pensions.
Either change the constitution or get over it.
Stop yelling at clouds from your porch. Your continued lack of understanding on this is troubling.
Good luck.
- Ron - Friday, Apr 21, 17 @ 3:28 pm:
OW, it is your lack of understanding basic market principles that is troubling. I will be fine. Illinois is dying.
- Ron - Friday, Apr 21, 17 @ 3:29 pm:
Constitutions don’t pay bills.
- Oswego Willy - Friday, Apr 21, 17 @ 3:32 pm:
===…is your lack of understanding basic market principles that is troubling. I will be fine. Illinois is dying.===
Again, I guess you just can’t read…
Either change the constitution or get over it.
You, meaning you and your thinking is why that clause, I’m “guessing”, is there.
It’s there to protect, to guarantee, what others think isn’t owed.
So again… Either change the constitution or get over it.
Those are your choices.
- Ron - Friday, Apr 21, 17 @ 3:36 pm:
Of course the constitution needs to be changed. You can’t defy the market no matter what a law says.
- Ron - Friday, Apr 21, 17 @ 3:37 pm:
Nothing is “owed” past what has been earned.
- Oswego Willy - Friday, Apr 21, 17 @ 3:38 pm:
===…no matter what a law says.===
This isn’t an argument. This is a person that refuses to understand the importance of law. How wise in 1970 to think ahead about people like you, who dismiss law and contracts.
- Ron - Friday, Apr 21, 17 @ 4:15 pm:
Again, laws don’t matter. Math trumps laws.
- illini - Friday, Apr 21, 17 @ 4:15 pm:
@Willy - even when I detect or suspect a “new troll” I refrain from engaging.
Thank you for picking up the discussion where I have been reluctant. The sparing is always good and interesting reading.
- wordslinger - Friday, Apr 21, 17 @ 4:18 pm:
–Again, laws don’t matter. Math trumps laws.–
What are you babbling about?
- Oswego Willy - Friday, Apr 21, 17 @ 4:18 pm:
===laws don’t matter===
“Pesky Constitution”
(Tips cap to - illini -)
Happy Friday - illini -…
- 1st Time Poster - Friday, Apr 21, 17 @ 4:18 pm:
From most of the posts here the problem is in plain view. Too many on each side think “They” are right and so both Parties know their “Base” is with them and won’t budge or deal.
BOTH PARTIES CAUSED THIS MESS OVER THE LAST 30 YEARS! PERIOD!
Smoke & Mirror “Balanced Budgets”. Delayed or no pension payments. Ramps changed or ignored. Both Moody’s and S & P were quiet for decades. Unions got the constitution clause they wanted, and deserved, but said nothing as the Masters underfunded the pensions.
As a side note if all the State Pensions were in the same shape as IMRF there would be NO PENSION CRISIS!! Why? If you did not pay what you owed (Towns) they kicked you out!
OW if Everyone would start saying the truth, Both Sides are to blame then, and only then, the Dems and Repubs would start to get nervous and start to talk. They only care about one thing re-election.
- Hieronymus - Friday, Apr 21, 17 @ 4:27 pm:
Well “market forces” have been quite satisfactory for my “privately” funded pension (IRA) these last years. I wonder what the difference is? Oh, yeah, mine actually received their required deposits. Then I got to experience the magic of compound interest.
Of course when the required deposits are stolen away and spent on current consumption for the “coddled” Rons of this world, the the magic becomes the curse.
It seems having to wake up and face the hangover is what said Rons find truly “outrageous”.
- RNUG - Friday, Apr 21, 17 @ 4:36 pm:
== Nothing is “owed” past what has been earned. ==
Better tell the 7 justices on the IL SC; they have a different opinion … and those 7 are the ones that count.
- RNUG - Friday, Apr 21, 17 @ 4:41 pm:
== Unions got the constitution clause they wanted, and deserved, but said nothing as the Masters underfunded the pensions. ==
Let’s revisit history. 1975, IFT, etc Al sued the State because the State made less than the full pension payment. Unions lost; IL SC said the State didn’t have to make the full payment and could fund the pensions any way they wanted to.
The unions tried to get the full payments made by the State …
- @misterjayem - Friday, Apr 21, 17 @ 4:51 pm:
“laws don’t matter. Math trumps laws.”
Anyone who confuses “economics” and “mathematics” cannot be taken seriously.
– MrJM