Fitch Drops Illinois to A from AA-Minus

CHICAGO — With a $7 billion borrowing spree planned in the next few months, Illinois’ credit took a double-notch blow today as Fitch Ratings this afternoon downgraded the state’s credit to A from AA-minus after a review of the fiscal 2010 budget that relies heavily on one-time measures such as borrowing.

The action affects $19.4 billion of general obligation bonds. Fitch downgraded the state last December to AA-minus and then in April placed the GO credit on negative watch as state lawmakers and Gov. Pat Quinn sought to resolve a budget impasse. Analysts said at the time that any additional ratings action would be driven primarily by how the state addressed its dwindling revenues and estimated $12 billion deficit.

The final $54 billion all-funds operating budget for fiscal 2010 signed by Quinn is heavily reliant on one-time maneuvers, including the issuance of $3.4 billion of debt to cover most of the state’s $4 billion payment owed to its pension systems. The budget pushes repayment of about $3 billion in bills into the next fiscal year.

“The downgrade reflects the significant scope of the budgetary problem and the failure of the state to enact a budget that fully addresses its current spending needs and its large structural budget deficit,” analysts wrote. “The enacted budget relies heavily on non-recurring revenues, particularly the use of debt to finance current operations, which will contribute to continued difficulty in structuring a balanced budget in the future.”

Moody’s Investors Service lowered Illinois’ credit one notch in April to A1 and then earlier this month placed it along with $2.1 billion of A1-rated sales tax backed Build Illinois debt, and $2.26 billion of debt issued by the Metropolitan Pier and Exposition Authority on its watch list for a possible downgrade just as lawmakers were voting on the new budget. Standard & Poor’s downgraded the state to AA-minus in March.

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