*** UPDATE 1 ***  Tribune…

The governor also held Democrats responsible for Thursday’s rating cut.

“Madigan’s majority owns this downgrade because they didn’t even attempt to pass a balanced budget, get our pension liability under control, and other changes that would put Illinois on better financial footing,” said Eleni Demertzis, a spokeswoman for Rauner. “The governor will continue working toward a truly balanced budget with changes to our system to grow jobs and provide real and lasting property tax relief.”

“Her comment is typical Rauner incompetence, and that’s too bad,” said Steve Brown, a spokesman for Madigan.

*** UPDATE 2 *** Pritzker campaign…

“A day after Bruce Rauner once again failed to produce a budget, the Illinois economy is already feeling the devastating impacts,” said JB Pritzker. “Under Bruce Rauner’s failed leadership, Illinois’ general obligation debt is now a step away from junk, the lowest ever for a U.S State. What we’re seeing is a state economy in shambles as state debt skyrockets and Bruce Rauner stumbles past 700 days without a budget. This will have long term ramifications for the economy of our state and it will take years to clean up Rauner’s mess. We need a governor who understands how to get results in Springfield and it is clear that Bruce Rauner will never be up to the job.”

*** UPDATE 3 *** Kelly Welsh, President, Civic Committee of The Commercial Club of Chicago…

“The failure of Illinois leaders to pass a budget has – as predicted – resulted in immediate action to downgrade state bonds. Once again, the State of Illinois debt backlog increases and taxpayers are on the hook for hundreds of millions of dollars in unnecessary debt payments, while schools and universities are put at risk and our communities suffer from deteriorating social services. With “Bringing Illinois Back,” the Civic Committee provided a sensible framework for resolving this fiscal crisis, which required change and compromise from our government leaders in Springfield. Their failure to act is inflicting serious damage on our state.”

*** UPDATE 4 *** Sen. Daniel Biss…

“Infuriating. Wall Street banks will now get even more of our tax dollars because Rauner and Madigan have failed again on the budget.”

* Bloomberg…

Illinois had its bond rating cut to a step above junk by S&P Global Ratings because of the long-running political stalemate over the budget that’s kept the state from dealing with its chronic deficits.

The company warned that the rating could be cut again, which would make Illinois the first state since at least 1970 with a below investment grade. S&P said debt backed by state appropriations, including those issued by its sports authority, were cut to BB+, one step into junk.

“The rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations, now approaching the start of a third fiscal year,” S&P analyst Gabriel Petek said in a statement. “The unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments.”

* Press release…

S&P Global Ratings lowered its rating on Illinois’ general obligation (GO) bonds to ‘BBB-’ from ‘BBB’. We also lowered our ratings to ‘BB+’ from ‘BBB-’ on the state’s appropriation debt, including bonds issued by the Illinois Sports Facility Authority and the Metropolitan Pier & Exposition Authority. Finally, we lowered to ‘BB-’ from ‘BB’ our ratings on the state’s moral obligation-backed debt. The ratings are on CreditWatch with negative implications.

“The rating actions largely reflect the severe deterioration of Illinois’ fiscal condition, a byproduct of its stalemated budget negotiations, now approaching the start of a third fiscal year,” said S&P Global Ratings credit analyst Gabriel Petek. “We placed the ratings on CreditWatch with negative implications because, in our view, the unrelenting political brinkmanship now poses a threat to the timely payment of the state’s core priority payments.”

We also believe that Illinois is now at risk of entering a negative credit spiral, where downgraded credit ratings would trigger contingent demands on state liquidity, further exacerbating its fiscal distress. Although CreditWatch typically has a 90-day time horizon, we anticipate resolving Illinois’ placement around the start of its 2018 fiscal year, which begins on July 1. If lawmakers fail to reach agreement on a budget with provisions designed to reduce the state’s structural deficit, it’s likely we will again lower the ratings. In our view, the ongoing budget impasse has increased the nonpayment risk associated with Illinois’ obligations that require a budget appropriation before they can be funded. We now view these payment obligations as having speculative-grade characteristics.

The ‘BBB-’ GO rating reflects our view of the state’s:

• Large and growing structural budget deficit now projected to top $7 billion (18% of expenditures) in fiscal 2018;
• Unpaid bills that have mushroomed to the equivalent of more than one-third of annual general funds’ expenditures;
• Elevated fixed costs and depleted budget reserves, the combination of which renders the state vulnerable to even more fiscal pressure when the economy enters a slowdown;
• Exposure to stepped-up interest costs related to variable-rate debt and swap termination payments tied to rating triggers;
• Distressed pension funding levels that will require substantial contribution increases in the coming years; and
• Inability to deliver adequate and timely funding for various important public services and institutions as a consequence of dysfunctional budget politics.

Partially offsetting these weaknesses is our view of:

• Well-established priority of payment for GO debt service established by statute;
• Ability to adjust certain cash disbursements to stabilize cash flow and to access substantial amounts of cash reserves on deposit in other funds for debt service, if needed, and for operations if authorized by statute;
• Deep and diverse economic base anchored by the Chicago metropolitan statistical area, though with a growth outlook that is expected to trail the nation’s through the next five years;
• Above-average income levels; and
• Substantial ability to adjust revenues, expenditures, and disbursements–albeit with a current lack of agreement on how to do so.

* Meanwhile…

S&P Global Ratings lowered to ‘AA-’ from ‘AAA’ its rating on Illinois’ Build Illinois sales tax revenue bonds. The rating is on CreditWatch with negative implications.

“The rating actions reflect our view that, with the negative pressure on the state’s creditworthiness intensifying, the risk of interference with the flow of revenues pledged to the repayment of its Build Illinois sales tax bonds has increased,” said S&P Global Ratings credit analyst Gabriel Petek. “The CreditWatch placement reflects the likelihood that we would lower the rating further if the state’s general obligation rating were downgraded again.”

Our views are balanced against the fact that debt service, at about $325 million in fiscal 2017 and declining thereafter, is equivalent to less than 10% of the state’s structural budget deficit in its general funds. We continue to believe the state will adhere to legal provisions that insulate debt service on the bonds from its budget impasse. However, we believe the risk of a disruption is somewhat greater with the state’s overall fiscal condition experiencing more acute levels of distress.