Illinois Downgraded by Moody's as State Budget Crisis Escalates

  • Moody's maintains a negative outlook on the state's debt
  • Illinois was already the worst-rated state in the nation

Illinois, already the worst-rated state in the nation, was cut to three steps above junk by Moody’s Investors Service as its budget stalemate drags on into a fourth month.

The one-level downgrade to Baa1 from A3 affects about $26.8 billion of general-obligation bonds. Moody’s also lowered the state’s sales-tax securities to Baa1 from A3, and its appropriation bonds to Baa2, two steps above speculative grade. Moody’s has a negative outlook on the debt.

“The downgrades reflect weakening of the state’s financial position during 2015 and our expectation that an ongoing budget stalemate will lead to further deterioration,” analysts Ted Hampton and Nicholas Samuels wrote in the Thursday report.

The nation’s fifth-most-populous state is grappling with about $7 billion of unpaid bills as Republican Governor Bruce Rauner and the Democrat-controlled legislature have failed to agree on a spending plan for the year that started July 1. The downgrade brings Moody’s in line with Fitch Ratings, which lowered the state to BBB+ on Oct. 19 and follows multiple cuts to credits in Illinois, including the Chicago Board of Education, which is relying on state aid to balance its budget.