* Bloomberg…

Without federal aid, Illinois credit pressures are mounting, and the state may have to borrow more even as officials seek to cut spending and balance the budget, according to S&P Global Ratings.

The coronavirus has exacerbated the worst-rated state’s challenges, including already large budget gaps and weak demographics, as the economic toll of the pandemic hurt revenue collections and increased costs.

“With the need for additional borrowing, an elevated bill backlog, and lingering substantial structural imbalance, Illinois could exhibit further characteristics of a non-investment-grade issuer,” S&P analysts Carol Spain and Geoffrey Buswick wrote in a report published Monday. S&P rates Illinois BBB-, one level above junk, with a negative outlook. […]

But S&P warned that the state will have difficulty repaying a large borrowing within the three-year Fed facility timeline, and taking out a loan to repay a short-term borrowing would increase the state’s fixed costs. The state has strong market access supported by the MLF, according to the report.

Subscribers have the full report.

* Barron’s…

llinois is the lowest-rated state in the U.S., with S&P grading it one tier above junk at BBB-. S&P’s bulletin isn’t an official warning about a downgrade (known as a watch), but the analysts do have a negative outlook assigned to the state’s credit rating, indicating they think a downgrade is more likely than an upgrade over the next year or two.

While Illinois has taken some steps to shore up its finances—a graduated income tax will be on the ballot this November—they may not cover the gap of income lost to the coronavirus pandemic. State officials have repeatedly warned about potential cuts to state services and funding, including educational funding.

“Illinois will likely cut spending if there is no further federal assistance by the end of September,” S&P analysts wrote in their bulletin. “We expect that [the state] will enact some budget cuts in fiscal 2021, but these will not likely be timely enough or sufficient to address the entire budget gap.”

* Bond Buyer…

Analysts will be closely watching for the results of the November referendum and action the legislature might take during its annual veto session slated for later that month.

“We expect lawmakers will act based on the outcome of the graduated income tax measure, likelihood of federal assistance, and revised fiscal estimates,” the report said.

The warning signs watched closely by rating agency analysts are also coming from the state’s growing bill backlog that stood at nearly $7.7 billion Monday. That’s up from $5.4 billion at the start of the fiscal year July 1 and the highest since fiscal 2018.

The backlog hit a high of $16.7 billion as the bills mounted in 2017 from the state’s two-year budget impasse and the state faced litigation from health providers.