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Question of the day

Monday, Apr 6, 2020

* From Sunday on the blog

S&P has revised its state of Illinois credit outlook from BBB-/Stable to BBB-/Negative.

That means Illinois is now just one tiny tick above non-investment grade status, or junk bond territory.

We’ve been here before. S&P assigned a BBB-/Negative rating to Illinois in June of 2017, the month before several Republicans broke ranks with Gov. Bruce Rauner and ended the two-year budget impasse.

S&P raised Illinois’ outlook to BBB-/Stable in July of 2019.

The problem here is that, by all accounts, this COVID-19 problem is nowhere near the end.

Brace yourselves.

* Greg Hinz followed up last night

Pritzker’s office said in a statement: “The state of Illinois is committed to working through the difficult challenges brought on by COVID-19. The state prioritizes its debt payments and will ensure we stay on track through this crisis. By working together, Illinois will get through this crisis and rebuild our economy with new resolve.”

* The Question: Do you think Illinois can avoid junk status? Explain.

- Posted by Rich Miller        

30 Comments
  1. - City Zen - Monday, Apr 6, 20 @ 2:33 pm:

    Only if the ratings agencies revise their definition of junk.


  2. - Alex Ander - Monday, Apr 6, 20 @ 2:36 pm:

    Hard to say. With everyone shut down revenue will be way down for the state.


  3. - Socially DIstant Watcher - Monday, Apr 6, 20 @ 2:43 pm:

    Illinois has never missed a bond payment. If it keeps that up, it may well avoid junk status.

    Doing that may require wrenching cuts to other programs. It’ll be a juggling act, certainly.


  4. - Shytown - Monday, Apr 6, 20 @ 2:46 pm:

    Hard to say but shouldn’t they be hitting the pause button given the crisis?


  5. - Grandson of Man - Monday, Apr 6, 20 @ 2:53 pm:

    Perhaps if it keeps making the bond payments it never missed. This makes the need for a graduated income tax in the future very profound.


  6. - RNUG - Monday, Apr 6, 20 @ 2:56 pm:

    I’m going to be very cynical and say the bond rating agencies self interest will keep Illinois out of junk status because they don’t want to be the straw that breaks the whole financial system. They will bluster about it, but they won’t do it. And they will be right because Illinois hasn’t missed a bond payment and is unlikely to do so.


  7. - 47th Ward - Monday, Apr 6, 20 @ 2:56 pm:

    I think it’s possible we’ll be downgraded to junk status. But if that happens, I doubt we’ll be alone. I think there are some other states that won’t be far behind when it all hits the fan.


  8. - 47th Ward - Monday, Apr 6, 20 @ 2:56 pm:

    Sorry, that was a long way of saying no to the question.


  9. - Oswego Willy - Monday, Apr 6, 20 @ 3:02 pm:

    === Do you think Illinois can avoid junk status?===

    Yes.

    “Why?”

    *Only* because of our constitution and how it deals with this issue.

    That is the *only* reason I’m a “yes”


  10. - Donnie Elgin - Monday, Apr 6, 20 @ 3:05 pm:

    Junk for sure

    “How did you go bankrupt?” Bill asked.
    “Two ways,” Mike said. “Gradually and then suddenly.”
    “What brought it on?”
    “Friends,” said Mike. “I had a lot of friends. False friends. Then I had creditors, too. Probably had more creditors than anybody in England.”

    source: Ernest Hemingway “The Sun Also Rises”


  11. - Flat Bed Ford - Monday, Apr 6, 20 @ 3:07 pm:

    Maybe. True that Illinois has never missed a bond payment… but very tough choices are looming in the next budget. Things are going to get cut and skipping a bond payment will happen before a RIF or skipping of union pay increases. If that holds true Pritzker can claim the title of Governor Junk.


  12. - Captain Obvious - Monday, Apr 6, 20 @ 3:10 pm:

    What RNUG said is the most likely possibility. It is a big line to cross with much uncertainty about the consequences.


  13. - revvedup - Monday, Apr 6, 20 @ 3:15 pm:

    I’ll go out on a custom-made limb and say right now bond ratings do not matter. Long term the State was heading in the right direction overall, and when things return to more normal situations, taxable spending and income will increase. This is a short-term problem compared to Illinois long-standing pension and budget issues.


  14. - West Sider - Monday, Apr 6, 20 @ 3:25 pm:

    I’m with RNUG. This is bigger than Illinois, and the solution will have to be bigger as well. Pushing Illinois into junk, might be Lehman Bros all over again- that serves no purpose.


  15. - JT11505 - Monday, Apr 6, 20 @ 3:26 pm:

    Given that other states are in the same situation, maybe they’ll start grading on a curve /s


  16. - Occam - Monday, Apr 6, 20 @ 3:35 pm:

    While the rating agencies might not officially downgrade, the market may, indeed, price Illinois debt as if it was junk.


  17. - Joe Bidenopolous - Monday, Apr 6, 20 @ 3:39 pm:

    No - this will go on longer than most people are expecting right now. But, we won’t be alone.


  18. - Rich Miller - Monday, Apr 6, 20 @ 3:51 pm:

    ===may require wrenching cuts to other programs===

    More likely delayed payments to vendors.


  19. - Jocko - Monday, Apr 6, 20 @ 4:09 pm:

    Yes. As wordslinger used to say, “let me know the next time Illinois bonds don’t sell out in minutes.”


  20. - Biker - Monday, Apr 6, 20 @ 4:44 pm:

    K, so in a global pandemic banks get free money to loan and we can’t get a thousand ventilators, oh and by the way our credit rating takes a hit because the Federal Government can’t stay off twitter and fill out a Purchase Order.


  21. - City Zen - Monday, Apr 6, 20 @ 4:46 pm:

    ==let me know the next time Illinois bonds don’t sell out in minutes.==

    Investors will take on risk for the right price.

    There are about a dozen AAA-rated states. Would you be willing to pay the same interest rates for Illinois bonds as any one of those states, even though IL (much like those other states) has never defaulted? Probably not. Would IL bonds sell as fast if the interest rates were the same as those states? Probably not.


  22. - Last Bull Moose - Monday, Apr 6, 20 @ 4:47 pm:

    No. But only because the Feds will ship money to the states as grants. Otherwise the balanced budget requirements will cause deep cuts and worsen the recession.


  23. - Oswego Willy - Monday, Apr 6, 20 @ 4:48 pm:

    === Investors will take on risk for the right price.===

    (Sigh)

    No. Investors understand the Illinois constitution.

    You know this, but you think folks here don’t know that too.

    === Would IL bonds sell as fast if the interest rates were the same as those states? Probably not.===

    Always asking the wrong question.

    It’s knowing Illinois, and knowing Illinois’ constitution.


  24. - Demoralized - Monday, Apr 6, 20 @ 4:58 pm:

    ==Investors will take on risk ==

    Well then they should be ok with Illinois bonds since: (a) there are no risks involved; and, (b) they get a great return on their investment


  25. - Blue Dog Dem - Monday, Apr 6, 20 @ 5:33 pm:

    Would be curious to know TRS funding levels these days. I dont know about the junk status, but we are going to have lots more issues than I want to imagine.


  26. - thoughts matter - Monday, Apr 6, 20 @ 7:38 pm:

    ===may require wrenching cuts to other programs===

    ==More likely delayed payments to vendors.==

    Likely beginning with the state employees health care again. Last time claim payments were between 18-24 months late and people were getting collection notices.

    Then there’s the possibility of furloughs again.


  27. - Keyrock - Tuesday, Apr 7, 20 @ 12:01 am:

    I was thinking iof Wordslinger, too, Jocko,


  28. - An interested party... - Tuesday, Apr 7, 20 @ 10:27 am:

    I believe that the rating agencies have already given the state the benefit of the doubt and have no choice but to downgrade. Sure, the rating agencies and institutional investors have read the constitution. But, they also read Puerto Rico’s and there isn’t much of a distinction (and, you know what happened there). The Comptroller has already noted that the unpaid accounts payable balance is going to rise. I’m surprised nobody has discussed pension funding. Given what has happened in the equity markets, the state’s overall pension funding will likely drop below 30%. That will weigh heavily on the ratings.


  29. - Oswego Willy - Tuesday, Apr 7, 20 @ 10:30 am:

    === Puerto Rico’s===

    Puerto Rico is not a state.

    Keep up.


  30. - Bruce - Tuesday, Apr 7, 20 @ 1:58 pm:

    This may be the predicate for pension reform as it is something easy to present to the public as the root of the problem, even though it is not.


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* Pritzker implores protesters to "not force a difficult second rebuilding on our small businesses in the course of expressing your very justified pain"
* Reader comments closed for the weekend
* Pritzker thanks Dr. Ezike, extends financial protections, points to progress, says no more daily COVID-19 briefings - Calls Trump tweets "reprehensible" - "I want to send my condolences to the family of George Floyd, and also to every African American in this country" - Defends budget decisions - Credits Illinoisans for progress against virus - No bill signing ceremonies - Hopes testing progress continues - "It seems as if President Trump is withdrawing us from the rest of the world" - No out of state travel plans - Talks contact tracing - Asks Illinoisans to be careful during reopening - Will sign Medicare for undocumented seniors bill - Refuses to criticize Lightfoot for Trump comments - Talks about difficulties in securing testing locations - Dr. Ezike and Pritzker respond to question about what they've learned about themselves and leadership - "We're no longer in a stay at home order"
* 1,622 new cases, 86 additional deaths
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